Harvard Law School Visiting Professor Robert Pozen, a former vice chairman of Fidelity Investments, says Social Security accounting makes “the Enron debacle look like a minor bookkeeping error.” Writing in the November 2002 Harvard Business Review, Pozen goes on to say that if a U.S. company tried similar accounting for its pension liabilities, “surely someone would go to jail for securities or accounting fraud.”

In “Arm Yourself for the Coming Battle Over Social Security,” Pozen–a member of the President’s Commission to Strengthen Social Security–argues that Social Security’s financing problems could have a devastating impact for the U.S. economy and businesses if reforms are not quickly enacted.

Pointing out that the Social Security system’s projected 75-year deficit has a present value of $3.35 trillion, Pozen derides government accounting schemes that use Social Security ‘s annual cash-flow “surplus” to conceal real actuarial deficits. “A useful initial step would be to eliminate the phrase ‘Social Security surplus’ from the public debate and instead talk about the reality of Social Security’s long-term deficit.”

According to Pozen, the evolving impact of the Social Security deficit will include serious pressure on recent tax cuts, higher long-term interest rates, and increased pension funding costs. Social Security reforms–including increasing contributions, slowing down growth of benefits, and raising returns–can be phased in gradually, he says, “but only if we decide on and enact those reforms quickly.”