February 2, 2005

beer and Social Security

I just watched the State of the Union with a pretty decent amount of Lagunitas IPA and some friends of a friend. There's a lot on my mind, but the biggest thing is this: you want to talk about Social Security? OK, let's talk about Social Security.

But let's get a couple of things straight: Social Security is one of the great triumphs of American government. It used to be that being old meant being poor and homeless because you couldn't work any more, unless you were lucky enough to have kids who could support you or lots of money saved up. And when bad things happened to the economy, as they tend to do periodically, those kids couldn't both support you and feed their own kids, or themselves. The same thing happened if you got hurt and couldn't work: your choices were to starve or to seriously burden your (probably already burdened) family. Social Security fixed that, because it guaranteed that anyone who finds himself or herself old or injured - conditions which can affect any of us - would not starve. It's not a lot of money, but it's the difference between poverty and starvation. That's a big fucking difference. Social Security is awesome.

At a party at my grandmother's, one of her upper-middle-class friends was insisting that Social Security is just not enough to live on and doesn't make a big difference for people. Now, it's true that $955 a month1 doesn't go that far in San Francisco. But in Des Moines, you can probably live on it. And even if you can't just live on your Social Security, it makes a big difference. Lord knows $955 a month would make a big difference in my life. In fact, it's not that different from what I make now, and retirees have Medicare so they don't have to worry about health insurance. People who argue that it's a meaningless amount are just completely ignoring most people's lives.

Also, it's a good thing that rich people get benefits too. Yeah, payroll taxes are regressive; the fact that you don't pay Social Security taxes on income over $76,000 means that I pay a larger percentage of my income in Social Security taxes than someone who makes ten times as much as I do. It's kind of a bummer. But the fact that everyone gets Social Security means that everyone feels invested in its continued existence. Anyone who's watched American politics in the last fifteen years (and probably before that, but I wasn't paying attention) knows that it's really freakin' easy to throw around poor people's lives and safety nets. Because Social Security pays a meaningful amount - because for most people, that $955 makes a big difference - the middle and upper classes really care about it's continued existence. For more evidence of why this works, check out the home mortgage interest tax deduction, which is another politically untouchable program that benefits (in this case primarily) middle and upper class families. Middle and upper class families are a much more politically important constituency than poor families; even though the money means less to them, it keeps them invested. It keeps them caring about Social Security. It makes Social Security the third rail of American politics.

I have a particular interest in this because I've done some comparative study of welfare states. The Netherlands has particularly successful social programs, and one of the reasons they're so successful is that everyone gets benefits. Everyone has a stake. Means-testing makes sense, theoretically, but in reality it often undermines over-all social commitment to particular programs. It lets wealthy and middle-class people see beneficiaries of social programs as somehow different from them. This is bad for social unity, for the longevity of the program, and for the actual policies. To quote a paper I wrote in 2003, "Wealthy and middle class people tend to get programs that address their own felt needs; poor people get programs that wealthy and middle class people think will help them, which tend to be punitive, ineffective, and stigmatizing." Programs which serve everyone, rich or poor, avoid this dichotomy. If you feel like knowing more about this, you can read The Real Worlds of Welfare Capitalism, a comparative analysis of the US, Germany, and the Netherlands,2 or The Hidden Welfare State: Tax Expenditures and Social Policy in the United States3. Or ask me. Back on track:

Bush's plan is basically a windfall for the financial industry. Social Security is one of the most efficient government programs ever, partly because it's pretty damn simple. Its overhead costs are around 1%4 for a pretty good reason: the SSA only invests in US treasury bonds, which don't make that much but have essentially zero risk and don't need a lot of decision-making. Active financial management costs a lot more: you're paying someone to spend time doing research for you, to have trade memberships, to explain your options to you, to make transactions for you. The financial industry would love to get its cut of the $1,366 billion the Social Security trust fund had in 2003, or the $3,585 billion it's projected to have in 2012.5 Sadly, that cut comes at the expense of our security. Active management is basically always riskier (you're making judgment calls, rather than just investing in the safest option), and it takes a big cut out of the available money for Social Security. Also, Social Security's very size helps it be efficient. National health insurance would also have that advantage.

Fourth, the money you put into Social Security is not money you're saving. You don't have a personal account at the Social Security office. Social Security is a giant fund that all workers and their employers pay into. Your employer contributes the same amount you do, and the government uses that tax and their formula (which is related to how much you've paid in) to provide you with benefits. It's called a social insurance scheme for good reason: there's a large pool of people putting in money, and you get benefits when you end up in particular situations. Is the money you give your health insurance company yours? No. But it funds the benefits you get from them if particular things happen. The same is true of Social Security. Bush wants to make us all individually responsible for our old age, our health care costs, everything, by making us save money for them individually. The fact is, though, that insurance schemes work because they spread the risk around. For every person who needs a lot of money from Social Security or a health insurance company, there's someone else who doesn't. And you don't know which person you're going to be. If you're tied to your individual account, the catastrophes and unexpected twists of life hurt you a lot more. If instead you give up some of your money to the social insurance plan, you end up with a lot more security.

Yes, Social Security was designed for an era when people died younger. But that's easy enough to fix: raise the retirement age. Most people these days can work past 65. Or make people contribute more. It does not require a fundamental retooling of an incredibly successful system. Paul Krugman's columns6 have elegant explanations of this, as well as of many other things.

Remember that part about your employer putting money in? Bush's plan for Social Security, like his plan for Health Savings Accounts, basically absolves employers - who usually have an awful lot more power than their individual employees - of responsibility for the maintenance of society. I don't have much to say about this, except that it's of a piece with his general plan to keep rich people from doing their fair share. If he's successful enough with this, he will manage to destroy much of what's still good about this country. And really, that's what his Social Security plan is about. That's what creating accounts that you can pass on to your children means. Time was when inherited wealth was treated by the tax code as something slightly shameful, like capital gains. The tax code always favors something, and it used to favor work; Bush is trying to change it to favor wealth, to favor privilege, to favor inheritance and investment over labor. That's dangerous. It pulls this country towards a wider split between rich and poor, and towards a government that reflects that split. And as the middle class disappears, so does the vision of this country as egalitarian, meritocratic, and self-governing. However deluded that vision is, like the ideals of civil liberties, it acts as a philosophical check on bad policy. I don't really want to live in a US without that check.

1. The amount the average retiree receives in Social Security benefits.
2. by Robert E. Goodin, Bruce Headey, Ruud Muffels, and Henk-Jan Dirven. Cambridge University Press, 1999. ISBN: 0521596394 (paperback). It's the kind of quantitative political science that makes me like quantitative political science: thoughtful, clear, accessible, and honest about its own assumptions and limits.
3. by Christopher Howard. Princeton University Press, 1999. ISBN: 069100529X (paperback). I honestly don't really remember this book, but I wrote a paper about social welfare policies which cited it extensively in the passages about this kind of differential, and the summary makes it sound useful.
4. http://californiaaggie.ucdavis.edu/article/?id=7266.
5. http://research.aarp.org/econ/dd86_oasdi.html.
6. Available at the Paul Krugman Archive or from the New York Times.


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