Twentieth Century Fund
41 E. 70th Street,
New York, NY 10021
tel. 212.535.4441
fax 212.879.9190
Washington Office: 2400 N Street, N.W., Washington, D.C. 20037
web: http://epn.org/tcf.html
email: xxthfund@ix.netcom.com
STATEMENT OF RICHARD C. LEONE
PRESIDENT OF THE CENTURY FOUNDATION
Societies everywhere are converging in a belief that high rates of
economic growth and long-term prosperity are possible only with
free markets, but they also continue to learn and relearn lessons
about the risks that accompany free enterprise. These risks underscore
the abiding importance of building strong, democratic governmental
institutions to enforce the rules of the game and to deal with the
abuses of the marketplace. Moreover, even in strong economies,
individuals confront unavoidable uncertainty about the long-term
outcome of a lifetime of work, savings, and investment. Experience
everywhere confirms the indispensability of a reliable social safety
net, especially for our youngest and oldest. Reform of Social
Security should reflect this hard won knowledge about the workings
of capitalism and democracy.
The choices that we make about the future of social insurance will
go a long way toward answering basic questions about America: What
is the proper role of government in an overwhelmingly private-sector
economy? How can we create fairness and opportunity for all our
citizens? How can we reduce inequality and poverty? Thus, we can
and should assess each proposal for change in Social Security in
terms of its potential effect on economic growth, inequality,
fairness, and efficiency. Until recently, Social Security has
operated with relatively little controversy, routinely and efficiently
accomplishing the task for which it was created-- reducing poverty
among the elderly. Today, without it, more than half of Americans
over age 65 would fall below the poverty line. With the retirement
of America's largest generation--the baby boomers--in sight, however,
both Social Security and health programs for the elderly have moved
to center stage in political and policy debates.
At one extreme, some argue that America will be doomed to a sharply
diminished future unless extreme steps are taken to change the way
we support the aged. They claim that the system is near collapse
and that "privatizing" it will give everybody better protection in
old age. But the evidence suggests, instead, that moderate
adjustments in burdens and benefits can solve foreseeable problems
within the framework of the existing system.
Too often, Social Security reform is discussed as though the program
were merely another savings or investment program whose purpose
was to yield the biggest return. Social Security is more; it is a
disability and life insurance policy that provides vital protections
to virtually every member of our society. Currently, seven million
survivors of deceased workers and four million disabled Americans
receive income support. The Social Security Administration calculates
the value of the disability insurance as the equivalent of a $203,000
policy in the private sector; for a 27-year-old average-wage worker
with two children, Social Security provides the equivalent of a
$295,000 life insurance policy. The total value of these two policies
nationally is about $12.1 trillion, more than all the private life
insurance currently in force.
Social Security also provides a lifetime retirement annuity whose
benefits rise with inflation. Many corporate pensions run out after
20 years, and most are not adjusted for inflation. The notion that
these basic protections would be unnecessary if we all saved more
money is simply false. The truth is that neither of these protections
are available in the private market at a price that the vast majority
of Americans can afford.
Social Security works because virtually all of us belong to it and
pay into it. Social Security, after all, does not consist of a
bunch of piggy banks with our names on them. Our pooled contributions
insure that almost every senior citizen receives a minimum income.
Although some of us need the protection more than others, all of
us get some benefits. It is the nature of such pooled plans that
both the most fortunate among us (the wealthy) and the least
fortunate (those who die young and without a family) get the least
from the program.
It is a fallacy that everyone can do better than average if we take
control away from the Government. Averages exist because some of
us do worse and some of us do better. Moreover, to the extent that
higher market returns are sought--for example, by investing Social
Security surpluses in higher yielding investments--they can be
achieved less expensively and with less risk within the framework
of the existing system. Privatization advocates wish away the
reality that individual accounts can mean high costs and risks.
They also often ignore enormous transition costs--one plan requires
increased taxes of $6.5 trillion during the next 72 years.
In the end, of course, there is no magic formula that will sweep
away all the issues raised by the aging of the boomers. For all
but a few fortunate individuals, as well as for the nation as a
whole, many questions (like life's risks in general) cannot be
wished or legislated away. Given the long-term nature of the implicit
contract involved in a retirement program (perhaps sixty years from
the start of work to the end of life), such risks are inevitable.
Over such a span, birthrates and medical progress are unpredictable,
securities markets are sure to experience immense volatility, and
even the most stable democracies are likely to experience sweeping
transformations in politics and policy. In other words, the future
development of society will remain complex and uncertain. Ultimately,
the inevitability of risk, when combined with the uncertainties
intrinsic to the careers and health of individual workers, makes
the strongest case for a safe and conservative social insurance
program.
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