Critical Observations on Social Security

The Social Security program in the United States is one of the largest and most sweeping government policies ever implemented.  There is no shortage of detractors and supporters alike for this program, to be sure, but one fact cannot escape even casual observation – the Social Security program directly and indirectly affects everyone to varying degrees.

The following are some general observations related to Social Security that often get lost in the 30-second sound bites of partisan debate on the issue:

1.  The Social Security program is unconstitutional.

Despite what the United States Supreme Court (USSC) ruled in Helvering v. Davis (1937), the Social Security program is not a constitutional exercise of federal power.  This ruling formed the backbone for the Court’s favorable interpretation of government’s vast power to apply the General Welfare Clause liberally and apply a national welfare program to the help the poor and unemployed.  While I do not argue that the USSC has the constitutional authority to interpret the Constitution and subsequent statutes, I have long held that the USSC can be and too often is wrong when it delivers its decisions (e.g., Dred Scott v. Sanford (1857), Plessy v. Ferguson (1896), Kelo v. City of New London (2005), etc.).  Helvering is no exception.

The problems so often infused with the judicial system stem from a combination of judicial activism – whereby judges seek to socially or otherwise engineer public policy through bench-issued decisions – and political pressures and loyalties.  The USSC reached the supportive decision in Helvering (and othersSteward Machine Co. v. Davis (1937), Carmichael v. Southern Cole & Coke and Gulf States Paper (1937)) as a direct result of then-President Franklin Roosevelt’s attempts to “pack” the court with his own appointees via the Judicial Procedures Reform Bill of 1937.  This bill was proposed by FDR adopted by his supermajority partisan allies in Congress because the USSC previously found many of his New Deal policies unconstitutional under a limited powers interpretation of the Constitution.  The USSC properly fell in line before the bill became law.

The Constitution is, by its very nature, a limitation on government.  This is an indisputable characteristic of constitutions between governments and governed the world over.  If the General Welfare Clause were truly intended to be interpreted with discretion by the Congress, which the USSC suggests in Helvering, there would be no need for all of the other limitations contained within the Constitution.  Obviously, a Bill of Rights, checks and balances, separation of powers, and states’ rights would all be unnecessary additions that would simply serve to confuse the issue.

The General Welfare Clause was never meant to stand alone, nor can it.  Article I, Section 8 of the Constitution states that the Congress shall “provide for the… general Welfare of the United States;…” and shall “make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers (emphasis added).”  The General Welfare Clause must be viewed in conjunction with what is necessary and proper for government to engage in.  This is a key point that was completely ignored in Helvering, and has its roots in the very role of just government.  The Declaration of Independence established the United States as a sovereign entity and most importantly declared why that government exists.  All subsequent government business derives its authority and rationale from that justification.  The Constitution was consequently established based upon the willing adoption of that declaration and outlined how that government would exist and function.  As an Organic Law, the Declaration codifies the reason for our government’s existence: “That to secure these [unalienable individual] rights, governments are instituted among men, deriving their just powers from the consent of the governed.”  The just and sole role of government in man’s life is and has always been to protect individual rights and freedoms that are inherently ours by right.  In this context, the Necessary and Proper Clause of the Constitution takes on a decidedly limited scope and the Social Security program, though debatably necessary, certainly was not proper pursuant to these ends.

Though supporters of the program will no doubt pour great faith in the decision as it affirms their interests, it is a pity that the USSC did not feel that this “constitutional” benefit extended to black Americans as well.  But I digress…

2.  The scope of the Social Security Program has continuously grown.

Like so many government policies and agendas, Social Security has evolved into something it was not intended to be – at least according to how it was publicly portrayed.  In Helvering, the USSC stated that “the hope behind this statute is to save men and women from the rigors of the poor house, as well as from the haunting fear that such a lot awaits them when journey’s end is near.”

In the context of the Great Depression, it was argued that Social Security was necessary and proper to secure individual rights – namely the right to life.  But notwithstanding the foregoing constitutional argument, the change of scope of the program over the following decades has largely invalidated that claim.  Social Security has morphed into just another welfare program, only this one is for all classes – the poor, the middle-class, and the rich.  Even the definition of poor in this country is an arbitrary one, rooted primarily in politics rather than sound economics.  Most of the nation’s “poor” still possess the important things is life such as a roof over their heads, transportation, and food (our poor generally are not starving, in fact many are obese).  Many folks classified as poor in America still find ways to obtain nonessential things such as video games, cigarettes and alcohol, cable television, cell phones, takeout food, etc.  The idea that the whole of the nation’s poor, as politically defined by the tax code and its subsequent brackets, are absolutely destitute and devoid of opportunity is flat out incorrect.

In Flemming v. Nestor (1960), the USSC expanded the rationale of the Social Security program based on “advantage” gained from its nationwide application.  In expanding its interpretation of Social Security to include simply the “retired” rather than strictly the poor and/or disabled, the Court acknowledged the economic advantage intrinsic to people spending a “comparatively large percentage of their benefit payments” and the obvious positive impact this has on a national economy.

3.  Current impact to the general welfare.

But ignore the first two observations for a moment.  Let us assume for sake of the point that the Social Security program was justly established genuinely pursuant to the nation’s general welfare.  That does not mean that the program now continues to facilitate that same general welfare.  In fact, it seems increasingly evident that the program is in fact damaging that welfare in direct opposition of its purported rationale.  Given that social programs, of which Social Security plays a significant role, contribute by far the most to the current and future national debt, and that debt causes significant inflation, national security issues, and financial instability, the general welfare can hardly be argued as being properly served any longer.  I would further posit that removing any incentive to embrace and foster individual responsibility in a given society is not conducive to that society’s long term general welfare either.

During the program’s development, FDR created a Committee on Economic Security to study the impact that senior citizens were having on the nation in terms of destitution, unemployment, and poverty.  Not surprisingly, the presidential committee’s findings statistically justified the President’s program.  Whether or not it was appropriate to utilize that committee’s findings I leave for the reader to decide for himself but certainly if such a study were used to rationalize the need for the program in 1937, should not the plethora of similarly-compiled evidence that demonstrates the damage it is causing in 2011 form the basis for rationale to migrate away from it?

The Social Security Board at the time stated that “approximately three out of four persons 65 or over were probably dependent wholly or partially on others for support.”  In the first place, that is exactly how societies are supposed to function if/when people are in legitimate need, and in the second, how exactly did this program change that?  All that it did was exchange private dependence – which is infinitely better managed and less wasteful due to its voluntary nature – for government dependence which is fraught with fraud, waste, and abuse and in the long term erosive to natural rights.  In any event, the conditions of the case have dramatically changed since 1937.  The intended beneficiary audience of this program is generally capable of taking care of themselves now more than any other time in history, and certainly far more so than was portrayed during the Great Depression.

4.  Social Security benefits are not a right.

Social welfare programs are not a natural individual right by any realistic interpretation but in this section I am referring to legal rights.  Many people feel that Social Security is nothing more than a government-run insurance plan that they have a right to draw from once they have reached a certain retirement age, but this is not the case.  In Flemming the USSC ruled that “to engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.”

The context of this decision was quite unique.  Ephram Nestor was deprived of Social Security benefits after deportation for being a member of the Communist Party from 1933 to 1939.  The decision did not focus on the appropriateness of deporting someone for a political belief held before the Cold War began (or at all for that matter) and when it was not illegal; that element of the story did not factor substantively into their decision – at least as the Court rendered it.  The Court upheld the decision to forego Mr. Nestor’s benefits (he paid into the system for 19 years prior to reaching eligibility age) because as he was permanently deported, his eligibility was no longer viable.  The Congress reckoned and the Court upheld that since his permanent residence outside of the country would prevent his reintroducing those benefit payments into the American economy, the situation was not significantly advantageous to that economy and therefore the government could legally deny eligibility based on the national interest.  Yes, you read that correctly.  It turns out that Social Security is not so much about taking care of the down trodden as it is about simple economics after all.  By this rationale, the Social Security program does not even pass humanitarian or charitable scrutiny; it amounts to nothing more than an economic stimulus plan packaged under a false flag.  By rendering this decision that authorized Congress to adjust eligibility based on a point contrary to the program’s original justification, it empowered the Congress to adjust eligibility for the benefits based on any rationale it deems convenient or conducive to the national interest – no matter the consequences to the individual involuntary participant.  Given that individual fiscal responsibility such as saving away for a rainy day or saving earnings for an eventual retirement are not as stimulating to the economy as spending money left and right is, it is not difficult to understand the political interests invested with keeping such a program in operation – but an individual legal right to a vested contributor it most certainly is not.

5.  The program is simply not practical fiscally.

This is probably the plainest facet of the Social Security debate and revealed itself as such almost immediately upon implementation.  In its infancy, Social Security was in effect a voluntary program as only the highest risk industries were required to participate pursuant to the aforementioned rationalizing arguments presented.  But that quickly came to a halt when it was realized that more revenue was necessary to satisfy the promised overextended expenditures.

Compounding this problem was the lack of protection for Social Security funds in terms of real monies.  In Helvering, the USSC held that “the proceeds of both [employee- and employer-paid] taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.”  This guaranteed the government’s ability to spend the money on other objects without seeking appropriations approval from the Congress, thereby circumventing the democratic process and solidifying the Social Security system as a pyramid scheme.  The USSC went further in Flemming by stating that “eligibility for benefits, and the amount of such benefits, do not in any true sense depend on contribution to the program through the payment of taxes, but rather on the earnings record of the primary beneficiary.”  Clearly, once the drawing out of benefits exceeds the revenues that went in, which on an individual basis happens more and more nowadays for a number of reasons, the proficiency of the system relies almost entirely upon a combination of debt accrual and “robbing Peter to pay Paul.”  At least in a pyramid scheme the victims are not simultaneously laden with massive debt burdens when they inevitably lose some or all of their investment.

6.  Social Security benefits are not earned in the truest sense of the word.

Unlike a military pension, which I discuss in a different post, Social Security benefits are not compensation for services rendered to the nation as a whole, and certainly not through any merit or sacrifice.  Many people like to compare the two as if they are identical and they simply are not.  Add to this that, as aforementioned, many folks draw out of the system more than they pay into it and the benefits cannot be legitimately characterized as having been earned.  It would be more feasible morally and fiscally to simply return every single dollar to every single living person who has paid into the system in one lump sum (minus whatever benefits they may have already received of course) than to continue the path we are currently on.  Even after adjusting for inflation, this method would yield a substantially smaller payout than current nondiscretionary obligations demand.

7.  Retirement is largely an artificial concept.

Because of Social Security, society has over time adopted the false presumption that retirement is an absolute life status – that once we reach 65 years old we have to retire.  Certainly some professions are not conducive to older employees but that is where management and administrative (among other) jobs come in to play.  Even vocational retraining would be less expensive than government-sponsored retirement.  For most modern professions, especially in as developed a nation as ours, performing beyond 65 is not only plausible it is often much more beneficial to the continuity and management of a business.  Good experience should not be forced out simply because the government says it is time to retire.

As economist Dale Steinreich points out:

Retirement is among the most economically wasteful and socially destructive institutions created by government.  The most experienced and knowledgeable workers are bumped from productive employment to the world of golf courses, bingo parlors, and TV watching.  Costly resorts and even entire towns were constructed to entertain retirees who have more time on their hands than activities to fill it.

Retirement punted older people out of the active community of enterprise, where they are most needed for both their skills and their positive cultural influence.  They have also been marginalized in society at large, so that young people tend not to interact with them on a daily basis.

As a result, older people are perceived as burdens on society, a greedy special interest group, and net tax takers, despite a lifetime of tax payments.  This is the key to understanding the huge decline in respect for older people…

This is not to say that the concept of retirement is a negative thing altogether but it is an individual decision that should be strived for on an individual basis via achievement, planning, and lifestyle management.  Certainly no system is perfect in application but there is such a thing as an ethical absolute, especially where governments and bureaucracies are concerned.  The pendulum is swinging back the other way, crossing into the unethical realm of wealth redistribution the way the current system is structured and executed and is damaging future generations’ ability to be self-determinant – which is about as unethical as a government can be short of outright violence against the populace.

Even in erring in their judgment in Helvering, the USSC nonetheless got one point correct: “Our concern here, as often, is with power, not with wisdom.”   Given that we are on a nonstop path to government-run, taxpayer-funded health care there is a lot to be learned from objectively evaluating universal retirement first.

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  1. Entitlements

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