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percent of their income to the system, no matter how dissat-
isfied they were.
Clearly, then, there are both legal and market re-
straints on the TSP that would not exist under a government-
invested Social Security system. Indeed, the TSP model
would seem to argue for exactly the opposite, a system of
individually owned, privately invested accounts. Only such
a system would replicate the TSP's safeguards--property
rights, a fiduciary responsibility, transparency, and an
ability to remove funds from a nonperforming investor.
Conclusion
The only way to reform Social Security without raising
taxes or cutting benefits is to change the program from pay-
as-you-go financing to a system based on saving and invest-
ment in real capital assets. However, allowing the govern-
ment to do the investing would raise serious questions of
corporate governance and social investing, potentially
threatening the American economy. It would be far better to
allow individual workers to invest for their own retirement.
Notes
1. Remarks by President William Jefferson Clinton at town
hall meeting, Albuquerque, New Mexico, July 20, 1998.
2. For a longer and more
detailed treatment of this issue,
see Krzystof Ostaszewski,
"Privatizing the Social Security
Trust Fund? Don't Let the
Government Invest," Cato Institute
Social Security Paper no.
6, January 14, 1997.
3. Testimony of Alan Greenspan before the Senate Committee
on Banking, July 21, 1998.
4. 1998 Report of the Board of Trustees of the Federal Old-
Age Survivors and Disability Insurance Program (Washington:
Government Printing Office, 1998).
5. Robert Myers, Social Security (Philadelphia: University
of Pennsylvania Press, 1993), p. 142.
6. Supporters of government investing may actually be
understating the difference in returns. Under the current
system, the interest attributed to the government securities
does not actually represent a cash transfer but is attribut-
ed to the Social Security Trust Fund, which makes the inter-