The third rail of American politics has become many things to many people in the seven decades since it was enacted. For the right wing of the spectrum it is the epitome of American socialism, a blight and signal of all that is wrong with the progressive movement of the twentieth century. For the left wing, it has become a sacred compact with million of American seniors, and those who one day hope to become senior citizens. It’s merely a tax on the young worker that they one day hope to see returned. These intractable positions poison the debate on what to do about American debt in the future, and in the very short term. But, that program can’t realistically bare the burden placed upon it by so many disparate factions. Change is clearly called for.
For all it has become, the Social Security program began as something very simple. It was a means to stimulate the economy. During the Great Depression, a lack of credit had killed a nascent, but important, consumer economy. The purchases of radios, freezers, cars, and homes on credit during the 1920s had created a credit bubble that would inevitably burst as it did in 1929. With the economic contraction came unemployment and a freeze on investment as the wealthy and middle class alike hoarded what they had to wait for sunnier days. Such conditions create a self sustaining depressing effect on the economy. Franklin Roosevelt’s administration came to power in 1933 on the promise of alleviating the American share of a global economic catastrophe. Social Security is about Demand
Roosevelt was not alone in his efforts to end economic depredation. Europeans turned to socialism and fascism in order to restore confidence and put people back to work. National and international socialism seemed to be the only methods to create a functioning economy. Europe would largely control the supply side of the equation by dictating goods, and funding the direct production of goods and services. While socialist measures were attempted in the U.S. as well (to varying degrees of success), the greatest success of the New Deal as it came to be known was on the demand side.
The various programs that were created by the Social Security Act of 1935 were almost entirely about creating consumer demand. It was no accident that the lion’s share of benefits would be tied to the retirement provisions, and those that provided for those unable to work. By paying a small, and direct, stipend to the elderly, spending was encouraged. The elderly would have fewer incentives to save their stipend than would a younger person, and thus, the money would return to the economy directly. By spurring demand for consumer goods, business would be encouraged by market effects to ramp up production to meed the new demand. While there were certainly benefits to the elderly individually in terms of dignity and safety, the government spending was about injecting capital into the economy. Simple Keynesian economics.
Keeping in mind the initial rationale for Social Security, means testing may make sense. A payment to an already wealthy retiree does little to increase their spending. The payment must be made to those who are forced to spend by the poverty of their alternatives. A Social Security check saved in a bank, or worse as cash at home, is money robbed from the economy. While egalitarian, and fair to the worker who has done well for themselves over their working career, these payments miss the purpose of the program. In the end, the wealthy retiree must understand that their “good fortune” came in part from an economy at full employment. An economy with a few haves, and many have nots, does not generate the growth necessary to sustain anyone. While it may be inflationary, direct payments to the poor are necessary to keep consumer demand growing absent any other natural market cause. Its more than economics. Its history.
