Two surveys conducted for the CATO institute in spring 1996 provide the strongest support for reforming Social Security to establish individual investments in the stock market. They report that two-thirds of Americans favor individualized privatization. A January 1997 survey by Princeton Survey Research Associates found that as a means for keeping Social Security financially sound 71% favored "letting individuals decide how some of their own Social Security contributions are invested." The young and better educated were most receptive to this reform.

But, the CATO items are problematic and the Princeton questions are a limited measure of the public's full evaluation of privatization for two reasons. First, the question wordings are not balanced. Investing in the stock market poses rewards and risks as trade organizations such as the Vanguard Group repeatedly acknowledge. Indeed, Vanguard devoted a 1997 report to its customers to sternly warning against "unrealistic expectations" that have blinded investors of the fact that "risk is the inseparable companion of reward, and the risk of investing in stocks are considerable."²⁰ Fairly probing the public's views on privatization requires asking balanced questions that pose the potential rewards and risks of equity investments. The CATO questions in particular fail to mention risk altogether and instead pose a series of leading questions that ask respondents if they favor reforms that would allow Social Security funds to be invested in a personal retirement account and passed onto heirs as an inheritance -- all without imposing any reduction in current benefits.

Second, CATO's results are distorted by "context effects" in the jargon of survey researchers. A large body of research has established that the wording of one question can readily influence respondents' reaction to questions that immediately follow. Before questioning respondents about a privatization proposal, CATO's survey ask seven questions about different components of their privatization proposal -- none of which convey a balanced perspective on equity investments. The seven leadup question prime respondents to focus on the most positive aspects of reform.

The public's initial enthusiasm for privatization fades and then turns to overwhelming opposition as respondents are offered more balanced information. Polls in December 1996 and January 1997 by NBC/Wall Street Journal found that respondents split when informed that stock investment of Social Security contributions could produce benefits that are "higher or lower."²¹ The young, better educated, and more affluent were especially supportive of privatization -- though even their absolute levels of support dropped from their earlier euphoria. Still another set of polls by NBC/Wall Street Journal in January 1997 provided more information and found that a majority of respondents opposed the reform. One item found that 57% focussed on the danger of privatization when explicitly asked to weigh the "risk of losing money" against the "potential of higher returns."²² Still another item reported that 61% concluded that the costs of privatization outweighed its benefits when informed of the transitional costs of honoring the commitments to current retirees.²³

The NBC/Wall Street Journal surveys indicate that informing respondents of a fuller set of questions raised by privatization dramatically changed the proposal's support among the educated and younger cohorts. The better educated cross over from supporters to the proposal's most ardent opponents. The young remained the most open to market risk but become the most turned off by having to shoulder the transitional costs.

A final set of survey questions offered respondents a balanced choice and found the strongest opposition to privatization. Surveys by CBS/NYT, Time/CNN, and the Washington Post ask respondents' if they would favor it as a way to make money or oppose it because of the increased risks. The results presented in Table 17 suggest that between 56% and 69% of Americans oppose privatization.

The better educated and more affluent are more open to transforming Social SecurityTable 18 to allow individual stock investment, though even this group remains split on privatization. Table 18 presents the demographic breakdown for the March 1997 Washington Post survey in Table 17. It indicates significant differences in the degree of opposition to privatization. The opposition of the less well educated and the poor lies in the 70% to 80% range while that of the post graduates and most affluent stand at 47%. But, even with these large discrepancies, it is striking that even individuals who are most likely to gain from privatization remain divided. In addition, seniors are the most fervent opponents of the reform but the young are nearly as apprehensive. Misgivings among age groups are widely shared.

An additional puzzle about privatization remains. The surveys by Time/CNN and the Washington Post report that large majorities oppose privatization, but equally large majorities also favor allowing individuals (rather than the government) to invest their Social Security taxes as they wish. The question wording here, however, is critical. The question asks: "If some social security tax funds are invested in the stock market, which do you favor.... [H]aving the government make this investment in a broad index fund, or allowing individuals to invest part of their portion however they would like?" The question presumes the very issue that the balanced frame items raises -- that privatization is enacted. The investment question tells respondents to assume that "some social security tax funds are invested in the stock market." The answer, then, to the puzzle is that Americans oppose privatization but, if policy makers adopt it, they might then prefer to control their own investments.

Evaluating the public's reaction to proposals for individual accounts as opposed to government investment in the stock market is difficult. We found little data to shed light on this issue. In addition, the public's views could evolve if they were presented with tradeoffs between cutting benefits and one or more of the privatization options. If privatization was to be enacted, the public appears to prefer individual control over their investments although the available data suggests that the inevitable transition costs could significantly depress the initial support for this option.