Published in The News Tribune, April 25, 2012
What is true in most poor countries today was true in our own long ago: When elders can no longer support themselves or make sense of what is said around them, their children take care of them. This is an example of a social compact that balances out in the long run, since children expect their kids in turn to care for them during their waning years.
Some may be surprised to learn that today this social compact is alive and well in our own country. It is called Social Security. With Social Security, the elderly look not to their own children, but rather to the collective contributions of the working generation; these workers in turn look to the next generation of workers for support during their retirement. The terms of this social compact are now politically determined, but the basic idea is the same: the economically productive support those who no longer are.
The point here is that there is nothing fishy, socially undesirably, or detrimental to our work ethic if one generation pays for the final days of another. Humans have done this ever since we sat around fires in caves and sketched (and likely exaggerated) that day’s hunting successes.
It’s clear though, that Social Security faces problems we need to address. Yesterday’s papers called its long-term prospects “grim,” and Robert Samuelson (TNT 4-10) depicts Social Security as unsustainable. But Samuelsonis wrong when he tells us that the root of Social Security’s problems is its “pay-as-you-go” feature. “Pay-as-you-go” refers to the fact that the working generation pays 6.2 percent of its wages in FICA taxes (which are matched by employer contributions); the federal government then uses this money to write checks to our nation’s retirees, in that way institutionalizing an enduring social compact.
According to Samuelson, though, this arrangement is destined to fail. For one the “contributions” are spent, not saved — of course they are, that’s the purpose — and moreover in the future we’ll need additional taxes to meet what others will feel they are (unjustifiably) “entitled” to receive when they retire: Social security, he writes, has become “ ‘the dole’ [and explains] why America’s budget problems are so intractable.”
But there’s nothing wrong with people reaching retirement and planning on and feeling entitled to a reasonable degree of support from the working population. Retirees in our country did their part to uphold their end of the bargain; they should expect others to do the same. I’m not sure why Samuelson believes this so-called “entitlement psychology” threatens our country. Such a social compact might even make us more, not less, mindful of others and our common interests. One could even say that Social Security embodies the family values that many treasure.
The key issue Samuelson (and the just-released 2012 Social Security Trustees’ Report) raises, though, is the fiscal challenge presented by a shrinking working population and a growing retired one, when dwindling contributions by the former no longer meet the bursting needs of the latter.
Granted this longer-term problem is a complicated one, but Samuelson’s singular emphasis on Social Security’s pay-as-you-go feature is misplaced. For one, abandoning the pay-as-you-go feature of Social Security — say by moving to individual accounts – doesn’t help: The working population could start saving for their own retirement, which would leave retirees without a monthly check; or it could both save for their own retirement while also paying for the elderly’s retirement. “Pick your poison,” seems apt here.
Oddly enough, though, Samuelson doesn’t advocate throwing out Social Security’s pay-as-you-go feature. Instead he thinks we should treat Social Security like the welfare program it is, a government handout that no one has earned nor is entitled to. And like other welfare programs – foodstamps, WIC, Medicaid, public housing — it should be limited to those who need it.
But Social Security’s pay-as-you-go structure is easily sustainable without turning it into a “welfare” program. Raise the retirement age a tad, tax more of higher-income earners’ wages and we’re about there. It wouldn’t take much to make Social Security a program our great-grandkids could count on.
Samuelson misses the boat when he says that Social Security’s pay-as-you-go feature threatens our public pension program and our federal budget. In truth it does neither. And except for that pesky problem of politics – and a few journalists — the problems it does face are surmountable ones.