Will the public ever become engaged in the Social Security issue? It ought to become one of the biggest issues of the new year. But will it involve the public? The 1996 presidential campaign was nearly devoid of any mention. That's a scandal.
There is no better place to discuss and debate an issue of such immense national significance. Social Security is the biggest pension program in the country.
Yet, there has been no serious effort to generate public discussion of the future of Social Security, or to measure the public's attitudes toward possible changes outside of some polling surveys. The most important measure of those attitudes - at the election polls - hasn't been used. Whatever proposal for reform might advance this year or next will have no direct mandate from the public. Neither presidential candidate, nor congressional platform made Social Security a major issue. Public policymaking requires contributions from the public. The public has so far been left out of the discussion about whether Social Security needs repair, and if so, what changes should be made and how fast.
President Clinton and the members of Congress running for election dropped out of the debate, leaving an advisory council to come up with proposals for solutions to the system's looming financial crisis. The council offered three proposals, but the political leaders declined to debate them during the campaign.
The pay-as-you-go system has to be scrapped. Tony Riley, director-research, at A. Gary Shilling & Co., a Springfield, N.J., economic consulting firm, believes Social Security benefits will be cut back, according to a report to clients. "Retirees do not and never have gotten out what they put in, despite much political rhetoric to the contrary," he contends.
Complete privatization in the form of some mandatory saving is the only economically viable solution in the long run. Changing the system won't be easy when the public hasn't been involved in the debate and educated on the issues so it feels a sense of participation in the solution.
Derivatives stayed out of the news in 1996, as they did in 1995.
That's good news for investment managers who use them to reduce risk or to seek return in more efficient ways than conventional securities. It's even better for their clients, who are hurt when irrational scares diminish the employment of useful investment tools like derivatives.
The reason for the good tidings may be because the markets, especially the stock market, have performed so well this year and in 1995. When a derivative crisis has occurred, such as in Orange County or with David Askin, it has tended to happen in downturning markets, which is ironic, considering a large measure of their use is supposed to be for hedging. But big losses have occurred when the affected investors were using the instruments more for speculation than risk hedging.
The new risk audits that some pension sponsors and other investors have undertaken over the last two years may also have played a role in making sure derivatives power is used wisely. The test, however, of how much better investors have been able to handle derivatives will come with the next major market downturn.
