A VERY GOOD PLACE TO START

By Michael Kramer

We have, clearly, one more big job to do," Bill Clinton said just before his re-election. The President was talking about the corrupting influence of money in politics (an obscenity with which he has a nodding acquaintance), and of course he promised to clean things up. Well, maybe the public's disgust will force change, but there's an even bigger job to do involving money.

If you missed the discussion about entitlement reform during the campaign, don't worry. Nothing serious surfaced--just a lot of blather about the need to do something, which is hardly news to most Americans. It's especially plain to the majority of younger workers, who are convinced that Social Security and Medicare will be little more than dim memories when they stop working.

What can be done? Lots. The Social Security retirement age could be raised higher than the current 65. Benefits could be means-tested so richer recipients would have more of their monthly stipend taxed. The system could be partly privatized, with more people responsible for their own retirement savings. Some of the system's money could be invested in stocks, which could reap a greater return than currently possible, as the trust fund invests only in Treasury securities.

But one proposal in particular seems fair and powerful. We should pursue a plan that New York Senator Daniel Patrick Moynihan has been pushing for several years--a recalculation of the consumer price index so that it no longer triggers a higher-than-necessary cost of living adjustment in Social Security checks and other entitlements. Since 1972, all manner of wages and benefits have been tied to the inflation rate. Yet there's a wide consensus among economists that the CPI overstates the actual rise in the cost of living. The reasons are complicated, but one, called the "substitution effect," is easily grasped. For example, when beef prices rise, people often switch to cheaper meats like chicken, a consumer choice that the current method of figuring the CPI doesn't catch.

Such failures mean that the CPI overstates inflation approximately 1 percentage point. "A similar error in navigation," says Moynihan, "would send your plane to the South Pacific instead of Seattle." Even so, how big is 1%? Plenty big. The CPI now rises at somewhat under 3% a year. Take off 1 point, and you cut a third. And that would mean the adjustment in the average monthly Social Security benefit of $698 would be $13.96 instead of $20.94, a loss of about $7. That hardly seems harsh, but it adds up. That fix, along with companion reductions in other programs tied to the CPI, "would save $1 trillion over the next 12 years," says Moynihan. And that, he adds, "would be enough to cut the debt significantly or to spend on those programs we now cut because the first question these days is never 'What should we do because it's right?' but rather 'How much will it cost?' The answer is always 'Too much.'"

So far, the courage to do something about entitlements has been scarce. Lawmakers need the political cover of a bipartisan commission. To chair such a group, Clinton should look no further than his defeated rival. Bob Dole knows the problem better than most and has in the past demonstrated the guts to address it squarely. If a solution worthy of the word is adopted, then Clinton and Dole will both have won last week, and will both deserve history's kind verdict.