Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.

The Ultimate Bailout

Spring 1997

The New York Review of Books
December 16, 1996, pp. 68-72.

Jeff Madrick, an economic journalist of statist bent, shows us the mind of a true leftist at work. He begins by pooh-poohing the alarmists who predict a crisis for Social Security. True enough, by the year 2020, the system will owe "$200 to $300 billion a year" in benefits more than it raises in taxes (p. 68) In part, the difficulty arises because the federal government has spent funds from the misnamed "trust fund."

Why is this not a crisis? According to Madrick, a "modest increase" in Social Security taxes now could prevent the impending shortfall in funds. But, he admits, "Washington would likely squander" the increase in the trust fund that higher taxes would bring (p. 69). He suggest instead that the government invest part of the trust fund in common stocks instead of Treasury bonds. Madrick's "logic" arouses interest: since the government has squandered the trust fund, we might as well give it a stranglehold on the stock market as well. One suspects that what Madrick calls "moderate plans" are modest proposals in the sense of Jonathan Swift.

Having shown to his own satisfaction that the "crisis" can be solved, Madrick himself admits that a further aspect of the problem stumps him. If the deficit in Medicare is taken together with that of Social Security, things do not look bright. "Social Security and Medicare could absorb more than 12 percent of the nation's GDP in 2020 and more than 15 percent in 2040...taxes would have to rise to 25 percent to 30 percent of wages to fund both programs unless changes are made" (p. 69).

Here then is how to defuse a crisis. Propose a solution; when you admit that it faces a fatal difficulty, toss up another; continue the remedy as necessary. Our author unfortunately forgets that you must not end up with one more problem than solutions.

And why go through the trouble? Isn't Social Security a poor "investment" for those not now of retirement age? Madrick admits that those "who retire today or in the future will receive an average return [on their contributions] of perhaps only a couple of percentage points. Higher-paid workers may well get back less than they contribute" (p. 70). Why raise taxes and turn the economy over to the government for such meager results?

But this misses the point, Madrick informs us. The Social Security program "was never originally designed to give workers the highest possible return on their invested payments" (p. 70). Quite the contrary, it aims at redistribution of income.

Why then include nearly everyone in the program? Need one ask? It is to gain political support for it. If the redistributive aims were openly avowed, the American people might be unwilling to tender the degree of support our Washington masters think required. "The unspoken appeal of privatization [of Social Security and Medicare] may well be that it allows the middle class to reduce its commitment to help those who are less fortunate" (p. 72).

Look at the "hardship" inflicted on hundreds of thousands of children, Madrick laments, by cuts in daycare programs. Who can doubt that the American public is too "callous" to be left to its own devices? "If day care or early educational programs were available to 90 percent of all American children...they would be far less likely to lose political support" (p. 72).

Plainly put, Madrick thinks that people are too stupid to notice that they are supporting more redistribution than they wish, if they are tossed a few crumbs. And why worry about cost? As Mr. Micawber said, "something will turn up."


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