One of the biggest challenges our country will face in the coming years (in addition to undoing the damage caused by the new health care law) will be fixing Social Security. Social Security expert Andrew Biggs provides a sobering look at the options that will be available to policymakers in this piece on National Review. While Biggs supports incorporating personal retirement accounts into Social Security, he warns that retirement accounts alone won’t fix the system’s problems.

He writes:

Here’s the problem: Personal accounts are a valid choice, and one I’ve supported in the past and continue to support. But accounts aren’t exclusive to tax increases or benefit cuts; they don’t, as I’ll explain, reduce the need for these other choices. One problem for the Bush administration’s reform drive in 2005 was that many congressional Republicans had bought into the idea that accounts reduce or eliminate the need for tax increases or benefit cuts. Finding out they don’t may have taken some wind out of their sails. Because of this, combined with some pretty shameless demagoguery from the left, Bush’s reform ideas didn’t even come up for a vote….

Also unchanged would be the program’s financing shortfall, even assuming that account holders gave up a share of their traditional benefits. A pay-as-you-go program like Social Security is always in the hole, such that each generation honors the benefits of the preceding one while hoping their own claims will be honored by the following generation. No generation can break away from this cycle without either ponying up extra cash (tax increases) or defaulting on its promises (benefit cuts). Neither solution is costless.

It’s important that Americans understand this reality-there is no magic way to spare ourselves from the pain of bringing Social Security’s finances into balance. Incorporating personal retirement accounts into the system will be important so that we can leave the next generation with a better, more financially sound system, but they aren’t a panacea for our current predicament.