WASHINGTON — The other day, while visiting a sick aunt in Little Rock, Arkansas, I happened upon the Clinton Library and thought I might check out a book. I, in my innocence, presumed that the Clinton Library is a lender’s library. How wrong I was. True to the Clinton tradition, it is a taker’s library; and they took my attache case, my camera, and some loose change. Alas, this is the monument created for the former Boy President, who shimmers in the eyes of many Democrats as “one of our greatest presidents.” If so, among his peers would be numbered, perhaps Warren G. Harding and Millard Fillmore.
While at the Clinton Library I thought I would review what the Boy President thought of Social Security reform. He was for it. Now he is still for it, except when he is against it; and he is usually against it when it is being propounded by a Republican. The most offensive Republican propounding Social Security reform is the President. That is not because his reform is so radical. It is not all that much different from reforms bandied about by moderate Democrats in the 1990s. It is because his reform envisages an entirely different view of the citizen’s relation to society. His reform envisages what he calls an “Ownership Society.” Today’s Social Security was born of a different era, an era in which government gives to the citizen. In today’s era of markets and growth economics, the citizen creates wealth, owns a part of the economy, and gives to government — ideally only a modest amount — through taxes. After all, government’s largess has little to do with growing a society. Peter Drucker said it best years ago. What government does best is wage war and inflate the economy.
Social Security, bred of the collectivist 1930s, could not return Social Security recipients as handsome a return as today’s private investments portfolios can because its managers had no notion of the dynamic growth economy that exists today. Moreover Social Security was based on a funding plan that has almost completely disappeared. It was based on a population wherein 16 or more citizens were taxed to pay the benefits of but one Social Security recipient. But the post-Baby Boom generations that have followed have steadily produced fewer children, which is to say fewer sources of Social Security revenue.
Today only three citizens are available to provide the funds for the growing number of Social Security recipients. Things will soon be worse. We shall be down to a two-to-one ratio. But that is not the only problem facing the present system. The return Social Security recipients receive from a life of paying into the government’s Social Security system is only about 1.4% of investment. That is a 1930s return on investment. At present estimates that rate of return will in coming years become a negative return. That is a Great Depression era rate of return. Private investment accounts pay out over 4%. The President’s plan for reforming Social Security envisages that kind of a return. Moreover holders of what he calls Personal Retirement Accounts will be free to bequeath whatever remains in their accounts at the hour of their deaths. That cannot be done by today’s Social Security recipients. If there is any money left over the government gobbles it up.
Critics of Social Security rightly argue that the present system is a huge pyramid scheme. The scheme is heading for disaster as the ratio of retirees increases vis-a-vis the population supporting them. Perhaps the bankruptcy of Social Security is not as near and will not be as catastrophic as some think. A tax increase and lowered benefits can keep the scheme going long. Yet higher taxes impede economic growth and cutting back benefits to those who have already been coerced into funding the system is unfair. Better it is to support the President’s plan to give retirees a higher return and the option of passing on their Personal Retirement Account to their heirs.
This dynamic vision of society is I suspect what really offends the President’s critics. They are true reactionaries. They live in the 1930s and tell us that the President is out to repeal the New Deal. But the New Deal cannot be repealed. It is part of American history. It might even have been the best national retirement program possible in its day. But that was seven decades ago. The economy has changed and it is time that we develop a retirement program that benefits from that change.
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