Making the Case for Social Insurance in the 21st Century

President Obama is to be commended for making economic competitiveness and innovation the focus of his State of the Union address. Indeed, major new investments in infrastructure, energy and education are needed to secure America’s place in the 21st century economy. The question remains, however, as to whether Democrats' 21st century vision will accord an appropriate role for the social insurance programs and protections that helped make America great in the 20th, as the President would like, or follow the oft-repeated Beltway truism that we must “invest, even as we cut,” which is code for investing in infrastructure at the expense of our modest social safety net. Rather than view the President's competitiveness framing as a threat, we progressives must seize it as an opportunity to elevate and expand our social insurance programs, as well as enforce our labor and trade laws. We have a very strong case to make that from both a substantive and a political perspective, America will achieve economic greatness because of a robust social safety net, rather than in spite of one.

Many center-left infrastructure enthusiasts are already suggesting that we should cut a compromise deal with Republicans that would involve cutting “entitlements” in exchange for an infrastructure investment bill of unspecified size. This position is exemplified by Thomas Friedman’s column [1] in Saturday’s New York Times. Friedman singles out Singapore’s model of governance for high praise, because, he insists, it knows where to invest (infrastructure and education)—and where not to invest (the social safety net). Now, I am no expert in Singapore’s retirement security or healthcare systems, and I suspect that neither is Friedman. I do take issue with Friedman’s insistence that the United States will not succeed in emulating Singapore’s high science and math performance if it does not cut entitlements. Friedman jumps seamlessly from an interesting anecdote about a Singaporean science teacher to a clichéd condemnation of official Washington for just not “getting” the need for major "entitlement reform":

This was just an average public school, but the principal had made her own connections between ‘what world am I living in,’ 'where is my country trying to go in that world' and, therefore, 'what should I teach in fifth-grade science.'

I was struck because that kind of linkage is so often missing in U.S. politics today. Republicans favor deep cuts in government spending, while so far exempting Medicare, Social Security and the defense budget. Not only is that not realistic, but it basically says that our nation’s priorities should be to fund retirement homes for older people rather than better schools for younger people and that we should build new schools in Afghanistan before Alabama.

In falsely equating Republican intransigence on defense and would-be Democratic opposition to Social Security and Medicare cuts, Friedman plays the insidious “greedy geezer” card. The idea is that every dollar we spend on building “retirement homes for older people” is a dollar taken away from America’s future. Thus, America’s grannies, apparently the only ones left defending our wage insurance and healthcare programs, are protecting their own narrow interests at the expense of everybody else. (David Brooks, Friedman’s mushy middle counterpart on the Times op-ed page, spells out [2] the “cut and invest” equation more explicitly, calling for a grand bipartisan compromise centered on major entitlement cuts and new infrastructure investments, though unlike Friedman he remains skeptical of the effectiveness of the latter.)

It is hard to know where to begin debunking Friedman’s fallacies. Which entitlement program pays for enrollment in retirement homes, anyway? This remark betrays Friedman’s bourgeois biases, in assuming that all elderly Americans get to retire to assisted living facilities in Boca Raton, FL, thanks to Social Security and Medicare. Sorry Tom, your largesse may pay for your parents to live in a sunny condo, but the two-thirds of seniors who rely on Social Security for a majority of their retirement income are probably not living as comfortably.

But the bottom line is that Friedman—and nearly every other Washington pundit obsessed with the idea of “cut and invest”—just does not get how basic social insurance actually makes our society stronger and wealthier. The case we progressives need to make emphatically is that Social Security, Medicare and Medicaid are more relevant to American competitiveness than ever. Compromising on them is compromising on innovation.

In a new world economy where flexibility is everything, fewer employers can afford to offer decent pension plans, or cover their employees’ health care costs; global financial markets have decimated the value of workers’ 401(k) accounts; and Americans are much more likely to change jobs frequently or work independently. For us to maximize our human capital we need to reinforce the basic guarantees provided by Social Security, Medicare and Medicaid. Without these guarantees, companies whose healthcare and pension costs cause them to suffer competitively will continue to stagnate, or be forced to pass these costs on to their employees and consumers. Americans will be less likely to invest their savings in capital markets, start businesses and pursue the expensive advanced degrees needed to succeed if they cannot guarantee their basic well-being and standard of living.

Sara Robinson [3]has already written very eloquently about the vitality of universal healthcare for America’s economic growth and progress, in her blogpost "What Would You Do if You had Guaranteed Healthcare?" [4]. The case for strengthening income insurance in general, and Social Security in particular, is no less compelling.

On Social Security, William Arnone, a former partner at Ernst & Young and retirement planning expert, puts it best. When asked at a National Academy of Social Insurance (NASI) panel in June, whether Social Security has the effect of discouraging private investment, Arnone answered that just the opposite is true. Once he explains to his clients what they are entitled to under Social Security, they have a lot more flexibility to pursue higher risk investments in the capital markets.

In other words, knowing you won’t fall into poverty in old age enables investment and productive behavior, by providing a floor beneath which your standard of living will not fall, regardless of the risks you take.

Further, unlike many means-tested programs that sadly discourage work and social mobility, Social Security actively rewards achievement. This is because of Social Security’s unique structure as a universal wage insurance program. While programs like SSI and Medicaid remove their protections the moment a person reaches a basic level of income, Social Security rewards work, by providing greater benefits, the more someone earns (while still replacing a higher proportion of earnings for poorer workers).

The result is not a social safety “hammock,” as Rep. Paul Ryan would call it or even a social safety net as we tend to describe it, but more like what Hilary Doe [5], National Director at the Roosevelt Institute Campus Network [6], calls a “social safety trampoline.” To be sure, Social Security is there to catch us if misfortune befalls us, as a net might figuratively do. But it is a trampoline, in that by neutralizing our anxieties and incentivizing productivity, it propels us into the labor market, where the sky is the limit to pursue our dreams.

Finally, many advocates of the “cut and invest” approach fail to understand the stiff ideological barriers that even their efforts face in the contemporary political environment, and as a result, spurn their natural political allies in the labor and progressive movements. The real problem is not the enormous debt we have racked and our inability to reckon with it in an “adult” way. The real problem is an entrenched neoliberal ideology and power structure that has for three decades shrunk government revenues down to miniscule levels and crippled our government’s ability to maintain basic services and regulate industry, thereby undermining public confidence in the very idea of “government.”

To get the kind of sustained investment in infrastructure alone, that Friedman and his ilk ceaselessly advocate, it will take more than a two-bit compromise with Republicans that slashes trillions in Social Security and Medicare and allots a few hundred billion for bridges and high-speed rail. It will take a major sea change in our political climate from one that focuses on cutting government to create growth, to one that focuses on investing—in all aspects of American life. If infrastructure enthusiasts embrace the talking points and narrative of neoliberal budget wonks that public spending comes only at the cost of private growth, they will have contributed to the culture of deficit and antigovernment fear. And if we continue to allow this fear to take hold, we will never see the $4 trillion investment in our infrastructure that experts believe is necessary in the coming decades if we are to bring ourselves up to speed with other developed nations.

The same argument can be made for supporting tougher enforcement of our trade laws, a major priority for the labor movement that unconditional free trade advocates like Friedman have yet to embrace. We can create as many wind energy and biotech plants as we want, but if China is free to steal our patented technologies through arcane trading provisions, manipulate its currency, put hidden tariffs on our exports, and dump its child-labor produced technologies in our markets, then it will all have been for naught.

On a practical level, if the labor movement, which has by far the largest field, lobbying and fundraising operations of any left-of-center constituency, is forced to expend resources on defending entitlements (which it already has), that much less of its power will be available to push for infrastructure investments. If labor perceives that infrastructure advocates are working against its key interests in other areas, it will likely refuse to coordinate its efforts with those groups. Whether you are an infrastructure wonk at a think tank, a climate change advocate at an environmental group, or a New Democrat supporting high-speed rail for your constituents, you will want to be on the receiving end of labor's massive organizing clout, rather than left out in the cold.

Those of us interested in building a prosperous, competitive American economy in the 21st century for all to enjoy should work with and for one another. To the extent that the “cut and invest” crowd cuts and runs from its progressive allies, conservatives committed to blocking government investment of all types will grow stronger--and we will all be more likely to fail.