Many Democrats on the campaign trail claim that John McCain wants to privatize Social Security. This is a simple, clear statement and conveys the radical nature of the changes that John McCain seems to want to make in Social Security. It is also false. What John McCain wants to do to Social Security will be far more harmful than genuine privatization could ever be to current retirees and to current and future generations of workers.

Now, to be rigorously truthful, I do not really know what John McCain would do about Social Security. He gives dire warnings that it is on the verge of collapse in his speeches - complete with wall charts. He insinuates that today's young people will be burdened with paying the retirement of the dread boomers. He manages to devote a great deal of time to the topic without once putting forward a concrete policy proposal.

Sorry John. A bipartisan task force is an evasion, not a policy proposal. As I have said elsewhere if is well past time for some straight talk. Wonks Anonymous did not, however, arrive at his advanced age and low debt levels by accepting the good will and good sense of all and sundry. He learned quickly that he needed to do his own research when someone was ambiguous about something important. He has researched the position of McCain's chief economic adviser, Mr Holtz-Eakin, on the subject - results of this research can be found in an earlier post here. From his research Wonks Anonymous has concluded that any "reform" of Social Security proposed by Mr McCain will look pretty much like the reforms proposed by President Bush after he was re-elected in 2004.

A reform of this sort has very little to do with real privatization. To make this perfectly clear I will contrast a genuine privatization of Social Security with the most likely McCain "reform":

A real privatization would transfer control of Social Security to a pension agency that was largely independent of the government. There are ample precedents for independent agencies with significant political and economic power: The Federal Reserve Board and state public employee retirement agencies are just two examples. Governance of the agency would be a complex political and administrative problem but it has been done before.

No one in McCain's team has ever indicated that they would do anything but leave Social Security in the control of Congress and the Executive branch.

A real privatization would convert the assets of the Social Security Trust Fund into marketable government securities and transfer control of these assets to the new Social Security Agency. The agency could choose to hold this large amount of public debt or could prudently convert some part of it other assets. The agency would own the debt and use it to build a portfolio of assets that would be used to guarantee future pensions.

Mr Holtz-Eakin has called the Social Security trust funds "accounting mechanisms".  It seems clear that assets in the Social Security Trust Fund will vanish in a McCain reform.

Real privatization would transfer payroll tax revenues to the new Social Security Agency. Taxes would be used to pay pensions and to accumulate assets that would be used to pay future pensions.

All that McCain and his advisers have said would indicate that they plan on the government collecting payroll taxes into the future. Taxes would be used, as they are now, to pay pensions and to buy government debt.

A privatized Social Security Agency would consider itself on a sound footing as long as its current revenue plus its assets were enough to pay its expected pensions. If revenue fell short of pensions, assets could be sold although the agency would need to consider the retirement needs of future generations.

McCain and his advisers have given ample indication that they consider Social Security solvent only when its current income exceeds its current pension expenditures. With McCain's "reforms" the Social Security System would run a continuous surplus and your payroll taxes would pay for not only for current retirees but also for whatever tax cuts, subsidies or military adventures the government decided to embark on.

In order to bring Social Security into continuous surplus a McCain reform will cut benefits. If benefits cuts prove too draconian, McCain might compromise by raising payroll taxes as well. The trust funds will become an excellent 'accounting mechanism' to show how much profit the government is taking for running the pension system.

One thing that would happen with McCain's fake privatization: We would probably get to put a small part of our payroll taxes into individual accounts. This would make people feel better and, what the hell, Wall Street needs the business. Of course we would probably need to agree to future benefits cuts in order to do this.

This is not a privatization - a removal of power or assets from the control of the government. McCain's probable plan is a radical assertion of government's right to take a portion of payroll taxes for its own uses and to change the payment of pensions whenever it sees a need to spend money elsewhere.