Privatization: Too Much Risk For Senior Citizens?

Privatization: Too Much Risk For Senior Citizens?

Imagine a world where the elderly are impoverished, living on the streets, homeless, starving and sick. This is the future of America's elderly if Social Security remains on its current track. There is no doubt that reform is needed, but is privatization the right answer? In the following pages, I will attempt to summarize the pros and cons of Social Security privatization, as well as explain which view really makes sense for our elderly.

In Michael Tanner's essay Saving Social Security is Not Enough, he argues in favor of private accounts mostly on the basis of fairness and equality to those receiving the benefits. According to Tanner, Social Security is failing, and will continue to fail, as an anti-poverty and retirement program unless a change can be made yielding the best possible return on a senior's investment. He argues that there is strong evidence that, "Social Security discourages savings" (p. 163), therefore is failing to prevent poverty. To Tanner, the program is also failing as a retirement program because without it, the elderly would be more willing to save and plan for their future. The most logical solution, as stated in the essay, is a new system that is intergenerational. According to the Tanner, although every senior is eligible for the program at the same time, there is a large difference in the levels of benefits one might receive. Seniors who live longer lives will ultimately reap more benefits than that of a senior who dies early after entering into the program, although both had been paying for the program from birth. Thus, the current system is unfair. A new program, based on private accounts, is the only logical step to ensure fairness among those who are retired. If Social Security was privatized, according to Tanner, not only would it yield the highest possible return on an individual's investment, but also the private account will be inheritable by one's kin upon death. Therefore, the issue of fairness is resolved by privatization by making sure that all of one's benefits will not go to waste.

In the eyes of Catherine Hill, in her essay Privatizing Social Security Is Bad, Particularly for Women, she takes the less radical approach to solving the Social Security "crisis." Arguing that privatization is too drastic of a step against the failing system, Hill gives the reader examples of three "costs" to the public by privatization. The first cost that the author mentions is the significant transition cost by switching to a private system. According to Hill, the costs could last as long as, "40-70 years" by switching from a centralized system to one of 150 million individual accounts (p. 175). The second direct cost that the public will undoubtedly face by privatization is the increased administrative costs of privatization. According to the author, if we were to switch to a privatized system, the costs of operating 150 million individual accounts would be much more significant than operating one single large centralized system. Finally, the third potential