The privatization front has been quiet -- perhaps too quiet. The public is pessimistic about the president's plan, and congressional leaders are reportedly looking for an exit strategy. Despite Bush's efforts to keep up his unimpressive momentum on the subject, in a new poll of domestic priorities, Social Security ties for fourth with the deficit, after health care, education, and jobs.

Still, the impetus to "do something" might very well lead to a regressive, midnight vote, and so Privateers remain restless, scouring the headlines for anything that could possibly be tied in to their agenda.

MYTH: San Diego's pension woes prove need to privatize Social Security

Although the San Diego pension fund and Social Security are different in some ways, there are important parallels. Both systems are underfunded. The San Diego pension fund's $1.4 billion in underfunding rises to $2 billion if health-care costs are included. Social Security is underfunded over 75 years to the tune of $25.2 trillion in today's dollars.

In both cases the care of the program is entrusted not to the beneficiaries but to a third party, in the case of the San Diego pension fund a board of trustees, and in the case of Social Security, Congress. Such a system is ripe for abuse because the third party is spending other people's money, and we are never as careful with other people's money as we are with our own. With Social Security, Congress spends the annual Social Security surplus on many projects of dubious value -- witness the recent Highway Robbery Bill. It also uses the Social Security surplus to mask the true deficit of the federal budget, and then creates accounting gimmicks like the Social Security trust fund to fool the public into believing that its retirement money is being well cared for. (David Hogberg, "Accounting for San Diego," American Spectator, 6/10/05)

REALITY

First off -- does anybody have any idea where Mr. Hogberg got the number $25.2 trillion for how much Social Security "is underfunded over 75 years," if not from out of his rear end? We've seen some pretty outrageous numbers over the last few months -- especially using "infinite horizon" projections, which top out at half his number -- but this one has got to be the record. Typically, Privateers stick to the $4 trillion number cited by the Social Security Trustees' Report in its extremely pessimistic 75-year projection. (As we've discussed before, the Trustees' predictions for what the economy will look like in the future are pretty bleak -- as soon as this year, for example, we're told our productivity will drop from 4% to 2%, from which it'll stumble down to 1.8%, where it will stay permanently. It will be truly difficult to achieve such lousy growth.) Even dishonestly adding in the current size of the trust fund doesn't nearly approach his absurd figure. Seriously, if you have any clues, please send them in.

To his point -- can San Diego pension and Social Security be compared? Well, uh, they're both pension programs, and they're both operated by governments of some kind, for various people... Beyond that, it's a little shaky. San Diego's pension faces a billion-and-a-half deficit this year, whereas Social Security is running an enormous surplus, and will do so for at least 12 more years, most likely for much longer time. On the one hand, deficit. On the other, surplus.

However, Hogberg wants us to think of Social Security as in dire straits -- so let's indulge him. Assuming, for the sake of argument, the pessimistic Trustees' projection, the 75-year shortfall of Social Security would amount to 1.89% the entire system's revenue. According to the City Attorney's office, which is investigating San Diego's pension problem, the city has a 33% deficit this year. San Diego is unable to pay one third of today's obligations -- that sounds like it could be called a "crisis." A hypothetical 1.89% shortfall that won't manifest until after the year 2041 -- not so much. Again, Social Security looks pretty good in this comparison.

After that, his comparison doesn't make much sense. According to him, San Diego's pension fund has a "board of trustees," while Social Security is left with just Congress. In fact, there is a little group of folks called the Social Security Trustees. Perhaps if Hogberg had known about them, he would have been able to find a slightly more realistic number than $25.2 trillion.

But he wants to make the point that, because Congress is made up of very suspicious characters (mostly Republicans, as it happens), they cannot be trusted to manage Social Security. According to him, this "third party" (who is the second party?) is spending "other people's money" on various things, no doubt similar to the corruption and fraud in San Diego, where

Six current and former trustees of the board that oversees the city's battered pension fund were charged Tuesday with felony conflict-of-interest violations for votes from which they personally profited, the district attorney's office said. [...]

The San Diego City Employees Retirement System deficit has swelled to $1.37 billion, largely a result of decisions in 1996 and 2002 that allowed San Diego to escape payments to the retirement fund and -- at the same time -- enhance pension benefits. (AP, 5/18/05)

(And according to the City Attorney, trustees illegally gave themselves large pension hikes.)

However, the Social Security version of this outright corruption is apparently the notion that Congress passes an imbalanced budget, and borrows the deficit. One of the federal government's creditors, along with China and Japan, is the Social Security trust fund. As we've had to remind Privateers far too many times, the Treasury bonds held by the Social Security trust fund, far from being an "accounting gimmick," are every bit as valid as those held by foreign banks. Congress and the president may engage in sloppy terminology in budget documents (the so-called unified budget), but the real national debt is there for anyone to see.

A comparison Hogberg left out is that San Diego's pension fund, like typical employer pensions, is invested in the stock market. As USA Today reported, "When the stock market plunged, investment income plunged, too. The city's liability grew as a pension plan that for years had been 100% funded shrank to less than 70% funded. Wall Street gets nervous when the level slips below 90%." Social Security, by contrast, keeps its trust fund in U.S. bonds.

The fact is, surplus-ridden Social Security is in remarkably good shape -- whether you compare it to a corrupted city pension or a deficit-spending Republican Congress. The program is running a surplus, it holds trillions in assets, and it will most likely survive even the worst Bush economy.

And by the looks of shrinking and mismanged employer pensions, American workers are going to need it. That's the lesson from San Diego.