Social Security Reform and the Prisoner's Dilemma

Posted by: Good Samaritan
on March 23, 2005 @ 11:40 AM EST

Whom to believe? Jacob Weisberg at Slate thinks that "George W. Bush's plan to remake the Social Security system is kaput. This is not a value judgment. It's a statement of political fact." Yet Ken Mehlman over at the Republican National Committee is feeling just fine-- or making a show of it at any rate.

True, Slate is an "independent" voice, the RNC is not. But Weisberg expects us to take his word for it, whereas Mehlman gives us facts. MORE...

Like these:

According to the recent ABC News/Washington Post poll, 72% of Americans think the Social Security system is headed down the road to a crisis or will require major changes in order to head of a crisis. Even seniors believe that changes are necessary to Social Security: a recent Ayres McHenry poll found 66% of Americans over age 55 believe that Social Security needs changes. A recent Gallup poll even found a majority of Americans (51%) believe that it is necessary for Congress to pass legislation to make changes to Social Security this year... According to a recent ABC News/Washington Post poll, fifty-six percent (56%) of Americans support allowing workers to invest some of their Social Security contributions in the stock market, while 41% oppose such an idea. The number of Americans who support PRAs has increased by a net of 6% since last December, when 53% supported the plan and 44% opposed it. This is the highest level of support for PRAs since the Post first asked the question in 2000.

One reason I trust Mehlman here is that while journalists keep telling us that Social Security is sinking in the polls, the pollsters themselves beg to differ. Here John Zogby writes about how Social Security reform could drive a Republican realignment. Here Rasmussen's headline is "Just 28% Favor Leaving Social Security Unchanged" and "Plurality Favors Personal Accounts Over the Status Quo." It's not that Rasmussen got different results. He just does a better job of bringing the most salient results into the headline.

Weisberg writes that:

Bush knows he is in trouble and is laying the groundwork to try to co-opt the more popular position of his opponents.

But the position of Bush's opponents isn't more popular. On the contrary.

So why does Social Security reform seem to be sinking? Well, both parties face a prisoner's dilemma problem on this issue, and the Democrats are solving it better.

Each party benefits as a whole from standing united. It advances its agenda and looks strong and influential. But each legislator individually benefits by moving towards the center, picking up swing voters, and increasing his or her chances of re-election. So there is a tendency for each legislator to compromise, and for the party as a whole to collapse towards the center.

If Lieberman, for example, makes a deal with Bush and supports private accounts, he'll pick up votes from independents and moderate Republicans, and (assuming he doesn't lose a primary) the left matters little, since it has nowhere else to go except to the Greens. Similarly, Republicans who break with the Bush plan will pick up (or avoid alienating) some swing voters, and the hard-core free-marketeers have nowhere else to go.

To solve this prisoner's dilemma, the parties have to create "enforcement" capability, mechanisms by which they can "punish" members who "defect." Democrats, for example, need to lynch Joe Lieberman. It helps that the trustfunder left provides the Democrats with so much of their money: Dem defectors can't tap into this stream of cash. It also helps to keep up the frenzy of Bush-hatred, to make any would-be compromisers as uncomfortable as possible. The Republicans aren't solving the prisoner's dilemma as well. Olympia Snowe is not the target of her party's anger the way Joe Lieberman is.

My advice to Bush: Drop the "everything is on the table" line, which confuses people and allows the Democrats to fuel the public's fears, and put forward a specific plan. Debate about reform in the abstract is of limited value. It's the details that determine which principles, and which people, are served by reform. (Imagine what would have happened if, instead of proposing to invade Iraq, Bush had said, "let's promote democracy in the Middle East; all options are on the table." Well, his approach to Social Security is a bit like that.)

Let the reform plan include raising the cap to $166,000, a la Lindsay Graham-- yes, I know it's a burden, but work with me here. Don't index the cap on Social Security payroll taxes, so that the cap raise amounts to a temporary tax increase. (I got this idea from George Will.) Incorporate Bob Bennett's idea of indexing high-end benefits to price and low-end benefits to wages. Then include "carve-out" private accounts of 2% or 4%. The upshot is a Social Security reform bill that is quite progressive. This will throw away some of Bush's popularity with supply-siders. But younger, poorer and minority voters will figure out that the Bush plan serves their interests.

Assuming Bush can get conservatives on board with this, one of two things would happen: (1) Republicans would support the plan but Democrats would maintain solidarity against it and filibuster it, or (2) some moderate Democrats would go along with the plan, and it would pass. If (1), Republicans could take their case to the electorate in 2006. If (2), those Democrats who voted for the plan would be marked as New Democrats, natural leaders because they would become, overnight, the most electable members of their party. Either way, America wins, the trustfunder left loses.

Is it worth the tax increase? I think so. Given the deficits that we're facing right now, a tax increase seems inevitable. Republicans might as well do it on their own terms, expanding ownership and repairing the country's broken retirement system in the process. Social Security reform would channel a lot of private savings into the stock market and improve the way the nation's capital markets function; as with welfare reform, the real payoff is not macroeconomic but microeconomic, an improvement in the incentives to work, and to save and invest, respectively. And having conceded one tax increase, the Republicans can put their campaign to make the Bush tax cuts permanent into overdrive.

[UPDATE: This from Mont Kondracke:

Various officials claim they've talked to Democrats who are willing to deal with the administration, even on personal accounts, if Bush can change the political climate in his favor to give them "air cover" to split from Democratic leaders.

That's what I figured.]

[UPDATE II: In the interests of full disclosure, (1) I work for a think tank which supports the ownership society and private accounts, (2) I'm 27, and so the proposal I mention would benefit me considerably. That said, the plan seems to me to be a good idea on the merits. But maybe if I made $130,000 a year instead of what I do (much less) I'd feel differently.

There's something to be said for everyone involved in this debate disclosing their own interest, first because everyone is actually affected, second because even if society is about more than what Richard Posner calls "preference aggregation," there is at least an element of preference aggregation involved, and we'll achieve preference aggregation more competently if people are open about their preferences.]

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