MANY AMERICANS today, with dim memories of the Great Depression, cannot recall the social and economic conditions that led to the creation of Social Security. American society, while far wealthier than it was then, still features the inequities and abrupt dislocations of everyday life that make government-guaranteed pensions a necessity of old age.
Historical anmesia helps explain the continuing push by President Bush and other free-marketers to privatize the Social Security system. Their initiative first came to public prominence in the 1990s, when the stock market was reaching the high point of a 20-year boom. Wealth appeared to be in every investor's grasp, so why wouldn't it make sense to allocate part of the Social Security tax to individual private accounts?
Any adult in 1935 knew the answer to that. They had lived through the stock market boom of the 1920s only to see that paper wealth vanish in a few weeks and then watched hopelessly as the crash became the depression. A quarter of the work force was unemployed. The New Deal policies of Franklin Roosevelt offered some improvement, but unemployment remained high, and many older people who did work were forced into poverty upon retirement.
By the mid-1930s, many Americans wanted protection, guaranteed by the government, against this dreadful prospect. "Therefore, we are compelled to employ the active interest of the nation as a whole through government in order to encourage a greater security for each individual who composes it," Roosevelt said in 1934 as he began to consider creation of the Social Security system. He introduced to the United States the concept of social insurance in which the government would pool the resources of the people to protect them against impoverishment because of old age or disability. "I am convinced that social insurance should be national in scope . . . leaving to the federal government the responsibility of investing, maintaining, and safeguarding the funds constituting the necessary insurance reserves," Roosevelt said in a message to Congress.
Roosevelt made sure that money for the program would not come from general taxation. Rather, all workers would make contributions via payroll taxes in the expectation they would receive retirement benefits from taxes contributed by younger generations.
The program has evolved over six decades to encompass more of the work force and to include workers' dependents and disabled people. It provides a better level of benefits than was first envisaged with an additional protection against inflation. But Social Security remains in essence what the Roosevelt administration designed: A pension that cannot be taken away or eroded because it is guaranteed by all the people as represented in their government.
Undergirded by Social Security, old age is no longer a predictor of impoverishment. Last year the poverty rate among the elderly was 10.2 percent, 2.3 points lower than that of the overall population.
During the first three decades of Social Security's existence, the economy expanded in ways that benefited Americans of all income categories and classes. The last 30 years have not been kind to people at lower income levels. Average wages for hourly production workers, which stood at $17.53 in December 1973 (calculated in 2003 dollars) were $15.78 last September. Social Security is needed now more than ever to buffer lower-income workers from the turbulence of an economy where people with higher incomes are receiving a disproportionately higher return on their labor.
In 1935, when Congress passed the Social Security Act, the gross domestic product totaled $766.9 billion (in 2000-equivalent dollars), much less than it was before the Depression. It took great courage and foresight for Roosevelt and Congress to make the financial commitment inherent in Social Security.
This year gross domestic production stands at $10.89 trillion, again in 2000 dollars, a fourteenfold increase over 1935. The US economy is generating more than enough resources to sustain the Social Security system far into the future. It is true that the baby boomers' retirement will put pressure on the system, with fewer workers paying for benefits. But solutions are available provided there is a political will to adjust the system to accommodate these changing demographics. Radical reform is not needed. Social Security was in the midst of its gravest crisis to date in the early 1980s, when a combination of inflation and low economic growth threatened the system with bankruptcy. A special commission led by Alan Greenspan recommended a series of payroll tax increases that, once passed by Congress, have kept the system solvent, generating surpluses that were supposed to be used to pay for the baby boomers' retirement.
But the surpluses, instead of being saved, have been used to offset federal budget deficits, including the latest series undertaken by the Bush administration. Rather than taking responsibility for Social Security, Bush and his allies have argued that the answer to future funding problems is to go outside the system by diverting a part of the payroll tax into private accounts. Instead of Roosevelt's emphasis on contribution and protection, these people talk of higher returns, increased assets, and a society based on ownership.
Roosevelt understood that in such a society, those who were not favored by talent, inherited wealth, or luck would be at a huge disadvantage. "Among an increasing host of fellow citizens, among the often intangible forces of giant industry, man has discovered that his individual strength and wits were no longer enough," he said in a fireside chat in 1934.
No one would wish for another Great Depression, but individual economic catastrophe can befall anyone afflicted with a disability, forced retirement, the loss of a breadwinner, a healthcare crisis, or an investment gone bad. Social Security is an enduring legacy of the New Deal that must never be left to chance.