John Ransom

It is an axiom in the insurance business that insurance is not bought but sold. In 1935 Franklin Roosevelt sold Congress and Congress sold the U. S. the Social Security Act, the biggest, most comprehensive, most expensive mass insurance policy ever written. Since then its purchasers, the nation's taxpayers, have had occasion to read their policy carefully and, if they have detected no outright jokers, their reaction has been such that practically every politician in the U. S. from Franklin Roosevelt down has put revision of Social Security at the top of his must list.-  Pie from the Sky Time Magazine, Feb. 13, 1939

“It takes a great deal of history to produce a little literature,” said American-born writer Henry James. While generally James has been proved correct, in the case of Social Security, the literature, at least by volume, has swamped the history.

One of the earliest pieces of literature that contributes to the history of Social Security is Time Magazine’s Pie from The Sky, an account of a House Committee hearing called to deal with “reforming” Social Security. The hearing was held four years after passage of the Act and before even a single check was written to old age beneficiaries. The Time article is stunning not because it gives us a quaint, sun-dappled and leaded window into the Norman Rockwell past, but because it provided a pinpoint, spotlight prediction of the acrimonious future of a failed federal program.

It predicted, amongst other things, that by 1980 the “the bond interest” on Social Security “will in turn have to be met by the Treasury, through other taxes.” That is, that the insurance “scheme” was really just a Ponzi scheme that would collapse in time if other taxes to fund it weren’t raised in the future. In fact, the prediction was off by just three years. The solvency of the program was addressed in landmark legislation pushed through by President Ronald Reagan and Speaker Tip O’Neil in 1983. That legislation though only amounted to a twenty-year truce in the Social Security war. The truce ended at the turn of this century.

The Time article also said that the federal government would borrow the money accumulated from the Social Security “reserve” to finance deficit spending and ultimately the public would have to pay the bill:

[L]ast week came a fresh round of ammunition from Liberal Economist John T. Flynn. Writing in Harper's on "The Social Security 'Reserve' Swindle," plain-talking Mr. Flynn declared:


John Ransom

John Ransom is the Finance Editor for Townhall Finance.