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Too Soon to Act on Social Security Reform?

Must Social Security be reformed as soon as possible? Experts disagreed at a panel discussion convened by the Global Finance Roundtable at Gleacher Center July 14.

Projecting a Social Security funding shortfall of $11.1 trillion, Mark J. Warshawsky, assistant secretary of economic policy in the U.S. Treasury Department proclaimed the need for responsible reform now. “Delaying reform only reduces the options for fairly distributing the benefits of social security across generations,” he said.

He advocated Personal Retirement Accounts (PRAs) as the best option, saying they provide opportunities for individual control and ownership, allow people to bequest value, and expand opportunities for participation in private investment markets. Addressing the impact the administration’s proposal would have on a larger financial picture, Warshawsky said, “fairness is the goal and increased national savings is the implication, not the other way around.”

Randall Kroszner, professor of economics, backed the points raised by Warshawsky, but Robert Aliber, professor emeritus of international economics and finance, dissented. He advised wariness of the administration’s rhetoric and arithmetic saying it is overestimating the rate of return to passive stockholders and the amount of equity available for investment.

Aliber said the first priority for Social Security is to address the insolvency issue. He called for greater consideration of the effects that might occur with increasing the retirement age, raising the cap from $90,000 to $120,000 or introducing progressive wage and price indexes. “There are a number of relatively easy ways, straightforward ways, to solve the solvency problem without being led, or misled down this road about Personal Retirement Accounts,” Aliber said.

 Jenn Q. Goddu