Critics of Social Security privatization are saying that if the earnings
Americans now put into Social Security are invested in the economy, they may
suffer the same dire fate as the private pension accounts that were decimated by
the Enron debacle.
Their faulty assumption is that the personal retirement accounts being
recommended by the President's Commission to Strengthen Social Security operate
in the same way-and are as vulnerable to the whims of the market-as the Enron
Fortunately, this is not the case.
No serious Social Security reform plan that allows workers to privately
invest a portion of their payroll tax would let those workers invest so heavily
in a single stock. Indeed, the plans suggested by the President's Commission,
those legislative proposals currently making their way through Congress, and the
plans being proposed by various think tanks, all envision broadly diversified
What sank the Enron pension plans wasn't the fact that they were invested in
the private sector-it was that they were invested almost completely in a single
stock that went under. This is always a bad idea. Privatized Social Security
pension plans, on the other hand, wouldn't go under in this way for the same
reason someone with a diversified stock portfolio doesn't lose their money if a
single stock drops off the board. They're still heavily invested in other stocks
that are thriving.
If opponents of privatization truly believe that the Enron debacle has shown
private investing to be too risky, they should be advising Americans to abandon
their 401(k)s and other investments. Of course, they are doing nothing so
In fact, Senate Majority Leader Tom Daschle, D-S.D., recently endorsed
private investment accounts as an "add-on" to the current Social
Security system. This is because even opponents of privatization understand that
private capital markets are extremely safe long-term investments.
Trying to drag Enron into the Social Security debate shows just how few
arguments opponents of privatization really have.
Michael Tanner directs research on new, market-based approaches to health,
welfare, and other "entitlements," such as Social Security for the
Cato Institute, a Washington D.C.-based research and education institute.