In Social Security reform, social conservatives and free-market types finally have an issue that ought to bring them enthusiastically together. Oddly, the White House that created this splendid opportunity seems slow to realize it.
Most of the discussion about personal accounts so far has focused on an unedifying debate about stock-market returns decades in the future. Much of the silliest material comes from the White House itself. One choice document, a “White Paper” from the Council of Economic Advisors, solemnly affirms the Social Security Trustees’ prediction that U.S. economic growth over the next 50 years will average a paltry 1.9 percent per year, much less than over the past 100 years. Then the very same document goes on to assert that U.S. stock-market returns will continue to average the robust 6.5-6.8 percent annual real returns we have seen since early last century.
In other words, the White argues that we need Social Security reform because the economy is headed for a 50-year slump, but that private accounts are the answer because stock-market returns are going to be as good as ever.
Far from papering over this contradiction, the White House actually celebrates it, proclaiming “there is no necessary connection between stock returns and economic growth in the long run.”
This is nonsense. Over time a general rise in share prices can be supported only by a general rise in corporate earnings, which can come only from robust economic growth. The council defends its position by claiming the global cost of capital and the risk premium demanded by equity investors are the real drivers of share prices. But the net effect is just nonsense on stilts. (For those who care, the risk premium responds to expected earnings and thus ties back to growth quite directly. Everything always does.)
The White House finds itself obliged to spout such drivel because it has chosen to sell Social Security reform on the notion that the present system is in crisis. The result is a sales pitch premised on decades of economic failure to come–not the kind of case an incumbent Republican administration ought to be making.
How about this as an argument instead?
Thanks to three decades of amazingly good economic policy, the U.S. economy is in great shape. With tax policy under President Bush even better than it was under President Reagan and a growing consensus for capitalism around the globe, the odds are that Americans are going to continue to create wealth with at least the astonishing alacrity we’ve seen since climbing out of the malaise of the 1970s.
The reason we should reform Social Security is not that we are so poor we have no choice, but that we are so rich now we can afford to make it what it should have been all along: not a subsistence program for impoverished elders but a way to strengthen American families and democracy itself.
Social Security has long been inadvertently antifamily. In the first place, parents who pay vast sums to raise children find their children’s paychecks “socialized” to pay for the retirement of someone else’s parents. Still worse, Social Security disappears at death, resulting in less “family capital” to be transmitted to the next generations. Emotional ties between family members have always been important, but so have economic ones. Social Security tends to weaken family ties by replacing the need for “family capital” in the form of the extended household with a check from the government.
Most bluntly, Social Security severely reduced the attractions of the old for the young by making the former dependents during their old age rather than potential benefactors after passing. The old tend to be much more popular with their heirs.
Social Security was not anti-family “on purpose,” of course. Nonetheless it is worth asking what the poor and working-class family structure in America would be like today if Social Security had been a personal-accounts program from the very beginning, enhanced for the first few decades with a flat-out income supplement for near-term retirees.
What if essentially every intact American family had a repository of inherited wealth, now two generations in the making, to pass on to the young? Would divorce be so common, or family formation so low? Would the young so easily spin out of the influence of the old? Would the path of hard work and gradual progress out of poverty seem so much less credible as an alternative to dealing drugs or other scams?
What if every American family was bourgeois?
Actually, that is not quite the right word. For Jefferson, democracy–the government of citizens by citizens–implied that the majority of the citizenry would be made up of small freeholders, citizens with sufficient capital in land to render them reasonably independent of both the state and the market in its more nakedly aggressive forms.
In a bustling commercial republic on its way to becoming a great industrial power, Jefferson’s vision rightly dissolved into a romantic fantasy. And yet it is impossible to deny that for all our wealth we still feel the deep anxiety of a people with an enviable income statement but no balance sheet to speak of–profoundly dependent on either the next paycheck or, when the paychecks stop, the government.
That anxiety remains a major force in our culture and our politics. It was the root of socialism. Even today it makes the Democratic party possible. No, the reality is worse. It makes the Democratic party necessary, like an overpriced commercial insurance policy for an especially risky venture.
The great Western economic drama–the progress from serf to peasant to free holder to unionized industrial worker to knowledge worker–is precisely the journey from having a firm claim on modest but durable assets and extended family support, along with a miserable income, to having a much higher income but no claim on anything or anyone in this world–not even your spouse (divorce rate 50 percent, available unilaterally and essentially for free), your parents (now divorced and parents to someone else’s children, or old and wards of the state), or your children (why come to us when you’re wards of the state)–other than the government.
Now, finally, we don’t have to make the trade off. We can build a society rich in both assets and income. We can be a republic of freeholders. We can’t all be rich, but we can all have independent means. We can have not only high personal incomes but family wealth as well. And where your treasure is, there will your heart lie.
–Richard Vigilante is co-editor of the Whitebox Market Observer, an investment strategy service, and has a dim but delightful memory of having been articles editor at National Review, sometime in the last century.