WO separate issues in the Social Security debate have, unfortunately, been lumped together.

The first issue is the solvency of the system. Here there is widespread agreement that the current course is unsustainable in the long run: either benefits have to be cut or taxes have to be increased.

Despite the talk, the Republicans and the Democrats are not so far apart in their views about what it will take to restore actuarial soundness.

The Congressional Budget Office recently published studies of the plan from the President's Commission to Strengthen Social Security and the plan favored by Democrats, developed by a Massachusetts Institute of Technology professor, Peter Diamond, and a Clinton adviser, Peter R. Orszag (www.cbo.gov/SocialSecurity.cfm#pt3). Leaving aside the issue of whether people should be allowed to divert a portion of their payroll taxes to private accounts, the biggest difference between the plans is that the White House plan cuts benefits more and does not raise taxes as much.

Under the Diamond-Orszag plan, median-income individuals born in the 1960's would receive about the same lifetime benefits that they would get in the current system. Under the Bush plan, they would get about 7 percent less.

That is not such a huge difference. It would be difficult, but not impossible, for Congress to find a compromise plan to balance the books.

The second issue, considerably more divisive, is the private accounts. Such accounts may or may not be a good idea, but they have little to do with the fundamental budget problems facing Social Security.

Nonetheless, because private accounts are the most contentious issue, it is worth examining the economics of such plans.

Under the current White House proposal, individuals could put about a third of their Social Security contributions into six highly diversified index funds.

These index funds would include ordinary Treasury bonds, inflation-indexed Treasury bonds, corporate bonds, small-cap stocks, large-cap stocks and an international index fund. At retirement, individuals could choose to purchase an annuity with their accumulated wealth.

In theory, those with little wealth should invest in the safest investments, probably inflation-indexed Treasury bonds, and choose to purchase the annuity when it is offered. But these actions would not have much of an impact on their retirement income because the safe return on inflation-indexed Treasury bonds is not all that different from the safe returns offered by Social Security.

Those with higher wealth should be willing to take on more risk. But for wealthier investors, what matters is the composition of their entire portfolio: private accounts offer investment flexibility, but wealthier individuals already have flexibility.

It follows that if people made sensible investment choices, private plans would not have much of an effect at the individual level.

Of course, there is a big caveat: What happens if workers, particularly low-income workers, do not make prudent investment decisions? This possibility is a chief concern of Democratic critics of private plans, and rightly so. The government's role should be to provide social insurance, not to give people enough investment rope to hang themselves.

But even if one rejects this paternalistic argument, there is a pragmatic case to be made against private accounts, and that is that those individuals whose private accounts do poorly will end up relying on public support anyway. It is better to force people to make prudent investments when they are young than to force the population as a whole to support them if their investments turn sour.

It is important to remember that if the stock market drops precipitously, there would be millions of voters nearing retirement who had investments in equities. This means that there would be a lot of pressure for a bailout.

If you think that the political system could withstand such pressures, think about how we got Social Security in the first place.

The only way the return on private accounts can end up being larger than current payouts is if investors choose to take on more risk - but that entails a larger chance of loss, which is bad from either a paternalistic or a pragmatic perspective.

But it gets worse. Social Security is structured as a "pay as you go" plan. A transition to private accounts would mean huge borrowing by the federal government to cover the Social Security payments owed to today's recipients.

There are those who argue that there would be no impact on financial markets from such borrowing, as it is merely replacing one liability (future Social Security payments) with another (future payments on Treasury obligations).

But this seems to me to be quite unrealistic. The Social Security obligations are "soft obligations" - all it takes to change them is an act of Congress. And indeed, we are discussing such changes right now.

By contrast, Treasury bonds are "hard obligations." They must be paid no matter what.

It is likely that financial markets would react quite negatively to the huge amount of debt required to finance private accounts. And such accounts offer little benefit to individuals anyway: those with little income should invest in safe assets, and the additional flexibility offered to high-income individuals is not very relevant.

Private accounts that simply redirect Social Security contributions just do not offer enough benefits to investors or taxpayers to warrant the costs they will impose on the economy at large.

There are much simpler ways to increase retirement savings. For example, Brigitte Madrian, from the University of Pennsylvania, and Dennis Shea, from UnitedHealth Group, have found that making enrollment in 401(k)'s the default choice for new employees increases participation rates dramatically.

Such reforms are simple, effective and easy to carry out. By contrast, private Social Security accounts offer little incremental benefit to participants and substantial risk, and they dramatically increase government borrowing.

Hal R. Varian is a professor of business, economics and information management at the University of California, Berkeley.