Kevin Williamson on Social Security
By David Henderson
Note: I returned late Thursday from my 2.5-week vacation at my cottage in Canada. Thus the relative sparseness of my posts and especially of my answers to commenters.
In an otherwise excellent post, which I highly recommend, Kevin D. Williamson of National Review writes the following:
Social Security made sense in the context of 1935 demographics. It’s as obsolete as those suitcase-sized portables that Sandberg-Diment was scoffing at 50 years later. But we’re stuck with it, because there’s not much evolution in political programs. Government programs don’t die.
I disagree. It never made sense.
First, look at the context, specifically when it was introduced and when people started receiving payments. Many older people had lost their jobs and had little to fall back on. So, even if you favor having the government forcibly take money from some to give to others, wouldn’t it have made sense to help them immediately, in the middle of the Great Depression? But that’s not what FDR did. Instead, the first recipient of Social Security, Ida May Fuller, received her first Social Security check on January 31, 1940, over six years after the worst of the Great Depression was over. (By the way, this is the least powerful argument of my three. The unemployment rate was still in double digits in 1940. Suffice it to say that 5 years in the 1930s is a long time to wait for benefits from a Depression-motivated Social Security system.)
Second, in 1935, people who retired at age 65 did not live nearly as long as people today. So it made sense for them not to put away as much for their old age as people think reasonable today. So in 1935, it would have been a bad argument to say, “Look at the fact that people don’t save much for their old age and so we need a Social Security system to provide for them.” The problem was not the economic fortunes of the elderly per se; the problem was the lousy economic fortunes of a huge swath of the population, elderly and otherwise. So that’s another reason that Social Security did not make particular sense even in 1935.
Third and most important, look at the structure of the Social Security system. It’s a chain letter or a Ponzi scheme. It was set up that way. Franklin Roosevelt was someone who understood this. He stated:
We put those payroll contributions [sic] there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.
The essence of a tax-financed Ponzi scheme is that those who get current benefits are paid from the taxes of those who are currently working. For the scheme to work, it has to exist forever. Otherwise there will be a generation or two who pay taxes and get nothing in return. So for Williamson to say that Social Security made sense in 1935, he would have to claim that it makes sense now. He doesn’t, and rightly so. So he, and others persuaded by him, would do well to reconsider whether it made sense in 1935.
HT to Arnold Kling.