Steven H. Johnson, Director
Common Sense on Social Security
For the past three years, Common Sense on Social
Security has been sponsored by the Collaborative Democracy Project. As an expression of our collaborative democracy
mission, we have sought to provide both greater fairness and greater depth than other sources provide, and to make
recommendations based on tough-minded analysis of the issue as a whole.
As the Social Security issue has so many moving parts, this is not an easy matter. It's no wonder American citizens
haven't found it easy to wrap their minds around the issue. Even the experts make errors in their assessment of what's
awry and what's needed.
We are proud of the work we have done. Our 1998 analysis of
stock market returns suggested that
the stock market had well overshot any price level that would be sustainable in the long run. Experience since then
has borne out the analysis we made. The Dow hit 10000, rose to 11000, sank back, flattened out, dipped, recovered,
and has fluctuated in the 9000 to 11000 range for the past two years.
The Wall Street Journal, in its special section celebrating the Dow 10000 milestone, acknowledged that dividend yields
had sunk to a third of their historic average - quite an important factor in our analysis of future stock market
returns. As the S&P 500's famed Seven Percent Real Returns owed two-thirds of its value to reinvested dividends,
only one-third of its value to capital appreciation, the collapse of the dividend yield ratio portended much weaker
long-term earnings for stock index funds. We'd called this in 1998.
Weaknesses in the Pro-PRA Case. We were among the first to document
the full range of leak points likely to affect Personal Retirement Accounts.
Post-retirement earnings will weaken. The need to guarantee annuity payments will force retirees' PRA funds into all-bond
portfolios - not a weakness that would affect the Trust Fund, were the Trust Fund allowed to maintain 50/50 stock/bond
portfolios.
Pre-retirement adjustments in PRA portfolios might well be made also, thinning the stock/bond ratio, to cushion
aging employees from the risk of a stock market downturn just as they retire, but also lowering overall PRA returns.
Also not a Trust Fund concern.
Inheritance Leakage. Another point of PRA vulnerability with no effect on the Trust Fund.
Management Fees. An issue that would also affect the Trust Fund, but not as much as it will PRA's.
"Coordination leakage" - in the past, we've called it "incentive leakage" - the likelihood that a Feldstein-like formula might prevent
Social Security from taking full advantage of the annuity cash flow from PRA's. (Feldstein has suggested that Social Security benefits be reduced by seventy-five cents for each PRA annuity dollar
received by a retiree. This reduces Social Security obligations somewhat, obviously, but there's still 25 cents of each
annuity dollar that's of no use to Social Security in reducing its benefit payments to retirees.) Not a Trust Fund problem.
And "Policy Leakage," or "political leakage," the risk that Congress will allow PRA savings to be diverted to non-
retirement uses by families facing medical crises or even college tuition cash crunches. Another PRA problem not shared
by the Trust Fund.
Ceteris Paribus, we made it clear that the Trust Fund's earning power as an investment vehicle would be substantially
stronger than the earning power of a PRA program. Supporters of Personal Retirement Accounts have yet to grapple properly
with these issues, but they must be resolved before critical reform decisions can be made intelligently.
Weaknesses in the Anti-PRA Case. At the same time, we've been
equally skeptical of those who've argued against PRA's. Liberal foes of PRA's have argued that they're too
risky, and haven't acknowledged that the personal risks can be eliminated by coordinating PRA benefits and Social
Security benefits. The same critics have charged that management fees will inevitably eat away at PRA savings, no
matter what, without acknowledging the likelihood that, first of all, management fees on index fund investments are much lower
than normal mutual fund management fees, and, second, that Social Security's massive bargaining power can also work to
the advantage of PRA owners as well.
We've been skeptical of the claims made by some that there is no crisis. Population growth rates have slowed dramatically in
industrialized countries. Longevity continues to rise. The "Population Pyramid" of yesteryear, as the Concord Coalition
points out, is turning into the "Population Column" of tomorrow, with almost as many people in post-retirement age groups
as there are in pre-retirement age groups. We worry that the "no crisis - no action needed" argument sends Social Security
naked into the future, bereft of the permanent capital resources that could guarantee its long-run solvency.
At the same time, we've been skeptical of the argument made by other liberals that it shouldn't be difficult to turn
the Trust Fund into an investment vehicle, simply by allowing it to invest a portion of its portfolio in securities and
appointing a more independent, more pinstriped Board of Trustees. It's not that easy. The Trust Fund needs to be rechartered.
Social Security needs to be removed from the Unified Federal Budget. And a more neutral Board of Trustees isn't an
an adequate shield against the temptations that will arise once a robustly funded Trust Fund one day
ends up owning, potentially, a quarter of the entire stock market.
A Creative Recommendation. We've been the first to offer an out.
Do both. Use the Trust Fund as an investment vehicle, because it'll be
substantially more efficient, economically, than PRA's. Create a PRA system at the same time, because only with a PRA
system in hand does it become possible to safely decentralize the control of the stock assets owned by the Trust Fund.
Trust Fund assets ought to be farmed out among hundreds of fund managers, the same firms that handle employee PRA's,
and the job of selecting them belongs to the 150 million employed Americans paying payroll taxes. One at a time. With each PRA owner making one 150 millionth
of the total Trust Fund asset allocation decision.
Yes, we're proud of the conceptual work we've done so far. But the real world problem still hasn't been solved.
It's time for us to redefine ourselves, just a bit, and take the contribution we've capable of making to the next level. There's
a broad need for greater collaboration, and, within that broader scope, there's a specific need for a
more balanced analytic approach. It's a large playing field,
and within the overall arena, we see a unique and vital specialty role that we can fill. That's where we're headed.
But first, a few words to set the stage.
Partisan Gridlock. Almost anyone who's followed the Social Security reform debate has commented on
how it isn't getting anywhere.
Republicans are stuck on their positions, Democrats are stuck on theirs, both sides are maneuvering for political
advantage, and not much is happening. The Pew Charitable Trusts funded a multi-million dollar dialogue effort three and
a half years ago. It generated considerable public involvement, but that wasn't enought to break the Gordian knot.
Social Security seems like such a common ground issue. Why is the debate still stuck?
Collaboration - A Four-Layered Opportunity. What's been missing, in part, is a better analysis of what it
takes to resolve the Social Security issue through
collaboration. This isn't a single ball of wax. It's a layered problem. If the medicine of collaboration is to work,
it needs to be applied differently to each of the four layers.
Elected officials have complex responsibilities, and any common ground facilitation that's meant to serve their needs
will be unique both in design and delivery. There are few models to go on. Connecticut's state legislature effectively
used a collaborative model, a few years back, to design and pass a massive capital upgrade program for the University of
Connecticut. How many similar examples can one point to in the legislative arena? Not many.
But the House, at least, has dipped its toe in the waters of collaboration. I served as one of the facilitators at
the first Bipartisan Congressional Retreat, in 1997. Move our elected officials away from Washington, put them in a retreat
center with their spouses by their sides, and they quickly discover the value of face-to-face conversation without
regard for party lines and labels. I'm not saying the nation's legislators aren't up to it, not at all; I'm just
making the point that they don't have nearly as much experience as some other sectors of our society in the
arts of win-win problem-solving.
Large institutional players make up a second layer of critical stakeholders. Collaboration isn't their strong suit
either. They justify their existence by duking it out with their foes in an endless series of Beltway lobbying and PR skirmishes,
battles, and wars. Nonetheless, all such stakeholders bring valid points of view to the table. Each has criteria for measuring the
pluses and minuses of any proposed settlement; it's hard to imagine any proposal making it all the way into legislation
unless the legitimate concerns of the institutional stakeholders have been properly addressed.
The universe of faciliators skilled in working with contentious stakeholders is growing. The keys to success are
becoming clearer. Bring together the right sponsors. Add skilled facilitators. Convene a complete set of
stakeholders around the table. Lay down appropriate rules of behavior, "soft on people, hard on issues", as the
Fisher-Ury guide "Getting To Yes" reminds us. Apply these approaches properly, and it's not beyond imagining that
even the largest institutional stakeholders could find their way to a common ground understanding on Social Security reform.
A third layer, of course, is the general public. Americans Discuss Social Security worked
vigorously with the American public, and engaged grassroots citizens in the dialogue at many locations across our land.
Again, in bringing the public together into dialogue, intelligent design and skilled facilitation are critical. How is
the question framed? What evidence is made available to discussants? What's the outcome they're seeking? Combine good
publicity, good design, and high energy, and the public responds appreciatively.
Layer Four - Subject Matter Experts. And there's a fourth layer
- the subject matter experts - the economists, gerontologists, actuaries, and other specialists who track the technicalities
of Social Security benefits and Social Security financing.
Subject Matter Experts, occasionally referred to as SME's (pronounced "Smee") include
the Cato-Heritage-American Enterprise experts, the Brookings-CBPP experts, and many others. Arrayed, for the most part,
in two camps of warring partisans.
Imagine, for the moment, an above-the-fray sponsor with the clout to bring the SME's together and draw them into joint
process meant to produce a win-win solution for Social Security. Would it work? At present, you'd have to give high odds are that any such effort
would founder. The experts are so far apart in how they frame the issue, even the most skilled facilitator
might well find it impossible to close the gap. Too much right, too much left, not enough center. Too many empty seats
at the table.
No Common Ground SME's. What's missing is a larger array
of specialists who dig deeply into public issues from a common ground perspective.
At Common Sense on Social Security, we've taken on this issue, as best we can, from a common ground perspective. And
we believe we've broken important new ground. But why are we so alone? Why aren't there dozens of groups just like us,
arguing the centrist case in much the same way we are?
This isn't a hard question to answer, really. Money is one key factor. There's a river of money available for
subject matter experts prepared to argue issues from partisan perspectives. And a trickle for the bipartisan world.
Skills are another missing ingredient. MBA-trained consultants often have stronger experience than Ph.D.-trained
analysts in conducting and shaping the look-from-all-angles analysis so important in helping powerful stakeholders
come together in common ground agreement, but MBA-trained consultants with McKinsey - Booz Allen - Bain level
experience are in very short supply in the public policy arena. Ph.D. economists may have strong analytic skills
in their areas of expertise, but if they've never participated in top-flight consulting case teams, they lack an entire
set of skills that are second nature to their consulting brethren from the corporate sector. It's unfortunate that so
few first-rate consultants from blue chip firms elect to make new careers for themselves in the public sector.
It's the nation's loss.
Vision and values are the final missing ingredient. The nation has so little experience applying common ground methods
to public policy that it's difficult to visualize, even, what that could mean. Where's the value system that
supports the use of collaborative methods to settle an issue like Social Security?
How We're Reconfiguring Ourselves. The Collaborative Democracy Project is now in a process of reconfiguring
itself to address this need directly. Within the next few months, we will be operating under a new name, simcivic.org. We will focus specifically on the need for
subject matter expertise that's informed by a centrist, all-sides-need-to-be-heard, objective, evidence-based value
system. Our democracy's capacity for collaborative problem-solving is weak at all the levels mentioned above - elected officials, stakeholders,
subject matter experts, the general public. simcivic.org will focus on creating and delivering a new type of subject
matter expertise, aimed at strengthening the SME layer's capacity for supporting collaborative problem-solving.
The Social Security Solvency Simulator is our first step down this path. It's meant to be useful to all the players
in this debate - the partisans on the left, the partisans on the right, ordinary citizens, economics professors,
undergraduates and graduate students, reporters and journalists, elected officials, institutional stakeholders of all varieties.
The Simulator is also meant to symbolize a simple principle. Once fair and evidence-based tools are available, tools
that honor all the voices in the debate, it will be easier to turn the public conversation toward win-win problem-solving.
And it's meant to symbolize, as well, a long-range dream. Why not put together policy simulation tools that are serious,
fair, and also fun to use? Not as entertaining as an arcade videogame, perhaps, but still with a game-like feel?
In years to come, today's Social Security Solvency Simulator may one day seem as primitive as Atari's original Pong game.
The design of the new simcivic.org website will have a very different look from this one. In design and delivery, it will
also share the spirit of simulation. Imagine the conversations you might hear, imagine the flow of flip-chart notes you'd
find on the wall, if you were witnessing a well-facilitated problem-solving session among all the many voices in the Social
Security reform debate. We aspire to give our new simcivic.org website that kind of flow, that kind of look.
The goal is to give users a careful, all-sided, step by step view of the reform challenge. To introduce the voices
in the debate. To set forth their perspectives. To note their proposed solutions. To glean from their arguments the
key concerns they have, and to register those concerns as criteria by which the validity of any proposed solution
should be measured. To distill, out of the debate, the key strategic options. To weigh each of the proposed options
against the criteria list.
To crystallize, for the interested public, the substantive choices that have the most merit, and show where each
choice scores well, where each choice has limitations. To simulate and exemplify, in other words, the argument, discussion,
and negotiation flow of a vigorously-argued win-win dialogue. Yes, it's a design challenge; yes, it's also an empty niche
that needs to be filled.
Our speed in achieving this goal depends in part, it must be noted, on the success we have in assembling the proper
resources. It also depends on the suggestions we receive from our users. The more interactive this process, we suspect,
the more vital the final result. In the end, we are confident in our vision, and excited about the prospect of
creating a website that adds a different voice to the public dialogue.
Future Possibilities. Social Security is not the only issue that
simcivic.org expects to tackle. Once we've rounded out our Social Security framework, we will add a conceptual overview
of our collaborative democracy vision. We expect simcivic.org to participate in multi-site dialogues on how best to apply a
spirit of "Madisonian seriousness" to the search for a more collaborative style of public issue problem-solving.
And we will, in good time, use the same templates and methods we've hammered out on the Social Security issue to
tackle additional issues that could benefit from the same approach. It's too early to say what those might be,
but Social Security is not the only issue that would benefit from fact-based analysis, from the development
of objective, all-sided simulation tools.
Today's Priorities. As of today, of course, the immediate next steps are well defined.
Finish the Solvency Simulator. Develop the new website. Show, by example, the fresh
possibilities that emerge when new tools are added to the public debate.