This Week, July 29, 2001: Paul Krugman debates supply-sider Robert Bartley of the Wall Street Journal


ROBERTS: There's probably no issue more explosive than Social Security as most politicians know. And George Stephanopoulos gives us a sense of the struggle. George?

GEORGE STEPHANOPOULOS reporting: Good morning, Cokie. That's right, Cokie. This Tuesday the Bush commission met and issued a report which warned of the looming crisis in Social Security and laid the groundwork for President Bush's proposed private accounts. But they were met by Democratic protestors who said this report is just a scare tactic, and said that paying for the private accounts would actually make the Social Security system worse. To sort through the debate, I sat down with two experts who have been duking it out on this issue with two of the nation's leading newspapers: Robert Bartley of The Wall Street Journal and Paul Krugman of The New York Times. And I asked them to address the questions raised by the Bush commission. (VO) First, is there a crisis in Social Security?

Mr. ROBERT BARTLEY (The Wall Street Journal): We're not in a crisis yet, but if we don't address this problem, we will be. And suddenly the politicians are faced with these very un--unattractive choices of having big increases in taxes, or cutting the benefits to, or borrowing and shoving it over to the next generation. And if they do that in a moment of crisis, you know, who knows what they might do?

Mr. PAUL KRUGMAN (The New York Times): Any consistent accounting standard, choose the one you like, Social Security is sound for at least 30 years, possibly indefinitely. I think far enough along that--that the financial crisis is not what we--what we should be worried about.

STEPHANOPOULOS: (VO) What are the pros and cons of President Bush's proposal for private Social Security accounts?

Mr. BARTLEY: You own the money. You're not relying on any politician's promise.

Mr. KRUGMAN: People want control, you know, I can't argue with that except I think if you tell people your control comes at the expense of a lot more risks, people--you know, people also like a certain amount of safety net.

Mr. BARTLEY: You're going to get a better rate of return on your money than you are if you pay that in taxes.

Mr. KRUGMAN: It's true that, historically, stocks have earned more than bonds. It's also true that people have caught onto that, and stock prices are a lot higher relative to earnings than they used to be.

Mr. BARTLEY: If you have funds with real assets in them, it adds to national savings. And presumably then that get--money gets invested and you would have a--a faster growing economy. And by the time you got to 2038 or whatever, you would have more goods and services to share with retirees.

Mr. KRUGMAN: The issue about net saving, that's--that's just phoney accounting. After all, if you're taking money that would otherwise be being used to build up the trust fund, to--to pay off government debt or to invest on behalf of the Social Security administration, you say, 'OK. No, it's not going there, it's going to a private account.' Yeah, there's more saving over here matched by an equal amount less saving over there.

STEPHANOPOULOS: (VO) And what about the Democrat's plan to have the government invest Social Security funds in the stock market?

Mr. BARTLEY: I don't trust the politicians to leave their hands off that money, is the basic reason. You know, they would say, 'Well, OK. No tobacco stocks, no South African stocks, no investment in companies that don't have equal rights for gays,' and all sorts of social agendas would get attached to the--to those investments. And the result of that would be that the trustees of the system would not be able to invest it for the--for the--in the interests of the beneficiaries. They'd be investing it on political criteria.

Mr. KRUGMAN: We've got about $2 trillion in state pension funds out there in the markets now, not very politicized. There are rules you can set. I mean, you know, that you can--you--what you do is you create a Chinese wall, you set rules, maybe it's index investing. Do we need to tear apart the whole system, tear apart all of the guarantees that--all of the floor that puts under people's standard of living because we're worried about hypothetical political interference that there are easy ways to avoid? I mean, that seems to me to be, you know, quite a stretch.

STEPHANOPOULOS: (VO) Finally, what are the prospects for Social Security reform under President Bush?

Mr. BARTLEY: I think it's his--it's kind of his historical mission. It's number one, I think, in his--in his historical mission. If he can solve the Social Security problem, that will be a very big accomplishment for one presidency.

Mr. KRUGMAN: What we need to be talking about is how are we going to be running the system in the year 2020? We don't--we don't need to be worrying how we're going to pay for it in 2020, because it's actually--the--the problem of paying for it is even further out than that. I don't think that if I were a moderate Democrat or Republican, I would go along with any push to reform the system now.

STEPHANOPOULOS: And most members of Congress right now seem to be following Krugman's lead. There's no ground swell for action this year, and the Bush commission is--isn't even expected to report until later this fall. But as Cokie pointed out earlier, two prominent moderates, Jim Kolbe, a Republican of Arizona and Charles Stenholm, a Democrat of Texas, are preparing legislation which spells out how private accounts would work, and they detail the trade-offs: a lower guaranteed benefit, raising the retirement age that Bush, so far at least, has wanted to avoid. Sam?

DONALDSON: Thank you, George. And now it's our turn, where we give our strong opinions in our ROUNDTABLE and you can take them for whatever you think they're worth. And joining us is our ace White House correspondent Terry Moran...

Originally broadcast, 7.29.01