MISSOURI COMMENTARY: LESS THAN UNANIMOUS ON SOCIAL SECURITY

Although temporarily eclipsed by the Gingrich ethics situation, the other consequential Washington story this week was the much anticipated report on how to fix the Social Security system. The political edge of the report was blurred a bit since the 13 panel members couldn't agree on the remedies. Had everyone concurred on a single course of action, the president and the Congress could be bluntly asked: Do you agree or disagree? When will you take the action unanimously called for by the advisory panel? With a divergence of views, the pressure to proceed is less compelling.

What, if anything, did the panel agree on?

-- The Social Security fund has plenty of money now. Indeed, the fund will increase to about $2.8 trillion in 2018, but the avalanche of baby boomer retirees will take its toll and clean it out by 2029.

-- The system needs to be fixed, but the urgency of the situation varied, amongst the members, from something akin to a physical checkup with your family doctor to a prompt wheeling of the patient into the operating room.

-- The Consumer Price Index annual adjustment is exaggerated and should be reduced by the Bureau of Labor Statistics.

-- Some of the assets of the Social Security fund should or could be invested in common stocks.

Where the panel disagreed most vigorously was in how and by whom the stock investments should be made and what would happen if the stock investments went sour. It is over these fundamental issues that the panel divided most sharply.

With the stock market setting new highs each week and with an almost giddy atmosphere of an everlasting boom, it is tempting to conclude that the conservatively invested Social Security fund has been left behind on the Wall Street joy ride. But if Social Security contributions are invested in common stocks, what happens when the market goes down? Who protects against the loss?

-- Some of the members of the panel favor keeping Social Security pretty much as it is with possibly a limited portion of the funds to be invested in common stocks indexed to the market. The government would guarantee against any loss.

-- Another group goes further, proposing to allow 40 percent of the contributions to be invested in individual stock accounts to be held by the government. This scheme would allow for "constrained" investment choices by the individual. In a market downturn, the government, one can assume, would be compelled to protect against a reduction in benefits.

-- Other members would view a large chunk of Social Security as a gigantic 401(k) universe waiting to be born. Each individual will be his or her own investment decision-maker. With all of the benefits of up-side gain and all of the risks of downside loss.

This notion requires a higher degree of general investment sophistication than we can safely assume. It anticipates that millions of people will flock to bookstores for self-help advice on the world of equities. It conjures up the fantasy of the public gobbling up stockbroker tip sheets by the millions and sitting glued every Friday night to "Wall Street Week" for sage counsel on the next investment move. Half the workers in America have no retirement plan other than Social Security. Most Americans seldom, if ever, look at the financial section of a newspaper.

Social Security is the sacred icon of American politics. Alterations have to be made by consensus and in a manner that is fully understandable to the American people. The report of the special panel proves that we are on the verge of neither national consensus nor universal understanding.

The immediate negative aspect of the new report is that it will, without doubt, be used as an excuse to do nothing. A diffuse message does not sound a clear warning bell. Yet we know that changes made now in advance of the immediate crisis are cheaper, easier, and less painful. Changes made into the next century will be more disruptive.

We have waited until 1997 to move to avoid a Medicare bankruptcy in 2002. It will be a fiscal nightmare if we wait until the brink to do something about the inevitability of trouble lurking down the Social Security road.

~Tom Eagleton of St. Louis is a former U.S. senator from Missouri.