Security is missing from the Social Security debate

Something is missing from the ongoing debate over Social Security's future and, oddly enough, it appears to be security. While news coverage has overwhelmingly focused on the political disputes surrounding private accounts and benefit cuts, an opportunity is being lost to consider the prevailing social objectives that should guide policy prescriptions.

And it's not the media's fault. President Bush has yet to come clean with a commitment to a specific proposal, and these days the Democrats are looking for a political advantage wherever they can find one.

What is clear is that the public isn't being served by these politics. Individual accounts, whether they are added on to Social Security or carved out from it, are a means to an end. The real issue is how the public expects its government to deliver security.

To answer this question we should step back from the Social Security program and consider the concept of social security in its broadest sense - because, how we think of security will influence our policy choices for ensuring it.

At its core, most Americans equate security with a protection from hardship, whether it is brought on by poverty, job loss, illness, age, or war. While we tend to associate consumption with income and think of it in immediate terms, security by its very nature occurs over an extended period of time. We may decide to defer consumption by saving some of our resources to decrease hardship at a later date.

Accordingly, it is more constructive to think of security as a function of both income and assets.

Assets are a major component of security because they are a storehouse for value that can be strategically employed in times of need or productively invested to generate future returns. The nature of assets, whether they are savings, investments, home equity, or human capital, is that they work as building blocks over a lifetime. They certainly can help pave the way for maximizing retirement security because they often serve as bridges connecting different stages of the life cycle - just as investing in one's human capital by going to college generates opportunities to increase income or buying a home serves as a forced savings plan that can be tapped at retirement. The path of security does not start at retirement but must be treaded throughout life.

Perhaps more fundamentally, there are positive behavioral effects to holding assets that directly enhance security, including increased economic well-being, household stability, physical health, and educational attainment. Furthermore, assets are associated with an increased orientation toward the future, an important component of security. The body of evidence that links asset holding with positive outcomes is growing, and significantly has been shown to work for both the rich and poor alike.

The failure of our policy interventions to date is not only that poverty and insecurity persists; it is that we have crafted a far-reaching system of asset subsidies available for the non-poor and excluded those that could benefit from them the most. Delivered primarily through the tax code, these subsidies support a broad range of activities, including mortgage payments, business investments, retirement savings, and educational expenditures, many of which are accessible before retirement.

On the other hand, savings by the poor are discouraged. Antipoverty policy efforts have historically focused on facilitating short-term consumption, and many federal programs continue to impose asset limits as a way of means-testing. The unintended consequence is that it creates a disincentive to engage in the types of activities that can help a family move up and out of poverty - namely savings and asset-building.

This dual policy structure is both unfair and counterproductive. Developing more inclusive asset building policies is a prerequisite to offering each American the opportunity to increase their security. An accounts-based system could be part of the solution, but it would have to be crafted in a way that works for those without a lot of resources and experience with financial instruments. The advent of 401(k)s, IRAs, and education accounts reflects an expansion of asset-based policy efforts, but these efforts have been considerably more regressive than the proceeding social insurance programs developed during the New Deal. This is a trend worth breaking.

To do this, we have to acknowledge that creating access to asset-building opportunities is an essential element of security. The key is installing an account system that can serve as a lifelong savings platform for each citizen. Beyond that we should offer greater subsidies for the poor to equalize current inequities in access to benefits. But most important, we must make asset-based policy flexible enough to work across the whole span from birth to death. For many Americans, waiting until retirement may be waiting until it's too late.

• Reid Cramer is research director at the New America Foundation.