Now Is a Bad Time for Private Accounts

One almost feels sorry for President Bush. Just as he’s trying to make his “ownership society” look like something even Franklin Roosevelt would endorse, an event comes along that makes it look more like something Cal Worthington would hawk on late-night TV.

The event is a Bankruptcy Court judge’s ruling last week allowing United Airlines to dump its underfunded pension plan on the federal government. The move may mean cuts in pension benefits for some United employees of roughly 50%.

It’s pointless to debate the circumstances that brought United to this pass. The older airlines are the sick men of American industry, saddled with heavy costs -- including employee compensation packages -- while nimbler, cheaper carriers deliver service as good, or better. It’s a fair bet that other legacy airlines, such as Delta and US Airways, will soon join in rendering full pension benefits for their employees as much a relic of the past as chateaubriand in tourist class. Automakers and aerospace companies may not be far behind.

This is where Bush’s “ownership society” falls short. As the president describes it, the “ownership society” sounds like a pretty sweet deal. We’ll own our retirement savings, through individual Social Security accounts, and our healthcare, through medical savings accounts. We’ll also own our home, or whatever sliver of equity we could afford.

But as the economist Robert J. Schiller wrote in a recent issue of the Atlantic Monthly, Bush’s proposals “don’t just encourage personal ownership -- they also increase personal risk.” Risk is the one thing, he notes, that U.S. workers already have too much of. Workers are changing jobs more often and spending longer periods out of work, earning wages that are growing at slower rates than at any time in recent memory, while paying for more of their healthcare and retirement themselves.

The social safety net that Bush is trying to destroy, by privatizing Social Security among other steps, was the product of a sea change in the American understanding of the individual’s place in the economy. In the 1930s, the evidence became inescapable that economic conditions could render people winners or losers without regard to their personal effort or character.

The government responded with Social Security. Roosevelt, whose humaneness Bush so casually denigrated in his astonishingly ignorant speech about Yalta last week, remarked during the 1940 Democratic National Convention upon the “war against poverty and suffering and ill-health and insecurity” then being waged by the government, “a war in which all classes are joining in the interest of a sound and enduring democracy.”

“All classes” aren’t joining in anything today. Individual Social Security accounts are the very antithesis of the common war against poverty and insecurity that FDR proclaimed.

Although Bush maintains that it’s necessary to radically alter Social Security because “these are changing times,” the truth is that the economic challenges facing average Americans are starting to resemble those of the ‘30s and ‘40s much more than those of the ‘50s and ‘60s. The concept of shared responsibility that took root in the postwar period is giving way to the notion that everyone under the pay grade of, say, chief executive is lucky to earn whatever trickles into his or her pockets.

But when corporations are shedding their responsibilities, it’s the wrong time for the government to do so. When the president, who never seems to think about the difficulty most people face in holding on to what they do own, proposes to cut the Social Security benefits of the majority of workers by 30% or more, how does he account for abrogations of promises made by companies such as United? Some workers spent their careers at the airline working toward pensions they were told would be worth $100,000 a year or more. Instead, they’ll receive $45,000 or less.

Nor were these pensions altruistic giveaways. The growth of corporate retirement programs after the war was advantageous to employers and employees alike. The former got to defer what they would have paid as cash salaries and wages by promising to pay them as retirement benefits decades in the future; the workers were guaranteed (supposedly) an income stream for old age. The federal government acknowledged the trend by positioning Social Security as one leg of a three-legged retirement stool -- a secure basic benefit to be supplemented with private pensions and personal savings.

Meanwhile, employers used their pension reserves to pump up their balance sheets and even raided the funds for cheap capital whenever they could claim they were actuarially overfunded. When the funds went into the red, they started shifting the losses to retirees and taxpayers by reneging on benefits and ceding their liabilities to the federal government.

The government’s Pension Benefit Guaranty Corp., which inherits crippled plans, is already $23.3 billion in the red, and the deficit is sure to rise. According to a report this week by Santa Monica-based Wilshire Associates, the pension plans of 81% of all Standard & Poor’s 500 companies are currently underfunded, by a combined $99 billion. Some of these companies are Uniteds of the future.

The irony of the Bush policy is that Social Security was specifically designed to counteract economic shocks like the one freshly delivered by United Airlines. With more shocks coming down the cable, this is scarcely the right moment to strip away the last bit of insulation.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.