Andrew McCarthy has raised some serious and important issues for conservatives to debate. Having criticized Charles Krauthammer in a previous column for being an establishment Republican who accepts the existing welfare state and who views it as a “triumph of liberalism,” McCarthy in his latest column praises Krauthammer as standing with him because in a column reprinted in his new book, it appears that Krauthammer too views Social Security as a Ponzi scheme.
I happen to agree with McCarthy’s important point that in our current era, Social Security is fiscally unsound and unless something is done, is bound to collapse. He chastises me, however, for not comprehending that Social Security’s true nature was hidden so that citizens would not realize “it was only one component of a transformative progressive vision.”
Let me respond in the following manner. First, I wish to quote an answer to McCarthy by Jon Burack, a reader of our columns, which he posted at PJ Media. Mr. Burack is an educator and curriculum designer for elementary and high-school social-studies and history programs. He makes the following points with which I am in agreement:
Krauthammer is right that mandatory contributions undercut the analogy [of Social Security with a Ponzi scheme], and contra McCarthy it is not a distinction without a difference. You cannot pull your money (taxes) out of the system simply because you suspect the rate of return isn’t good enough. Raise those taxes or adjust the payouts in various ways and the program is perfectly sustainable. What has made it problematic is not its semi-Ponzi character (which by the way FDR was not happy about either — McCarthy is VERY unfair to his understanding of what he was doing and why), but the vast demographic transformation underway. It was not a transformation FDR or anyone could have expected in the extreme form it has taken — skyrocketing life expectancy and baby boom-baby bust fertility. Krauthammer dwelt on that with Stewart not to ingratiate himself with a liberal audience, but because it is so. McCarthy collapses this demographic problem into the one that disrupts a Ponzi scheme when he says just like in a Ponzi scheme “there are not enough later entrants” in Social Security. In a Ponzi scheme that’s because entrants abandon the scheme. With Social Security it is entirely due to the demographic changes.
Moreover, McCarthy’s view that Social Security made “outlandish promises” is hard to fathom. The payouts were delayed, were very modest and did not apply to huge swaths of the workforce at first — domestics and agricultural workers, etc. The later expansions of the program may have been irresponsible, but I assume McCarthy does not begrudge the heavily minority poor a chance to get some of the benefits later on. In any case, outlandish, I guess is in the eye of the beholder. Social Security is here to stay, it can be made sustainable, and conservatives can either play a part in that or remain marginalized and totally irrelevant to the process.
Second, let me make some points about the origins of Social Security. Reading Andrew McCarthy, one would not know that the Left of that era was hardly happy with it. William E. Leuchtenburg, an eminent historian of the New Deal and a bona fide Americans for Democratic Action liberal of the 50s and 60s, writing in his book Franklin D. Roosevelt and the New Deal, describes the program as “a national system of old-age insurance in which most employees were compelled to participate,” with “retirement annuities financed by taxes on their wages and their employer’s payroll; the benefits would vary in proportion to how much they had earned.”
He then notes that “the law was an astonishingly inept and conservative piece of legislation. In no other welfare system in the world did the state shirk all responsibility for old-age indigency and insist that funds be taken out of the current earnings of workers. By relying on regressive taxation and withdrawing vast sums to build up reserves, the act did untold economic mischief.” He continues to disparage the law for not covering “those who needed security most: notably farm laborers and domestics.” And, yes, he criticizes it for ignoring health care, as well as failing to set up a national system of unemployment compensation.
As for FDR, Leuchtenburg points out that when a left-wing critic told him that employee contributions were a mistake, FDR explained they were instituted “to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits.” Whether correct or not, any political leader who believes the program should simply be ended, when contributions have already been taken out of a person’s wages over his or her working years, will be hard pressed to gather support no matter how conservative the workers.
I would make one other point about the program. It is contained in an essay I wrote years ago, titled “The Myth of the New Deal,” when I was on the political Left, in a book I co-edited with the late free-market economist Murray N. Rothbard, A New History of Leviathan. It can be found online on the site of the Ludwig Von Mises Foundation, hardly a bastion of leftist thought. (See pp.155–159.)
On the pages cited above, I make the point that the Social Security Act was first and foremost backed by major corporate leaders, was written by corporate lawyers, and faced opposition largely from small-business owners. The analysis of liberal historians such as Arthur M. Schlesinger Jr., who wrote that “organized business” opposed it and believed it was “pernicious,” and that Republicans supported “the business position,” is completely wrong. Not only did the Business Advisory Council support it, and set up its own committee on Social Security, but such titans of industry as the presidents of General Electric, Standard Oil, Chase National Bank, U.S. Rubber Company, Goldman Sachs, and scores of others, all favored it.
These corporate leaders all wanted a more inclusive piece of legislation, and opposed the Act’s watering down by Congress that discarded establishing minimum state standards for old-age assistance. Radicals who favored an all-out socialist-type program did not have their demands met. As one scholar of the Left put it, the Act “put a floor under consumer demand, raised people’s expectations for the future and directed political energies back into conventional channels.” Moreover, the distribution of wealth did not change, which was a primary goal of the radical Left.
One must remember that the country could well have been on the verge of a real leftist turn, and there were far more-radical proposals being floated that were gathering tremendous support from the disfranchised and the poor, and Roosevelt had a right to be worried that the country could have well been on the verge of a leftist social revolution. The Act, along with other New Deal measures, eased tension and helped create stability, preventing the success of radical movements that wanted more substantial revolutionary measures.
So what should conservatives and Republicans stand for? Here, I recommend reading an article by Jay Cost that appeared in 2011 in The Weekly Standard. Cost notes that Republican gains depend on the old Reagan Democrats staying with the Republican party, and a conservative coalition whose members understand that to win, Republicans cannot let them drift back to the ranks of the old failing Democratic party, whose leaders want to create new never-ending entitlements. “Once upon a time,” Cost writes, “the Democrats promised a reasonable social safety net that would not impede growth.” But now, the situation has changed. Thus, Cost concludes with the following words:
What the Republican party—supported as it is today by so many former Democrats—must do is what the Democrats used to claim to be able to do. The Republicans must find a way to sustain the entitlements that Americans have come to depend on—most notably Social Security and Medicare—without crippling the economy with increased levels of taxation. Liberal Democrats who demagogue about secret Republican schemes to destroy Social Security and Medicare have it exactly backwards. In truth, the Republican party—and only the Republican party—can save these entitlements without destroying the prospects for economic growth. The Democratic party can no longer be counted on to do this, which is why the GOP consists of so many old Democratic constituencies. This is the great mandate of the GOP: not to destroy the New Deal and Great Society, but to save their best elements from the ruinous ambitions of today’s liberal Democrats.
If we do not want to commit political suicide, the path favored by Andrew McCarthy is not one conservatives can afford to take. McCarthy can argue, as he has in National Review Online, that Social Security is a redistributionist scheme that must be turned back, and the welfare programs be ended on a federal level and turned back to the states. Even if he is correct in his economic analysis, such a path means the end of hope for any change in our direction, and will only drive those who might be on our side and agree to no further expansion of a limitless welfare state, to the side of the Democrats. The result will be that which neither Andrew McCarthy nor I want to see.
— Ronald Radosh is an adjunct fellow at the Hudson Institute and a columnist for PJ Media.