When President Bush went on the road this month to make his sales pitch for his plan to alter Social Security, he sounded at times more like a personal investment adviser than the nation's policymaker-in-chief. He preached the virtues of putting away money when you're young, the magic of compound interest and the ability of individuals to beat Social Security's rate of return (as though the Social Security trust fund were simply a lumbering, below-par mutual fund).
"Now, I've got some ideas myself," the president said during a stop at Montgomery County Community College in Blue Bell, Pa. "And one of the ideas is to allow younger workers to take some of their own money and set up a personal retirement account. The idea is to allow a younger worker to be able to earn a better rate of return on his or her money than that which is being earned as a result of the Social Security money going through the federal government."
How Roosevelt Said It at the Start|
President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935. In his brief speech that day, reprinted below, he outlined his vision of the program and its purpose:
Today a hope of many years' standing is in large part fulfilled. The civilization of the past 100 years, with its startling industrial changes, has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they came to old age. The man with a job has wondered how long the job would last.
This Social Security measure gives at least some protection to 30 millions of our citizens who will reap direct benefits through unemployment compensation, through old-age pensions and through increased services for the protection of children and the prevention of ill health.
We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.
This law, too, represents a cornerstone in a structure which is being built but is by no means complete. It is a structure intended to lessen the force of possible future depressions. It will act as a protection to future administrations against the necessity of going deeply into debt to furnish relief to the needy. The law will flatten out the peaks and valleys of deflation and of inflation. It is, in short, a law that will take care of human needs and at the same time provide the United States an economic structure of vastly greater soundness.
I congratulate all of you ladies and gentlemen, all of you in the Congress, in the executive departments and all of you who come from private life, and I thank you for your splendid efforts in behalf of this sound, needed and patriotic legislation.
If the Senate and the House of Representatives in this long and arduous session had done nothing more than pass this Bill, the session would be regarded as historic for all time.
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How we talk about policy says a lot about how we think about it. Is Social Security a planning vehicle that an individual uses for his or her own retirement, or is it a pooling of resources so that all of society can meet the needs of its older members? Is it about each person saving for himself, or is it a matter of young helping old and rich helping poor?
In couching the Social Security debate largely as a matter of personal rather than collective interest, Bush is redefining the program's very essence. The president's drive to divert a portion of payroll taxes from traditional Social Security benefits to personal accounts for every worker is a departure from the origins of the program and the way people talked about it then.
Listen to the way President Franklin D. Roosevelt talked about Social Security when he signed it into law in 1935, during the Great Depression: "We have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age," he said. Roosevelt's target was the rate of poverty, not a rate of return.
Measured by that standard, it's been a smashing success. Poverty among the elderly started dropping as soon as the first monthly Social Security benefits began, and declined even faster after benefits improved in the 1960s. Between 1960 and 1995, the official poverty rate of those 65 and older fell from 35 percent to 10 percent, according to a study published in May 2004 by the National Bureau of Economic Research, a steeper decline than for any other age group. "While poverty was once far more prevalent among the elderly than among other age groups, today's elderly have a poverty rate similar to that of working-age adults and much lower than that of children," the NBER study said.
The study's authors, economics professors Gary Engelhardt and Jonathan Gruber, said the decline could be attributed entirely to increases in Social Security payments.
In taking on poverty, Roosevelt's rhetoric also changed our notion of the government's role and individual responsibility. The Social Security Act of 1935 "reversed historic assumptions about the nature of social responsibility," historian William E. Leuchtenburg wrote in his book, "Franklin D. Roosevelt and the New Deal."
As the counsel for the National Association of Manufacturers put it at that time, perhaps not approvingly, "The concept that the function of government was to prevent exploitation by virtue of superior power has been replaced by the concept that it is the duty of government to provide security against all the major hazards of life -- against unemployment, accident, illness, old age, and death."
But Social Security was never generous enough to protect people from every hazard or hardship. And Roosevelt never intended it that way. "The Act does not offer anyone, either individually or collectively, an easy life -- nor was it ever intended so to do," he said on the third anniversary of signing the legislation. "None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want."
To a surprising degree, that's still the protection that Social Security provides. By some estimates, without Social Security benefits an additional 11 million senior citizens would fall below the poverty line.
"If you think of it as the floor, you think of it very differently than if you think of it as a second tier or frosting to your retirement savings," says Robert Reischauer, president of the Urban Institute and former director of the Congressional Budget Office. Reischauer argues that if Social Security benefits were more generous, then diverting some of the money into more risky stock market investments might be a good idea. But if people are relying on it as their sole or principle means of support, then it might be more prudent to keep all their savings in the Social Security trust fund, which invests only in rock-solid government bonds and notes.
Bush, of course, is not proposing to tear up Social Security. He would trim, not eliminate, the traditional program while carving out revenues for individual accounts. Bush justifies the multi-trillion-dollar cost of using Social Security funds to create personal accounts by saying that over the long-run, the government would save trillions more because it would shed some of the obligations it pays under Social Security now.
But would the government really be relieved of its basic obligation?