Third Rail My Foot

8 February 2005

Mooing in unison about Social Security
By Craig J. Cantoni
February 7, 2005

They can be seen at all hours of the day at the casinos on the Indian reservation near my house in Scottsdale, Arizona. They can be seen making left turns from the right-turn lane and driving 20 mph slower than the speed limit in their Cadillacs, Buicks and motor homes. They can be seen waiting in line at the nearby Pancake House for a breakfast of three eggs, three pancakes and sausage.

It’s not just the sunbelt where they can be seen. They can be seen driving 90 miles east from Erie and 60 miles southeast from Buffalo to gamble at the Indian casino in western New York State near the hometown of my in-laws. And, when I lived in New Jersey for 10 years, bus load after bus load of them could be seen on the New Jersey Turnpike, heading for the casinos in Atlantic City.

Who are they? They are the elderly. According to the conventional wisdom, they are the people who would be living in poverty if it were not for Social Security.

When the press and politicians from both parties begin mooing in unison about something, it is a safe bet that they are regurgitating what they’ve heard instead of checking the facts. Lately, they have been mooing that Social Security had been responsible for lifting the elderly out of poverty after its enactment in 1935, and that without the program, most of today’s elderly would be living in poverty.

Ted Kennedy has said that, the Bush administration has said that, the New York Times has said that, the Arizona Republic has said that, liberal pundit Mark Shields has said that, and conservative pundit David Brooks has said that.

But is it true?

Since pebbles of truth usually can be found in an avalanche of propaganda, let me answer the question by separating the truth from the propaganda.

First, it’s important to recognize that “poverty” is an arbitrary classification that does not take into consideration improvements in the standard of living. Thanks to capitalism and the Industrial Revolution, today’s poor have a much higher standard of living than aristocrats 200 years ago. A king in 1805 could not buy an aspirin for his headache, penicillin for a fatal infection, vaccines for polio and smallpox, central heat, a television or even an antiperspirant.

But accepting the government’s definition of poverty, is it true that most seniors would be living in poverty without Social Security?

The conventional method of determining how many seniors would be living in poverty is to subtract Social Security payments from the income of the elderly. By that method, half of seniors would be living in poverty if it were not for Social Security.

There is a serious flaw in the method, however. According to Michael Tanner of the Cato Institute, the method does not take into consideration the amount of personal savings that seniors would have accumulated if they had not been forced to pay into Social Security (and Medicare) over their working lives and had not been given the expectation when younger that the government would provide a safety net for them in old age.

It is impossible to determine what the savings rate would have been without Social Security, but history provides some clues. We know, for example, that the rate of voluntary savings was higher before Social Security was enacted. According to the Concord Coalition, between 1870 and 1930 the United States had the highest average net savings rate of the top seven industrialized countries. It now has the lowest.

We also know that China and other developing countries have a savings rate that is much higher than ours, although their per-capita income is but a fraction of ours. And we know that because the total tax rate 100 years ago was about a third of today’s, workers could save a higher portion of their income back then.

There are other clues, mostly anecdotal. One clue is the demise of bromides about the importance of saving. Today, we rarely hear bromides that were popular during my grandparents’ generation, such as: “A penny saved is a penny earned.” “Waste not, want not.” “A fool and his money are soon parted.”

Another clue comes from my family but can be found in other families as well. My grandparents lived below their modest means and saved money for old age without the government’s help, although they immigrated to America poor and unskilled. For example, my mother was orphaned as a young child and raised by her immigrant aunt. The aunt pinched pennies all of her life, invested the savings in blue-chip stock, and bequeathed the sizable nest egg to my mother, who, in turn, wants to bequeath the now larger nest egg to her grandson. Such wealth is not included in income statistics.

Another change between today and yesteryear is that most seniors now live in their own homes, not with their children and grandchildren, as in the past. I’ll let sociologists debate whether this is good or bad for society, but it suggests that the elderly of today have considerable assets that don’t show up in income statistics. It also suggests that the elderly of yesteryear may not have been as destitute as income statistics alone would indicate.

The elderly of yesteryear not only relied on families more extensively than today but also on mutual-aid societies and charities. Sociologists, historians and economists disagree on the adequacy of such voluntary arrangements, but an interesting book on the subject is “The Tragedy of American Compassion” (1992), by Marvin Olasky, whose hypothesis is that the voluntary compassion of the past was more compassionate and effective than the involuntary “compassion” of today.

It is true that the elderly suffered during the Great Depression, but it is also true that FDR’s economic policies protracted the depression. Besides, it was not necessary to socialize everyone’s retirement in order to address a temporary problem that didn’t affect everyone. Social Security collectivization is akin to putting all Americans on the food stamp program because some Americans do not have the wherewithal to buy food, or forcing all Americans to live in public housing because some Americans can’t afford their own homes.

Many economists say that the elderly are the wealthiest group of Americans and that children are the poorest. Yet for every dollar the government spends on children, eight dollars is spent by the government on the elderly. Worse, Social Security and Medicare have become pyramid schemes in which the future income of today’s children is transferred to today’s elderly.

Still worse is how Social Security and other entitlements have changed the American culture and political system in profound ways—from individualism to collectivism, from self-reliance to government reliance, and from national and personal savings to national and personal debt. For more on this perspective and for a little-known history of Social Security, the link below will take you to a 100-page essay from the Ludwig Von Mises Institute, entitled, “The Revolution of 1935: The Secret History of Social Security.” The Introduction alone is worth reading.

http://www.mises.org/journals/essays/bresiger.pdf

When all of the foregoing facts are considered, it is a safe assumption that if Social Security didn’t exist, the number of seniors living in poverty would be far less than 50 percent, perhaps as low as the poverty rate for all other Americans. Whatever the percentage, the issue of Social Security reform would put in a different context if politicians and the press stopped mooing in unison and started to present the whole truth to the American people.

Mr. Cantoni is an author, columnist and founder of Honest Americans Against Legal Theft (www.haalt.org). He can be reached at either haalt1@aol.com or ccan2@aol.com.

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