&uot;Fixing Social Security&uot; has become the mantra of choice for politicians on both sides of the isle in our nation’s capital. Some form of privatization may be the end result of the inevitable political babble and posturing as we approach another national election.

The original intent of Social Security was to provide government sponsored security for widows and orphans. Its secondary purpose was to provide a retirement supplement. Over the years, liberal politicians and economists have pushed Social Security as a national &uot;savings&uot; plan for retirement.

Nothing could be further from the truth. The Social Security system has become a pay-as-you-go entitlement program made possible by creative Washington bookkeeping. Theoretically, Social Security tax revenues go into a Trust Fund that is invested in U.S. Treasure securities.

The reality is that the tax revenue generated by Social Security goes into the Federal revenue stream where it is accounted for as income that is used to pay government operating expenses. Deposits to the Trust are paper entries.

The idea that the Trust will run out of money for retirement benefits has nothing to do with running out of money. It has everything to do with the fact that the work force will be shrinking, which will result in lower payroll tax revenues that pay current benefits, at a time when more people will be looking for their benefits.

Here is a radical idea for you to consider. Perhaps this dysfunctional, convoluted, last gasp of Socialized Government, is actually doing some good in its present form.

The operative word to describe this paradox might be &uot;Incentive.&uot; Steven Lansburg in his book The Armchair Economist state &uot;most of economics can be summarized in four words: &uot;People respond to incentives.&uot;

Social Security has become nothing more than a big disincentive to save. Those depending entirely upon Social Security for their retirement will tell you that their incentive to save for retirement was diminished by their belief that they would be taken care of by Uncle Sam.

In 1986 and 1987, radical changes to the Federal tax code did away with a number of incentives for business-sponsored defined-benefit pension plans. These plans provided for a guaranteed retirement benefit for retired workers.

In place of those plans has come company sponsored retirement savings plans. These plans shift the responsibility for retirement savings from the government and company to the employee.

There is clear evidence that these changes have had a positive impact on both the economy and personal wealth. Edward Yardeni, chief economist for the Deutsche Morgan Grenfell bank cites statistics showing that from 1989 to 1995, the percentage of families holding retirement assets rose from 35.4 percent to 43.0 percent. The percentage of families with 401(k) plans increased from 19 percent to 27 percent during the same time period. Defined benefit plans, on the other hand, fell from 28 percent in 1989 to 19 percent in 1995.

The effect of this increased cash flow into self-directed retirement accounts has been nothing but positive. Since Americans now have more say in how their money is invested, they have opted for investments that offer higher returns — equities.

Yardeni points to the positive correlation of stock market returns with this increased savings activity. Since 1989 household investments in stocks and mutual funds have risen from 31.7 percent in 1989 to 41.4 percent in 1995. And, the stock market during this period has continued to show a strong, secular trend — upward and to the right!

Maybe, just maybe, our Federal lawmakers will take heed, and look to some form of privatization as the &uot;fix.&uot; The American worker has proven quite adept at responding to incentives to save and to self-direct their retirement accounts.