Useful Lies

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            Social Security just celebrated its 80th birthday.  And no, it ain’t broke, and no, it don’t need fixing.  So why do so many of our politicians keep predicting disaster if something isn’t done?

            The short answer is that Social Security, and most of the discussion about it, depends on useful lies. The lies created comfortable paradigms that got the program off the ground, but now expose it to political attack.

            The great lie at the heart of Social Security system is that the system works like a private retirement fund.  When people get their Social Security numbers, they think they are setting up an account for making retirement contributions during their working lives.  Upon retirement, they believe, the fund will repay those contributions with accrued earnings they die.

            But that’s not what really happens.  The government does not make deposits into an individual account for each beneficiary.  The money goes directly to the U.S. Treasury.  Those dollars go out in the next instant to Social Security beneficiaries and others entitled to payments from the government.

            Social Security beneficiaries have no ownership rights over their Social Security “accounts.”  Those “accounts” can’t be sold, bequeathed, hypothecated or cashed in. Beneficiaries have no rights against the government the way private investors might have against companies from which they’ve purchased retirement benefits.  The government can terminate the program or adversely modify benefits, regardless of any other promises it has made.      

            In the early days of the program, Social Security collected a lot more tax money than it was paying out to Social Security beneficiaries.  Instead of investing the surplus in stocks and bonds like a private pension annuity would, the government used that money to pay for other things such as education, national parks and war.  The Treasury made a note of how much money Social Security had “loaned” it.

            But, these were never real loans.  It was just the government transferring money from one pocket to another.   Social Security has no legally enforceable right to require the Treasury to repay it.

            The mythology surrounding Social Security’s structure arose out of an intentional deception.  President Franklin Roosevelt well understood that he couldn’t sell the program to Congress as an attempt to ameliorate poverty among the elderly.  Americans have never liked the idea of using tax dollars to support welfare programs.  By styling Social Security as a “retirement” or social insurance program available to everyone and that required people to make “contributions” into it, Roosevelt made sure that this program, which became the cornerstone of his social safety net, would be politically impossible to repeal.

            Republicans, who don’t like using the government, to transfer wealth between people, now insist that the Social Security program is broken.  They argue that the system is currently taking in less money than it is paying out, and that at some time in the 2030s, the Treasury will have repaid all of the money it “borrowed.” Unless we cut current benefits, raise the retirement age or means test beneficiaries so that only the needy receive benefits, they say, Social Security will not survive.  For Republicans, raising more Social Security tax money is unthinkable.

            Nonsense.

            What’s really going on here is that the wealthy patrons of the Republican party want to insulate themselves from the cost of a program that provides them with relatively little direct benefit.  The wealthy are much better able to provide themselves with a comfortable and secure retirement than the rest of us.  They don’t need a monthly Social Security check.  They can afford more investment risk, and so they probably would indeed be better off investing any Social Security taxes paid on their behalf in private investment funds.

            Democrats also have every reason to perpetuate Roosevelt’s lie.  They like and derive power from the welfare state.  They know that the more beneficiaries the welfares state has, the less likely it is that politicians who want to kill it will be elected. They also know that if Republicans are successful in subjecting Social Security to cost savings measures, they’ll succeed in transforming Social Security into a welfare program in the public’s eyes.  Besides, “protecting” Social Security from stingy Republicans works quite well in fundraising appeals to small donors.

            Does anybody think that when Social Security becomes “insolvent” that, the elderly, who are the country’s most reliable voters, won’t compel the government to protect their benefits?  Does anybody think it makes sense to make cuts today to avoid potential cuts 15-20 years hence?      The angst about Social Security is misplaced.  Current arguments about generational warfare over the program are misplaced.  There isn’t any reason for younger generations to assume Social Security won’t be there for them. 

            Americans believe, by wide margins, that protecting the elderly from poverty is something the government ought to do, and that makes it highly unlikely that the program will ever be forced to cut back on benefits in any significant way.  We just have to see past the lies and allocate our resources in accordance with our values.