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CNN Live Sunday

What Needs to be Done to Save Social Security?

Aired September 09, 2001 - 17:21   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
STEPHEN FRAZIER, CNN ANCHOR: On the Washington agenda this week, Social Security. Although the bipartisan commission formed to plan reforms to Social Security was listening to experts not inside the Beltway but in San Diego Thursday, the members of the commission heard some widely divergent opinions about Social Security's future then.

We have two guests now to debate the issue. John Goodman is the founding president of the National Center for Policy Analysis. He joins us from Dallas. And Dean Baker is co-director of the Center for Economic and Policy Research. Mr. Baker is in our Washington bureau.

Gentlemen, welcome to you both, and thank you for joining us. Let me ask you, Mr. Goodman, about these fundamentally conflicting views that we heard presented in San Diego Thursday. Some people said, no change is needed at all; if you really think about it, a healthy economy, that will be enough to sustain Social Security. Other people think that the commission is going to go ahead anyway and perform -- and recommend dramatic reforms, including this idea of an individual private retirement account within Social Security.

JOHN GOODMAN, NATIONAL CENTER FOR POLICY ANALYSIS: Yes. We have been running Social Security the way some people run chain letters. We are spending all the money the minute it comes in the door, and we can't keep doing that. The system can't survive that way. And we need to begin to move toward a system where we are saving and investing. We need a funded system, instead of pay-as-you-go system.

FRAZIER: What do you mean by that when you say funded system?

GOODMAN: Well, by funded I mean you put money aside, you actually make real investments, so that when today's young people reach their retirement age, there are assets that can pay their benefits instead of looking around for taxpayers to pay taxes.

FRAZIER: Now, the big question is: Who makes those investments? Are you talking about a government program, the government investing in certain securities, or are you talking about individuals?

GOODMAN: Well, I would like to see the investments be made very conservatively, in a broad-based portfolio of assets. I like individual ownership, however. So, very conservative investments, but individuals own something so they have a property right in these assets. FRAZIER: Let's move in with Mr. Baker now. Mr. Baker, do you believe that that first statement we made is correct, that we have to change something, or is there a chance that Social Security actually could just stumble along as it has? It worked pretty well up to now.

DEAN BAKER, CENTER FOR ECONOMIC AND POLICY ANALYSIS: Well, that's exactly right, and it's more than just a chance. I mean, if we look at the government's numbers, the projections from the Social Security trustees, they show the program can pay every penny of benefits for 35 years, no changes whatsoever. It could always pay a larger benefit, adjusted for inflation than the current retirees receive.

Again, no changes whatsoever. Assuming slower growth than the country has ever seen, and contrary to what Mr. Goodman said, the program has assets. It has over $1 trillion in government bonds. I'd be very happy if I had $1 trillion in government bonds. So you know, we can debate whether you want to have individual accounts, but I think it's kind of irresponsible to scare people about the future of a program that really is very solid by any reasonable measure.

FRAZIER: Let me just ask you...

GOODMAN: That simply isn't true. That's just not true. That $1 trillion are IOUs the government has written to itself. The actual money was spent on other programs, it's not there.

FRAZIER: What about the future though? The basic math would seem to indicate that since there will be fewer workers contributing into Social Security and more retirees, that it would seem that there is going to be some difficulty in meeting its obligations.

(CROSSTALK)

BAKER: ... I did take that math into account. Well, you did just speak, sir.

I did take that math into account. We have been seeing rising ratios of retirees to workers. The good news is, we are living longer lives. That's why we've seen that over the last 40 years. We will continue to see that, and I hope we will see that, you know, for the indefinite future. And that is taken into account in the numbers I just gave you.

GOODMAN: The trustees do an annual report where they forecast what the future is going to be like, and when you add Social Security together with Medicare and other health care programs for the elderly, by the time today's college students retire we are going to need one- third of future workers' payroll to meet all obligations that are a part of current law.

We simply are not going to be able to collect that much money in taxes, and so we need to be saving and investing today.

FRAZIER: We're talking about 40, 45 years down the road from now? Is that your calculation? GOODMAN: That's right. That's correct.

BAKER: There are problems...

FRAZIER: Mr. Baker, you had a...?

BAKER: Yeah, well, I was just going to say, there are problems when you project out the health care cost, that's because we have a health care system that's broke and all of us are seeing rapid rises in the cost of our health care. If we don't fix that, that will create enormous problems certainly for government programs like Medicare and Medicaid. That is going to create enormous problems for all of us, just paying our health care bills. So yes, we have got to fix our health care system, but don't turn around and blame that on Social Security.

GOODMAN: Well, I've got news for you. It's all paid from the same payroll tax. They are both run like chain letters. There's no saving, there's no investing, and the combination of these programs for the elderly is going to bankrupt the country if we don't start making changes now.

FRAZIER: What would you say, though, Mr. Goodman, to critics who are concerned that this idea of individual accounts could strand an awful lot of unsophisticated investors? And I have to number myself among them, who would be counting on wonderful returns based on the stock market, as we saw up until about two years ago, but could instead see the kind of returns we are getting now, which is to say very little?

GOODMAN: Well, I favor reform where you are guaranteed that you cannot do worse than you would do under the current system, so you guarantee a minimal result to everyone. And then, I also am not in favor of individuals picking stocks and bonds. I would insist that individuals invest in broad portfolios managed by professional people, so that over 45 years they will get the broad return that the market as a whole pays.

FRAZIER: And do you believe then, Mr. Baker, that that is going to enrich us or enrich the managers, you know, the Wall Streeters?

BAKER: Well, the record shows that in countries that have gone the route of individual accounts, it's a huge windfall for the managers. You are talking about tens, hundreds of billions of dollars over the next two decades in administrative fees.

You simply can't make the sort of guarantee that Mr. Goodman wants. You know, I would love to guarantee you'd get high returns from stock market too, but you know, we can't do it. The government can't do it. And the fact is, the only projections that have been made of the stock market, given our projections for the economy, show that you won't get any better returns in the stock market than the government bonds that Social Security currently holds.

So, there's simply no fortune there, except for the people administering the accounts on Wall Street. FRAZIER: Well, let me say this: We are just priming the pump here and we have at least one political season worth of debate about this issue, so I'm grateful for you both for joining us to start thing off here, as the bipartisan commission launches its series of hearings, but I'm sure we haven't heard the last of this, and we will be turning to you in the future as this debate progresses. Thank you both. John Goodman, Dean Baker.

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