http://www.kc.frb.org/publicat/econrev/er97q3.htm#Golob & Bishop
Social Security Privatization: Balancing Efficiency and Fairness By C. Alan Garner
Growing public awareness of future pressures on Social Security is eroding many Americans' confidence in this key retirement program. These pressures are nearly certain in the next century, stemming from the retirement of the large baby-boom generation, longer average life spans, and lower projected fertility rates. To meet such pressures, various reforms of Social Security have been proposed, ranging from simple repairs to the current system all the way to full privatization. In this context, privatization usually means moving the public retirement system toward a set of individual accounts with the workers' funds invested partly in private securities and with workers having some measure of control over investment allocations.
Choosing among the competing reform proposals is a daunting task. Supporters of privatization believe such reforms would boost economic efficiency, resulting in higher real output per worker and helping the nation cope with the future pressures from population aging. Supporters also believe privatization would produce a retirement system that treats different generations more fairly. Critics fear, however, that the privatization of Social Security would produce a more unequal income distribution for retirees and expose them to greater investment risks.
Garner examines these fundamental issues of economic efficiency and fairness that should be weighed when considering Social Security privatization. He suggests that any decision to privatize Social Security will require balancing the likely gains of greater real output and fairer returns to younger generations with the possible adverse effects of a more unequal income distribution among retirees and greater investment risks. This balancing must occur through the political process because fairness is a matter of values rather than economic analysis.