Is Social Security on its way to bankruptcy, crashing down in 2029? Most likely not. There are good reasons to believe that the much discussed “crisis” has been politically manufactured.
Conservative politicians and think tanks call for “reform” through privatization, shifting part of contributors’ accounts into unprotected stock-market funds, playing to the hopes of brokerage houses, which stand to make hundreds of millions in fees and commissions, and anti-welfare state conservative ideologues, who argue that market-driven private programs are inherently superior to those in the public sector.
History should encourage real doubt about the gloomy long-term predictions President Bush’s new commission offers concerning the future of the system. Imagine economists in 1940, when the federal budget was around $10 billion, making a serious prediction about Social Security and the U.S. economy in 1965? Or analysts in 1970 making such a prediction about 1995? Even in 1970, could they have foreseen a multitrillion dollar economy, or the impact of computerization, energy consumption and medical advances, all of which have dramatically influenced economic and population growth?
These examples reveal the riskiness of making adjustments now to prevent a collapse of the system late in the 2020s. Given the increase in the “velocity” of change in a globalized economy, policies based on such predictions, like legislation to mandate “balanced budgets,” can only serve to force governments into inflexible policies incapable of responding to rapid change.
It is more logical to conclude, as Social Security’s defenders argue, that the system’s trust funds are safe far into the twenty-first century. Supporting this position are continued asset growth and, most important, a projected long-term decrease in need in the post-“baby boomer” era, as declining birthrates catch up to declining death rates. Unlike programs in other industrial countries that serve as the primary source of retirement income, Social Security in the United States has long functioned as a supplementary “safety net.” It is designed to complement a wide variety of employer-union and public-employee pension programs based in the stock and bond markets.
In the first half of the twentieth century a large and powerful private insurance industry strengthened the opposition of employers to extending social insurance. World War II then produced tax legislation that gave employers a powerful incentive to reduce tax liability by establishing pension plans. Cold-War tax policy and the anti-labor Taft-Hartley Act of 1947 then induced a weakened postwar labor movement to focus its collective bargaining on fringe benefits (primarily pension and health insurance plans for members), rather than on such political action as improving Social Security. Taken together, these factors produced the present multi-tier public-private system in the United States.
Even so, for tens of millions of low-income people Social Security is their only pension. They are the ones who need relief from sharp increases in the 1980s and 1990s in payroll taxes. At the same time, cost-of-living adjustments have been reduced and the retirement age set higher. Attacks on the system over the last twenty years by the same forces who today champion privatization have made it more regressive for younger and lower- income workers.
Liberal and labor defenders of Social Security now need to do more than merely contend, as many do now, that the system isn’t broke, so why fix it? For example, they could advocate supplementing Social Security trust funds through general revenues, a step most of the system’s architects foresaw. This would reduce regressive payroll taxes and provide a real and lasting tax cut, while making the system more equitable for younger workers.
Liberals and labor should insist that the “partial privatization” pushed by the Bush administration would very likely produce a state-sponsored version of the mutual funds of the 1920s, in which millions invested for their retirement only to see the funds crash with the stock market in 1929.
If history is any guide, the warnings about Social Security going under can be discounted. Instead, we should seize the opportunity to enact reforms that will make the existing system more just, not transform it into something it was never intended to be.
Norman Markowitz is a member of the history faculty at Rutgers University in New Brunswick, N.J., and a writer for the History News Service.
