The Social Security Fable

by Andrew C. McCarthy
No, it was never intended to be an “insurance” program.

Franklin Delano Roosevelt’s legacy — or is it mythology? — lies at the center of an emerging chasm on the right. His domestic statism bequeathed us the modern American welfare state. His World War II leadership was largely responsible for victory over Nazi and Japanese totalitarianism, yet set the stage for the brutal Soviet conquest of half the world — and whether “set the stage” means “passively indulged,” “actively facilitated,” or something in between, is the nub of the argument.

At the peril of oversimplification, I would contend that neoconservatives — an important bloc of the conservative movement, and one that is extraordinarily influential in the Republican party — recall FDR more fondly than do more traditional conservatives. As Charles Krauthammer observes in Things That Matter, a terrific new collection of memorable Krauthammer columns, many neoconservatives have made the political journey from left to right, as Charles himself has. They harbor sympathy for liberal aspirations to a more egalitarian society, even as they recognize the damage wrought by New Deal and Great Society programs. They see FDR as the heroic trailblazer of a true Pax Americana, a world stabilized by U.S. engagement, leadership, and strength.

To the contrary, more traditional conservatives (I count myself in this camp), seethe over the evisceration of limited-government constitutionalism and the blurring of lines between prudent foreign interventions and international adventurism, between sovereignty and multilateralism. It makes for a healthy intramural debate — as long as we try to remember that it really is intramural, as we often forget when it gets as heated as it is at the moment.

Ronald Radosh, the former Marxist and accomplished neoconservative historian, has lately been the spear’s point in defending the FDR legacy on both the foreign-affairs and domestic-policy sides. His blistering review of Diana West’s American Betrayal vigorously champions Roosevelt’s conduct of World War II. I believe Ron gives Diana’s book a bad rap, and I will explain why in another column, coming soon.

For now, my focus is the New Deal welfare state, especially Social Security. This week, at his PJMedia blog, Radosh took exception to my NRO column from last weekend, which dealt (for a second consecutive weekend) with the divide between the so-called Republican establishment and the conservative base: the former sympathetic to the Washington-centered welfare state wrought by the New Deal, the latter to the Constitution’s original, limited-national-government framework. I have elsewhere addressed Ron’s objections to my column’s critique of Dr. Krauthammer’s appearance on Jon Stewart’s television program — in which Charles described Social Security, Medicare, and Medicaid as “the great achievements of liberalism.” Here, I will tackle the Radosh take on Social Security, which parrots a Roosevelt-administration fairy tale that even its authors abandoned three-quarters of a century ago when forced to justify the program in Supreme Court litigation.

Radosh claims that Social Security “at its start was not meant as a welfare program”; it was, instead, a retirement-insurance program — as he puts it, “aid to elderly retirees that would be based on funds taken from their own paychecks that would be given to them upon retirement.” According to Ron, you can trust that this is the case because . . . FDR said so. (A voice in the back of my head chirps, If you like your health-insurance plan, you can keep your health-insurance plan!) Thus, the argument goes, unreconstructed conservatives like me are “more than foolish” to contend, contra Radosh, that Social Security, along with Medicare and Medicaid, are (here Ron quotes me) “frauds designed to create permanent dependency on government.”

Radosh insists that Krauthammer agrees with him. Apparently, while Ron appropriately praises Charles’s new book, he missed the 2011 column on Social Security included in the collection. Dr. K aptly titled the column, “Of Course It’s a Ponzi Scheme.” In it, he acknowledges what ought to be incontestable: “Social Security is a pay-as-you-go program. A current beneficiary isn’t receiving the money she paid in years ago. That money is gone.” That, he concludes, is what makes it not insurance but the very “definition of a Ponzi scheme.” In such frauds, “Word [ultimately] gets around that there are no profits, just money transferred from new to old. The merry-go-round stops, the scheme collapses and the remaining investors lose everything.”

FDR’s insurance claim was a façade, and far from an idle one. It was adopted precisely because Social Security was — by design and operation — a welfare program. New Dealers worried not only that an unprecedented federal welfare program would be unpopular in principle; they realized that an honest proposal to provide welfare for the destitute elderly would not garner political support for the taxes necessary to pay for it.

Radosh need not take my word for this. He can start with William Voegeli’s excellent Never Enough: America’s Limitless Welfare State — a book Ron describes as “one of the most important . . . ever written by a conservative writer” before oddly attempting to use it as a cudgel against me. “The New Deal,” Voegeli aptly asserts, “was not just an ambitious effort to end the Depression, but an ambitious effort to expand the scope of government — dramatically, endlessly, and permanently.” Within that framework, as related in Liberty and Tyranny by Mark Levin (who is not just a bestselling author and popular radio host, but also a former Reagan-administration official and a very able constitutional lawyer), FDR “designed Social Security to entangle the individual in a methodological fiction — the illusion of insurance — that would addict the individual to the opium of entitlements.”

The canard that Social Security was meant to be a self-funding insurance program is part of what Voegeli describes as the Left’s incessant refusal to argue for good-faith welfare programs — i.e., to make the very argument I suggested in my column for straightforward, transparent welfare. Were the Left to make that argument, Voegeli says, it would sound like this:

The welfare state is good and necessary. The taxes it requires are not fun to pay, but they fund programs that improve the quality of life for everyone by strengthening and uniting our nation. We should accept and even embrace those taxes as a fair price we pay for the essential benefits they buy.

Why won’t the Left make this case? Voegeli provides the answer:

Liberals have avoided this argument in favor of any and every alternative they can find. They have made this choice out of fear that voters’ enthusiasm for welfare state programs will never be sufficient to win their support for the taxes to pay for them. Rather, liberals have tried to establish an adequate political foundation for the welfare state by indulging the voters’ wish that someone or something other than they themselves will pay for its programs.

Foremost among the classic deceptions the Left has used to garner political support is the ludicrous assurance that, as Voegeli frames it, “welfare state programs will pay for themselves. . . . Voters, therefore, needn’t worry their pretty little heads about the price tags.” That’s the legerdemain of packaging Social Security as “insurance.” Pulling off such a con job becomes much easier when commentators like Radosh continue to credit what Voegeli tartly calls the Left’s “non-Euclidian economics” — long after the fraud is manifest, and even as the country sinks deeper into an ocean of red ink.

Social Security’s illusion of insurance papered over what, for progressives, was the inconvenient fact that worker “contributions” were actually a regressive tax that charged the same fixed amount to the lowest-wage worker and the millionaire. As Mark Levin notes, Roosevelt was emphatic that these taxes had nothing to do with the program’s economic viability or lack thereof. They were, FDR said, “politics all the way through,” enacted “to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits.” Even if the numbers did not add up, the universal sense of entitlement fostered by framing assessments as contributions rather than taxes assured that “no damn politician can ever scrap my Social Security program,” as FDR presciently put it. Mark adds Milton Friedman’s explanation that presenting Social Security as insurance was a “fiction” preserved by the “accounting sleight-of-hand of a bogus trust fund.”

Though Radosh is still peddling the “insurance” Kool-Aid, the Roosevelt Justice Department was forced to abandon it 76 years ago, when the constitutionality of this government-mandated “insurance” program was challenged. Social Security did not really involve insurance contributions, FDR’s lawyers told the Supreme Court; they were just taxes like any other paid into the treasury generally — “The tax moneys are not earmarked, and . . . Congress is at liberty to spend them as it will.” It was on that representation — not on the Radosh portrayal of “funds taken from [workers’] own paychecks” earmarked for their retirement — that the justices upheld the program in Helvering v. Davis.

You’ll notice the eerie similarity to Obamacare: the nation gulled into believing an ambitious welfare program was constitutionally suspect insurance regulation, only to have the Supreme Court sustain it as taxation — despite the president’s contrary insistence. Still, the yarn of Social Security as “insurance” endures, inexorably inviting politicians to expand “insurance coverage” categories, and hiding the true cost of the program, which worker “contributions” cannot cover.

The true nature of Social Security also had to be hidden because New Dealers knew it was only one component of a transformative progressive vision. For example, as I’ve previously observed, FDR’s Committee on Economic Security initially contemplated conjoining Social Security to a health-insurance plan along the lines of what eventually became Medicare — which itself was a Trojan Horse whose proponents wanted universal compulsory socialized medicine. Health insurance was disaggregated from the package deal because of FDR’s fear that the resulting wrath of the public and the medical profession would imperil passage of Social Security. But Roosevelt got right back to it the day after he signed the Social Security Act, directing the new Social Security Board to study the “related” area of health insurance.

Ultimately, FDR outlined the Left’s comprehensive agenda in his 1944 inaugural. It was — and it remains today, in the redistributionist age of Obama — the “second Bill of Rights,” so well described by Jonah Goldberg in Liberal Fascism: the central government as guarantor of “a useful and remunerative job,” “a decent home,” “adequate medical care and the opportunity to achieve and enjoy good health,” “adequate protection from the economic fears of old age, sickness, accident, and unemployment,” and “a good education.” Of course, to refer to this as a “bill of rights” was, and is, a perversion. The object of the original Bill of Rights was to protect the citizen from government overreach; FDR’s aim was to enable government overreach — to empower Washington to confiscate the citizen’s property and redistribute it as the feds saw fit.

A final point. After a touching disquisition on the need for “serious and respectful” public discourse, Radosh dismisses my column as “a child’s temper tantrum.” He borrows this phrase from Steve Hayward’s very fine introduction to Voegeli’s Never Enough, thus demonstrating that Ron does not grasp Steve’s point any better than he grasped my column. Steve referred to some on the right — mostly “doctrinaire libertarians” — who’ve complained over the years about the “injustice” of the welfare state, as having the notion that

it is wrong in principle to take from one person to give to another. When private citizens do this, it is called “theft,” but when government does it, it’s called a “transfer payment,” “income security,” or some other euphemism. 

Whatever logical appeal this complaint may have, Americans, including the vast majority of conservatives, do not categorically oppose welfare programs. They subscribe to Samuel Johnson’s epigram: “A decent provision for the poor is the true test of civilization.” It is, then, akin to a child’s temper tantrum to denounce the welfare state ever louder in the expectation that this will change the public’s mind about the propriety of welfare in principle — that was Steve’s contention.

He’s quite right, and a fair reading of my column would not suggest that I disagree. My argument is not materially different from Voegeli’s contention that conservatives’ only hope to limit the welfare state is (to quote Hayward) “to overcome their categorical opposition to it.” I argued that the Constitution frowns on a federal welfare state but allows the states to have welfare programs as robust as they are willing and able to pay for. As I said in the column, quite apart from the principle that the Constitution must guide us (that, after all, is what it is for), it also in this instance produces the best policy: welfare programs conceived and administered by the communities affected by them, under budgetary disciplines that do not exist at the federal level.

Still, I was not so daft as to make the perfect the enemy of the good. If we are going to have a federal welfare state, I contended, it ought to be in the form of straight, transparent welfare programs: i.e., we define those we are agreeing to help with exactitude, then — in the light of day, and without Ponzi-scheme “insurance” chicanery and the like — we raise the necessary taxes to pay for the program, within the budget and without saddling future generations with deficit-spending interest. This would force the afore-described confrontation Voegeli indicts liberals for evading: How much welfare state are we willing to pay for — with the understanding that we have to pay for it now?

Perhaps Ron Radosh thinks this is a fool’s errand, although given his professed admiration for Voegeli’s work, one would doubt that. Or maybe he just thinks it is a pipedream to envision (a) a dramatically overhauled, transparent, finite 21st-century federal welfare state that replaces today’s Social Security, Medicare, and Medicaid; or (b) a populace that comes to the realization that welfare is best left to the states — an arrangement under which welfare would work better and the federal government would better perform its proper responsibilities.

For myself, I look at the entitlement state’s suicidal debt spiral, realize that it will collapse of its own weight if not radically restructured, and conclude that it is Ron who is dreaming if he believes that what cannot continue will somehow continue.

— Andrew C. McCarthy is a senior fellow at the National Review Institute. He is the author, most recently, of Spring Fever: The Illusion of Islamic Democracy.