Introduction 

Social Security could be the government’s most important program.  It serves 50 million people, many of whom have few alternatives.  If a crisis erupts in the Social Security system, the impact of the crisis will be much more severe because Social Security serves an audience that does not adapt well to economic change.

The debate of Social Security reform has been reduced to a stand-still.  This paper is intended to serve as a departure from that standstill.  This paper introduces a completely new option in dealing with the crisis forming in Social Security. The discussion today is: how to pay for Social Security?  We want to change that discussion to: how do you fix Social Security?

This paper is unconventional.  Convention says that Social Security is efficient, and reform must be one of three things; higher taxes, lower benefits, or privatization.  My paper breaks with that convention.  My approach introduces improved economic efficiency to the system.  This approach will increase economic returns for all generations within the existing Social Security framework while reducing the risk inherent in the system.   While the paper introduces a new solution, the intent of the paper is to promote a discussion of Social Security reform. This paper is not intended to provide a final solution.

What Does Our Plan Fix

In part I, I focus on the economic inefficiencies in the system.  I argue that Social Security is economically inefficient, and these inefficiencies cost the system billions of dollars

·        The system does not attract money well

·        The system does not manage what resources it has well

·        The system does not distribute its resources effectively in light of the system’s goals.

How Does Our Plan Work

In part II, I outline an approach which will deal with two of these inefficiencies, saving the system billions of dollars and incorporating a safety valve against a systemic implosion.  The plan is called Spend Less, Make More.

·        The solution incorporates risk into the benefits equation such that we can lower the perceived risk across the entire platform.  Lower risk is a benefit increase.

·         In Spend Less, we examine ways to lower the nominal cost of benefits by increasing individual choice.  Today the benefits equation is linear: How much money do I get?  I would make the benefits equation multi-dimensional by offering people more alternatives. In this way, people choose what they want, and the system saves money in the process.

·         In Make More, we look at a way to increase the economic returns of the Trust Fund in a shared-risk relationship.  In effect, the Social Security Trust Fund partners with individuals who want more risk in their retirement planning.   Pricing enables the system to partner with workers who have the greatest risk tolerance.  So the Trust Fund captures higher returns while sharing the risk with a risk tolerant partner.

“Choice” in terms of Social Security has become synonymous with privatization.  Privatization rewrites Social Security rather than reforms it.   We want to increase the choices within the existing system such that workers can determine how to best meet their definition of security.  Basically our change will transform Social Security from a commodity product to a retirement tool.