Securing Social Security

If the liberal historian Howard Zinn is correct in saying that history is nothing but an endless sequence of present-days (I believe that he is), then a past date, namely 1935, is just as relevant to the ongoing debate over Social Security as the future date of the program's insolvency. And just as constructionists look to the intent of the Founding Fathers to decipher the often nebulous subtext of our Constitution, we should frame any debate on Social Security in the context of the expectations and intentions of its Founding Father: Franklin Delano Roosevelt.

In an address to Congress in 1935, President Roosevelt said that Social Security would be held to three principles: first, that seniors contribute to a government-managed old-age pension; second, that these contributions be compulsory and later subsidize future generations; and third (and it's best to use Roosevelt's words here), that "the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans." There's been debate over the meaning and context of this quote; Air America talker Al Franken called for the resignation of Fox News anchor Brit Hume after the latter used it as proof that Roosevelt intended for Social Security to eventually be privatized. But even the former will admit that the quote reveals something very important: Roosevelt expected Social Security to change.

And change it must, as fluctuations in both markets and demographics could consume what relatively little is left in Social Security well before the 2041 insolvency date. A whole host of things that affect government revenue and spending, from market downturns to war to public health crises, come almost totally without warning. Factor in the retirement of the baby boomers, continued immigration, record budget deficits and the 2010 census (don't be surprised five years from now when our nation's official population breaks well into the 400 millions) and you have fiscal uncertainty that would make tentative even the most conservative estimates on solvency.

Indeed, lost in the almost superfluous argument over the "risk" involved in private accounts is the potential risk of not privatizing Social Security in the wake of the same capitalist forces that opponents believe precludes a privatization plan.

Because Social Security is, despite it's vaguely socialist nature (Social Security, in giving equal benefits to everyone, now acts as a welfare program that isn't based on need; in that sense it's a leftover relic of the Depression-era command economy), subject to the same patterns of boom and bust as a stock or bond. To illustrate my point: since 1974, over 3500 private sector guaranteed-benefit pension plans have failed. Which should be a constant reminder that the mere fact that someone else is managing your money doesn't extricate you from the risk involved with money management. Just the opposite; you're entrusting your money to a large and often unresponsive organization with other things on its mind.

And to make matters worse, that organization isn't necessarily required to pay you. The Supreme Court ruled in the case of Helvering vs. Davis that "The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way." In other words, there's no "lock box," nothing forcing the Government to designate any Social Security payments as untouchable — a scary thought for anybody counting on a government check later on in life.

Most recognize that Social Security is threatened by fiscal exigencies that need to be dealt with. That Social Security has grave systemic problems is a slightly harder sell. To the existence of such problems one must look back to Roosevelt. Originally, the program was meant to provide workers with roughly a third of their needed retirement savings and nothing more — hence the word "security." Because the social security payout was relatively small, the system came with a built-in incentive for personal saving. But today, with roughly a fifth of seniors relying on social security payments as their only source of fixed income, that incentive is gone, and the system could more appropriately be called "social dependency." Franklin Roosevelt never intended for seniors to be totally sufficient on the government rolls, especially not in an epoch where many had to survive on gumption and willpower alone.

And then there are problems that have nothing to do with history—namely, those associated with the government being given free reign over 12 percent of an employees salary (Helvering vs. Davis), and those associated with the fiscal problems that will eventually befall any fixed benefits plan — just look at the trouble United Airlines is having with paying pensions from a fund that was, until recently, 90 percent full.

From here the solution is simple enough. Fiscally, the wage inflation adjustments built into Social Security are less than half the annual growth on most dependable long-term investments, eliminating most potential for risk, since dependable bonds usually see a return. It just makes good financial sense to take the 12 percent in payroll taxes a worker usually pays into Social Security, a government program, and deposit it in a no-lose personal investment like treasury bills, an account over which that worker, and not the government, will have complete autonomy.

Philosophically, Social Security privatization is the fulfillment of the age-old creed that government should not be doing for citizens what citizens should be doing for themselves. Ironically, Social Security was created with this goal in mind.

With privatization, the next generation of retirees won't be dependent on the government. They won't have to pay over a tenth of their earnings into a domineering bureaucracy because such the bureaucracy is antiquated. Just as in Canada, Sweden, Chile and a host of other nations that have privatized Social Security, retirement will be the domain of the retiree, as it was intended to be at the inception of Social Security sixty years ago.

As Bush mentioned during his speech at Blair, we are going through a "revolution in personal responsibility." A little autonomy, a little responsibility in exchange for a government program that has reneged on its original promises and goals, is the logical way to both repair a broken program and instill in people an incentive and motivation to save. In the end, Social Security reform concerns not dollars and cents, but common sense — the common sense that practically every major policy initiative of the past two centuries, from the Homestead Act to our Constitution, has been given needed reform.

Now it's Social Security's turn.