Maintain a Strong Social Security with a Strong Physical Economy

by L. Wolfe and Nancy Spannaus

When President Franklin D. Roosevelt signed the Social Security Act into law on Aug. 14, 1935, only a relative handful of citizens were covered by private pension funds. If you weren't wealthy, or didn't have an extended family with means, there was no place that you or your family could turn to if you were in economic distress, except charity. Most Americans faced a future full of economic hardship and uncertainty, and a "poverty-ridden old age," to use FDR's apt description.

Today, thanks to FDR's commitment to the principle of the General Welfare, one in six Americans—nearly 46 million people—receives a Social Security benefit. Social Security is more than a monthly check at retirement age. Nearly one beneficiary out of every three is not a retiree; such people receive disability benefits, such as benefits for the blind. In addition, the Social Security Administration dispenses to the states monies to cover unemployment benefits, while also administering funding for the Medicare and Medicaid programs.

Since the 1970s, the Social Security Administration has administered Supplemental Security Income—the Federal component of what is commonly called welfare; more than 6.5 million people are still covered by these programs, despite efforts by the types of people who are now pushing President Bush's privatization looting schemes to reduce or eliminate such commitments. Of the more than 6.5 million SSI recipients, 31% are aged, 56% disabled, and 31% disabled children, according to the Social Security Administration.

And, it is still the case that Social Security represents the only source of retirement pension income for the vast majority of Americans.

In 2002, more than $453 billion was spent on Social Security benefits, and another nearly $38 billion on SSI benefits. This total amounts to approximately 5% of the total Gross Domestic Product of the United States.

A Trust for Future Generations

In crafting the proposal, FDR and his team, headed by Labor Secretary Frances Perkins, designed the funding to make explicit his concept of the program's expression of the General Welfare principle. Rather than have a portion of the employee's paycheck set aside, to pay for future benefits of that employee and that employee alone, the tax on the paycheck would be appropriated into a "trust fund" that would finance the entire program without additional expense from the general budget; the employee's contribution was to be matched by an equal contribution from the employer. And most important, the control of these trust funds was to be in the hands of the Federal government and the Federal government only.

FDR was aware from the start of the danger that private financial interests would try to get their hands on the Social Security funds. In his address to the American people on Jan. 17, 1935, he warned: "Third, sound financial management of the funds and the reserves, and the protection of the credit structure of the nation should be assured by retaining Federal control over all funds through the trustees in the Treasury of the United States."

The Social Security payroll tax paid by employers was highly controversial and the subject of attack by various financial and business groups. Roosevelt countered that this was "fair," since the employer's well-being and wealth had been created by the labor of his employee; such employers now had an obligation to help provide for the economic security of those who created their wealth. (The Chile plan, you will notice, does not tax employers.)

Taxation levels were to be set high enough to assure that funds were available not merely to pay for those contributing, but to cover those who would become eligible, but who had not made any payments because the program either didn't exist yet, or because they might come to this country as immigrants. They were also set at levels that would assure that monies would be sufficient to cover current benefit payouts and the costs of the administration of the program, while also creating a surplus; in that way, the current generations were paying for their grandparents' and parents' generation, as well as for their children, and their children's children.

Whatever else the Bush privatization looting scheme does, it smashes this transfinite sense of responsibility for past and future generations' General Welfare, appealing to the more limited and selfish sense of one's relationship to immediate family—for "me and mine."

FDR educated citizens that their survivability and the survivability of the nation were bound together as one; that each American was responsible for the welfare of all Americans, and that their government had a sacred duty to act to mediate this shared responsibility and trust.

It Really Does Work!

Despite the Bush people's claims to the contrary, Social Security has worked remarkably well. Overall it has collected more than $4.5 trillion and paid out over the years more than $4 trillion, which means it should have a surplus, even now. This is even more astounding considering that in general, Social Security pays out far more money to a beneficiary than the beneficiary and his or her employers contribute, as well as, since 1950, paying Cost of Living Adjustments based on calculations of the impact of inflation. This has been accomplished through the tweaking of the tax rate, raising it when necessary.

As various studies have pointed out, Bush is lying when he says that the system won't be able to cover its payouts in the middle of the next decade. But there is a problem, coming some years down the line, perhaps 35-50 or more years from now, if there are no changes made during that time.

That problem is caused by a number of factors related to the structure of the physical economy, none of which is corrected by the Bush looting scheme. First, and most important, the post-industrial paradigm shift which has brought the world economy and financial system to the brink of collapse, has created a much larger number of so-called "self-employed" workers—workers whose employers are not required to make contributions; this has reduced the total contribution for such jobs by 50%; in addition, the growth of the "underground economy," where no contributions are made by anyone, also reduces current income streams. Further, we have had the "raiding" of the Trust Fund, starting in the 1980s and carried out by several administrations of both parties, reducing the available surplus; while there is a promise to pay such funds back, it remains unclear how and when this might take place.

Meanwhile, the U.S. population is rising faster than in the recent past, shattering some estimates about numbers of people to be covered in the future. On the other hand, the increase in the population, if that population goes to work, will ultimately lead to more people paying into the fund, and providing for retirees.

Fixing the Economy Is the Solution

The guarantee for a strong Social Security program lies strictly in providing for the expansion of the physical economy, through the promotion of scientific and technological progress. Over the course of the last 30 years, what has weakened the Social Security system has been the take-down of the physical economy in every crucial area, especially the failure to replace and upgrade vital infrastructure in the fields of transportation, power, and water. Collapses in these areas have led to declines in real physical productivity, as opposed to the apparent monetary "bonanzas" achieved through the cutting of wages, maintenance, and necessary long-term investments.

On top of the physical decline, of course, the bankers and their servants in government have piled up an enormous debt upon an economy more and more incapable of paying it. This process has indeed brought us to the point of bankruptcy—not in the Social Security system per se, but as a financial system as a whole. It's the system that's bankrupt, not Social Security. And the system can be fixed.

The only solution to this bankruptcy crisis is Lyndon LaRouche's program for bankruptcy reorganization, followed by the issuance of Federally backed credit for a massive infrastructure construction program, to begin to rebuild the economy. LaRouche estimates that such a program will create 10 million new jobs almost immediately, both on the public or private projects themselves, and within the industries which will have to supply the components for them.

"We can't afford that!" you can almost hear the average Democrat, not to mention Republican, scream. That's because they don't understand the basic principles of physical economy put forward by LaRouche, or even the basis upon which FDR premised his recovery program.

Economic progress, just like Social Security, depends upon long-term investments, investments which will actually only be realized in a generation, or longer. Just as you don't expect a baby to "pay for itself," or make a contribution to society, in less than 25 years or so, so you don't expect an immediate "payback" from an investment in an electric power plant, or a dam, or a water treatment plant. Society will eventually reap the benefits of this infrastructure, but it may be your children, even your grandchildren, not you yourself. Thus, the appropriateness and necessity of government-backed credit, which can be paid back over a long period through increased tax revenues.

While FDR did not directly link his Social Security program with his infrastructure programs, they were nonetheless conceptually linked in this way. Massive projects such as the Tennessee Valley Authority network of dams and power plants and irrigation systems were initiated by FDR, with an understanding that they would create future revenues and prosperity. That increased prosperity would, among other things, permit the United States to take care of those in society who could not support themselves, such as the aged, sick, and unemployed.

Government credit can be issued today, in the same way, in order to launch such projects. As with NASA, whose investment in the Apollo program was calculated to have paid back the U.S. economy with a ratio of $14 to $1, the benefits of employment in decent-paying jobs, and of the physical efficiency of the economy—through such improvements as fast trains replacing traffic jams, or reliable electricity replacing brownouts—will more than pay for the investments required to achieve them.

Of course, this program cannot be carried out unless the current bankrupt financial system is reorganized, with masses of speculative debt frozen, and new regulations put into effect which will ensure that the new credit is directed to certain specific projects, is maintained at a very low interest rate (2-4%), and does not become absorbed into the speculative financial system which is currently leeching on the national wealth.

LaRouche's recovery program has called for precisely such measures, at the same time that it has insisted that the ongoing commitments to entitlements like Social Security and Medicare be maintained, and it has called for negotiations between nations which will restore protection, fix currency rates, and create the conditions for new, stable, mutually beneficial international economic cooperation agreements.

To save Social Security, rebuild the economy! Now!

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