The Political Economy of Pension Reform
Edited by Martin Rein and Winfried Schmähl
Chapter 7: Individual Accounts and the Continuing Debate over Social Security Reform in the United States
Barry L. Friedman The United States has taken another step in the debate over social security reform. The president’s Commission to Strengthen Social Security submitted its ﬁnal report in December 2001. This commission clearly favours individual accounts: all three of its alternative plans include them. In the debate over reform advocates of the current system have argued that ‘minor tinkering’ would be suﬃcient to solve its problems without individual accounts. In contrast, the commission believes that the current system has structural problems and that these need structural reforms. The commission probably made a better eﬀort at addressing the criticisms of individual accounts in its design plans than all the numerous previous proposals. It sought to create individual accounts that would have a good chance of making retirees better oﬀ. There is potential pain in its recommendations, but it is mostly not from the individual accounts. On the other hand, the timing of the commission was unlucky. Its report came out in the midst of a prolonged downturn in ﬁnancial markets. Moreover, the report was written in a style that did not clearly set out the accomplishments of its recommendations. Since the report came out, it has received barely any attention, while critics have been vocal in criticizing ‘privatization’, the somewhat inaccurate term that has come to be used for individual accounts. While the debate over social security reform has gone unresolved for years, the private sector pension system in the USA has been moving ahead with its own...
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