Social Security’s History and Future

Social Security WorksRecently I reviewed a book because I hated the premise. I read this book because I like the premise. The title says it all (with an exclamation point): Social Security Works! Why Social Security Isn’t Going Broke and How Expanding It Will Help Us All. I wanted to see the proof offered by authors Nancy J. Altman and Eric R. Kingson.

With an average of five stars from over three hundred reviews on Amazon, the book has a following. Altman and Kingson aren’t Social Security’s only champions, as this article on shows, there was anger over Obama’s willingness to “give away the store…[and] cut spending on Medicare, Medicaid, and Social Security In exchange for a modest tax hike of $100 billion over 10 years—targeted at the wealthiest Americans… an outrageous deal.”

Some 54 million Americans receive benefits today, with the “average retiree’s checks roughly equal to the gross pay of someone working fulltime at the federal minimum wage.”

The authors seek to debunk “a three-decade-long, well-financed campaign [that] has sought to dismantle Social Security… [and been] successful in undermining confidence… The mainstream media has aided and abetted the campaign by uncritically accepting and advancing a panoply of misconceptions, while largely ignoring the facts.”

I must admit to being swayed by the anti-Social Security campaign. Since I started my career, I have assumed I would never receive any Social Security and used to joke that my tax went to my own grandmother. Yet, here I am, nearly forty years later, and Social Security looks secure for the next 20 years (assuming Congress doesn’t damage it.)

From the beginning, many opponents called Social Security socialism. “These same opponents rarely, however, express disgust with, or seek to privatize, America’s socialized police, fire, and prosecution services or our socialized system of roads, canals, and national parks, not to mention our socialized military.”

I found it interesting to read that President Eisenhower thought the opposite. In a message to Congress, he called Social Security “a reflection of the American heritage of sturdy self-reliance which has made our country strong and kept it free.”

I hope you’ll read about the battles over establishing and expanding Social Security. Some well known opponents today have family roots against Social Security, like the Koch brothers (grandfather Harry Koch was a Texas newspaper baron and “implacable opponent” of Roosevelt’s New Deal) and George W. Bush (grandfather Prescott Bush remarked “the only man I truly hate lies buried in Hyde Park” – a reference to Roosevelt.)

I recommend everyone learn about the program in the context of the early 20th century, when “industrialization and urbanization left increasing numbers of Americans dependent on wage income.” Those who lost their wage, through accident or old age, “often wound up in the poorhouse. The poorhouse was not some Dickensian invention; it was an all-too-real last resort for the desperate and destitute old.” It is useful to remember the goals and motivations behind Social Security, that “no one will be left penniless in old age or because of disability or being orphaned.” We are still a nation of wage-earners today.

But I would like to report the authors’ views on some current financial aspects of Social Security in this review.

  • Charge: Social Security is going bankrupt, and Social Security spends more money than it takes in.

“This charge ignores Social Security’s income, including investment income.”

Social Security has a dedicated revenue stream and cannot pay benefits unless it has income to cover the cost. It has no borrowing authority. “No one says the Pentagon is going bankrupt [but it has] no dedicated revenue stream and estimates [its costs out no more] than five or ten years.

The Social Security Trustees project “income and outgo for seventy-five years… Social Security is projected to have sufficient dedicated revenue to pay 100 percent of promised benefits for the next 15 to 20 years… [and] enough income to pay about 75 cents on the dollar for the foreseeable future.”

  • Charge: Social Security’s trust funds are not real, but simply an accounting gimmick.

“Social Security’s trust funds are as real as any private pension trust fund.” Interest bearing treasury obligations “are not casual promises.” In response to the charge the money has already been spent, “all those who issue bonds, whether they are corporations or government entities, do so to raise funds to be spent… [The bonds] have real value and are rock-solid safe.” As safe as any place I have my own money invested, and probably safer.

  • Charge: A demographic tsunami is on its way, threatening to bury our children and grandchildren in debt.

The authors’ response here surprised me. Yes, old people are living longer, but there is far less infant and childhood mortality. So consider the “overall dependency ratio”, the combined number of seniors over 65 and children under 20 to every hundred workers. “It will never be greater than when baby boomers were children.” Furthermore, this “does not reflect the productivity of the economy.”

They address fourteen charges against to Social Security in all.

The book is repetitive in places and I think the financial explanations could be more succinctly argued, but given the “common wisdom” attacks against Social Security, the book is worth your time to read. Some factions want to make the expansion or reform of Social Security an issue in the 2016 presidential campaign, and this book will provide you with a good basis to evaluate arguments.

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