Building a Social Safety Net: Part I
Benefitting from Long Term Thinking
The Time to Be Alive
There has never been a better time to be alive materially speaking. A number of years ago the comedian Louis C. K. did a viral exchange on Late Night with Conan O’Brien about how “everything is amazing and nobody’s happy.”1 He was certainly on to something. In fact, his act understates just how fantastic it is to be alive today. So many of the things we take for granted would have been marvels to our ancestors. If you ever feel down you should spend 30 minutes perusing the website Human Progress which logs all the ways the human condition has improved—particularly life for Americans.2 It shows how little we think in the long term. If we considered our situation from the perspective of even a couple generations ago we should be filled with contentment. Hardships which were taken as given several decades ago are solved problems today. This leads us to consider how today’s seemingly intractable problems might become a thing of the past for future generations.
One emerging and highly complex problem is going to be managing the dislocation and marginalization of much of the work force due to exponential advancements in technology. The rise of varying types of artificial intelligences are likely to render many present jobs obsolete. History shows that rapid disruptions in the labor force can lead to civil unrest and even conflict. How do we mitigate the fall-out from the upcoming rapid changes in economic structures across the world? How do we craft not only a durable and robust social safety net, but how do we make one which is adequate for the most vulnerable in our society? Indeed, how do we craft one for all Americans?
Consider yourself as a young person fresh out of high school. You have your whole life ahead of you. There are several pressing considerations you cannot ignore. You need to find suitable employment. You need to determine what skills will be in demand in an economy with greater and greater digitization. One where a software update could render certain jobs obsolete. The rate of change may be such that certain skills would be valuable only for a limited time. You may have to “retool” your skillsets every few years. Such is likely to be the scale and rate of change in the incipient economy dominated by exponential innovation driven by artificial intelligence. Is college or trade school debt even worth the hassle? Beyond this, how do you pay for starting a family, having a baby, finding a house, a car, health insurance or any of the expenses a young person must contend with? To get to the heart of the matter—how do you build margin into your life? Can you begin a family on a starter salary with prevailing wages? Can you do this all while paying off student loan debt?
Our Progressive neighbors are on to something when they rail against the crushing burdens of student loan debt as well as the many challenges that regular persons face as they enter the work force. There is simply not much margin in peoples lives. Many people—especially young workers—have little to no surplus income. They are especially vulnerable to market disruptions. The looming challenge for America is to build a social safety net to deal with the dislocation and churn which will be the side effect of the automated economy of the future. How do we do this in a way that does not blow a hole into our nation’s fiscal solvency?
We do this through long-term planning.
We need to make decisions now which will benefit us, not next week, next fiscal quarter or even next year. We need to make decisions and investments which will pay dividends 20 or 30 years from now. We need a social safety net which will not just function but flourish in the year 2050. We establish it by leveraging modern wealth building tools, using the power of time and long-term thinking to create a robust social safety net. One which—dare I say it—could even provide a kind of Universal Basic Income (UBI) to help marshal our society through the disruptions and dislocations ahead.
In considering how to tackle this problem set it is important to remember that raw income and prosperity are two separate considerations. As Marian Tupy has noted, the “time-price” for many consumer goods has fallen since 1959.3 That is, the amount of time a worker has to work in order to afford consumer goods and appliances has decreased since 1959 and the quality of these goods and appliances have increased markedly.4 Even if wages seem stagnant, goods and services can become cheaper and better quality through technological and market innovations. We want wage growth but also, a kind of wage stability for all workers so that they can plan to have, at a minimum, a basic income stream. This would provide a bottomline level of income stability and help vulnerable workers navigate the rapid changes coming in the years ahead. It will allow them to reap the benefits of our incipient AI revolution while weather some of the shocks that will accompany rapid changes. As a nation, we must seek a safety net which offers margin and stability so that workers can pass through the pending turbulent years without ruin. In implementing a solution we must adopt political Centrism.
Political Centrism subjects political theory to the reality of what is. An ideal Centrist takes ideals and manifests them into the real world, accounting for the messiness of life which our lofty theories don’t adequately account for. The Centrist takes the best arguments of the Progressive and Conservative poles of our political economy and melds them into a new and robust synthetic mindset. So let me paint you a picture of a Progressive-Conservative solution to the coming dislocations.
The Centrist Solution
What if we could achieve Progressive goals regarding a flourishing Social Safety net and UBI through—ironically—leveraging Conservative modes of thought? Why not use a proven social safety net and evolve or re-structure it incrementally for the present century? Of all the Federal Government’s social programs, Social Security is perhaps the most salient and one of the oldest and most successful. According to 2011 data from the US Census Bureau, Social Security keeps 25 million people above the poverty line in the United States.5 However, Social Security is old—very old, bordering on 80 years old. We must ask ourselves whether a system designed in the 1930s is indefinitely sustainable? It needs reassessment and repurposing. When we talk of the present Social Security program we are really referring to “social security for seniors” as that is what the program is designed for. What does it offer to most people not in retirement? I propose that America repurpose Social Security from a retiree oriented program to a true social safety net, one which supports more people than those over 65.
Here is a thought experiment:
What if at age 30 you had access to $1.65 million dollars cash and a further $250,000 as a starter fund in a Roth IRA? What if all of this was fully, 100% your money? No loans, no commitments...nothing. Would you believe it possible? If there were a realistic system to make such a situation possible for every American as they turn 30 both Progressive and Conservative partisans would endorse it.
Creating such a system is doable. Transforming Social Security to yield the above scenario is actually quite feasible. It can be accomplished by reversing the program’s current investment philosophy. Broadly speaking, the investment philosophy of the legacy Social Security system is that an American worker invests in the program over the course of their working life via FICA taxes. Once retired, the worker’s investment is returned to their benefit via a monthly check that supports them in retirement. In this case the worker invests in the Federal Government and gets a return at the end of their life.
What if we, as a nation, inverted this philosophy?
What if America invested in its workers at the start of their lives and obtained a return on this investment, via tax revenue, throughout Americans’ working lives? The present system involves the citizen investing first and reaping benefits last. In contrast, what I propose is that the Federal Government be the party to invest first and in doing so both it and individual citizens would reap astounding benefits later—benefits far superior to those provided by the current system.
My proposal suggests an investment philosophy which leverages the widely accepted maxim that saving small amounts of money early and consistently yields greater dividends than saving larger sums later in life. At a certain point, money builds wealth by simply being invested—the laborer does little to no work. The key is to have a decent sum which can be invested and leveraged to grow over many years. Unfortunately, many workers (especially young ones just entering the workforce) lack surplus income to invest. They miss out on years of possible investment gains because they are simply not in a position to allow their money to work for them. To use a cliche, they live from “paycheck-to-paycheck.” Perhaps a worker wants to invest a couple hundred dollars but has to redirect that money towards an unplanned dental procedure for their child. Life happens and many Americans simply do not have financial margin to effect long term savings while dealing with the vagaries of daily life.
Instead of giving Americans their Social Security benefits at retirement why not give it to them early, and receive payment for it through tax revenue? What would happen if America invested in its workers early? By ‘early’, I mean SUPER early: such as when a worker is born. What would happen if at the point of birth the US Federal Government invested a substantial sum in a modified Roth IRA for each newborn American? We could call this modified Roth IRA a “Social Security IRA.” This notional Social Security IRA would be structured in much the same way as a standard Roth IRA with some slight modifications. The Federal Government investment would function as seed money which would grow to fashion a tailored social safety net for that particular citizen and yield several, quite remarkable benefits.
Let us say that under this new Social Security IRA system the Federal Government invests $250,000 into a modified Roth IRA for a newborn US citizen. This newborn’s parents would be allowed to contribute up to $500, per parent, each month until the child reached age 30. At or after age 30 the child (now adult) could make a one-time, tax free withdrawal from their Social Security IRA with the stipulation that a minimum of $250,000 must remain in the account with no further withdrawals permitted until retirement. How much money would this withdrawal yield and what would the IRA look like by retirement (let us say age 70)?
We will examine in this proposal in detail in the next post. Suffice it to say, we are looking at a 30 year old having access to $1.65 million dollars of their own capital—debt and tax free—whilst retaining $250,000 in a long term investment account. I will illustrate how coming up.
Louis C. K., “Everything is Amazing and Nobody is Happy,” October 1, 2008, in Late Night with Conan O’Brien, video, 5:49, youtube.com/watch?v=PdFB7q89_3U
Chelsea Follett, “Americans in 2016 Richer than Rockefeller in 1916,” Human Progress, February 23, 2016, https://www.humanprogress.org/americans-in-2016-richer-than-john-d-rockefeller-in-1916/ . Follett poses the thought experiment “how much money would it take for your to agree to live out your life a century ago?” Follett logs all the benefits of present day life that you would miss out on.
Marian L. Tupy, “Prosperity and Income Aren’t the Same Thing,” Human Progress, April 27, 2017, https://www.humanprogress.org/prosperity-and-income-arent-the-same-thing/.
Marian L. Tupy, “Prosperity and Income Aren’t the Same Thing.”
Elise Gould, “Social Security is the Most Effective Anti-Poverty Program in the U.S., In One Chart,” Working Economics Blog, Economic Policy Institute, July 30, 2013, https://www.epi.org/blog/social-security-effective-anti-poverty-program/.