Leveraging Greedy Old Folks

The political limits of Social Security reform

by Patrick J. Shanahan
05/16/05

Social Security has been, from its inception, the most dishonest, damaging and paternalistic social program in our nation’s history. It rightly stands as a crowning achievement of FDR’s New Deal. The program which started as a putative starvation prevention measure for windows and orphans has morphed predictably and deliberately into a gigantic shell game, a wealth transfer/welfare program in which the old take money out of the pockets of the young.

Our left-wing friends, ironically, have an excellent sense of what motivates people. The notion of incentives, which is the keystone of the economic system that they love to hate, is central to embedding statist programs and rendering them reform-proof. The architects of Social Security deliberately sought to expand it to universal status as quickly as they could. They knew that once everyone’s Grandma and Gramps had a fiscal stake in the program it would be almost impossible to change it. They knew that greedy old folks are worth more in this fight than all the think tanks in Washington.

I, of course, don’t use the term greedy old folks as a pejorative. That is how the left would normally describe people with a vested economic interest in something. I don’t blame our senior citizens for being a little skittish. This is a natural reaction to the central nature of welfare and government in general. When the government has the power to give, it also has the power to take away. Whenever you accept a government check you are agreeing to be held silently hostage to the government’s whims. It is frightening how quickly people acquiesce to this dynamic. Very soon nothing is more frightening than the almighty government withholding its largess.

One of the reasons President Bush has had such a difficult time selling Social Security reform is that the nature of the problems with it, and hence the solutions, are unclear and shifting. Is the problem just that it will go insolvent? If one frames the debate in these terms, conservative solutions cannot win. The choices when facing an insolvent system are a) let it go broke, b) cut benefits to retirees, or c) raise taxes to keep it cobbled together. None of these solutions can possibly avoid irritating a large chunk of voting-age Americans. And it doesn’t get at the heart of the problem. The problem is not that we have a swell program that is running tight on cash. The problem is that the government is running a Ponzi-scheme welfare scam. The problem is that the government controls the money. That is the problem. Social Security will remain in free-fall crisis as long as the government “owns” the cash.

The keystone to Social Security reform is not solvency, and it is not privatization. The key is ownership. Social Security needs to be turned back into a true retirement plan. This would probably take an enormous infusion of cash to accomplish. But it would be more than worth it in the long run. I would be happy to consider a focused tax increase (shudder!) of some sort designed to raise the cash to convert Gramma & Grampa’s vapor money into actual, real money in their retirement account. I wouldn’t worry too much about privatization. The accounts could be controlled by the Social Security Administration, and the dollars could be invested in some sort of government securities. But the cash would be owned by the citizen. The government couldn’t touch it for any other purpose. If the account holder died, any and all funds would be passed to kin per the decedent’s wishes.

This would take a while and it would be painful. But any true solution is going to painful. The difference is that this one would work. It would probably take 10 years or so and require the hit of a one-time tax to fill the accounts up. And it would be a whole lot easier to sell the changes. It could be positioned as the best of both worlds: giving you the ownership of your own retirement funds along with the perceived stability that the government offers. Once this is accomplished, the second phase of permitting fund owners to choose private as well as government investment options would be a cake walk.

As Denis Prager would say, there is the Evil Party and the Stupid Party, and we conservatives tend to be members of the Stupid Party. We really need to be less stupid about things like this. Let’s not fight the energy of greedy old folks. Let’s find solutions that tap into that energy and use it to advance sound, reasonable and eminently conservative ideas.