Paul O'Neill and Social Security

Today's New York Times contains an op-ed by former Treasury Secretary Paul O'Neill on Social Security reform, "Who Wants to Be a Millionaire?" In brief, he proposes a debt-financed transition for those younger than their mid-thirties to save individually, in broad-based, low-cost index funds, on a trajectory that would get them $1 million to be annuitized at retirement. He suggests that this transition would require about $1 trillion in temporary financing.



This proposal reminds me of the "recognition bond" approach that was implemented in Chile and has been suggested elsewhere--stop the existing system for new entrants, phasing out the existing system as older cohorts pass on, while covering the transition costs with debt to be repaid out of lower (or, here, the absence of) traditional benefits in future years.



To me, the most striking statement in the op-ed is:

As I write this I can imagine the chorus of pundits saying, "This isn't politically possible." Why not? Because it is too complicated for people to understand? Or because the only way to approach change in our society is through small incremental steps, like the president's tepid notion of a limited, voluntary diversion of Social Security taxes into small private accounts?

This is interesting in its characterization of the President's notion (a good word for it) as tepid. Which of the words that follow make it tepid--limited, voluntary, diversion, or small? Probably all but diversion, which O'Neill's proposal shares with the President's notion of reform.



The more interesting item on Social Security reform in the New York Times is the magazine's cover story, "A Question of Numbers," by Roger Lowenstein. More on that in an upcoming post.



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