[Congressional Record (Bound Edition), Volume 147 (2001), Part 7]
[Senate]
[Pages 9059-9061]
[From the U.S. Government Publishing Office, www.gpo.gov]



                    KIRK O'DONNELL MEMORIAL LECTURE

  Mr. HOLLINGS. Mr. President, I had the pleasure of attending the Kirk 
O'Donnell Memorial Lecture on American Politics last month to hear our 
distinguished former colleague, Daniel Patrick Moynihan. No one worked 
harder on public policy or served with a more distinguished record than 
he. His lecture offered an enlightening perspective on current 
discussions about Social Security and I ask unanimous consent that it 
be reprinted in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

 A Thrift Savings Component for Social Security: Bipartisanship Beckons

                      (By Daniel Patrick Moynihan)

       I have entitled this lecture ``A Thrift Savings Component 
     for Social Security: Bipartisanship Beckons.'' I have done so 
     not without a measure of unease. For it was our own Kirk 
     O'Donnell who famously declared Social Security to be ``the 
     third rail of politics.'' But then Kirk was ever one to take 
     a dare. And I would note that the third rail was first 
     installed on the I.R.T. subway in Manhattan, the Big Dig of 
     its day, which Charles Francis Murphy had built as a favor 
     for a friend.
       But allow me a brief explanation for such reckless abandon 
     at a time in life when serenity ought properly be one's 
     object.
       The end of the cold war did it!

[[Page 9060]]

       On December 7, 1988 Mikhail Gorbachev went before the 
     General Assembly of the United Nations to declare in effect 
     that the Soviet ``experiment'' was over. The French 
     Revolution of 1789, he said, and the Russian Revolution of 
     1917 had had a powerful impact ``on the very nature of the 
     historic process.'' But, ``today a new world is emerging and 
     we must look for new ways.'' That was then, now was 
     different. ``This new stage,'' he continued, ``requires the 
     freeing of international relations from ideology.'' The world 
     should seek ``unity through diversity.'' Then this: ``We in 
     no way aspire to be the bearer of the ultimate truth.''
       But of course since 1917 and before the essence of Marxist-
     Leninism had been the claim to be the bearers of ``the 
     ultimate truth.'' No longer; it was all over. And indeed in 
     short order the Soviet Union itself would vanish.
       For someone of the generation that had been caught up in 
     the second world war and the cold war that followed, 
     Gorbachev's address could fairly be described as one of the 
     extraordinary events of the twentieth century. All but 
     unimaginable at mid-century. I had been in the Navy toward 
     the end of World War II and was briefly called back during 
     the Korean War. I was in London at the time. Early one 
     morning we mustered in Grosvenor Square and by late afternoon 
     were crossing Holland on our way to the naval base at 
     Bremerhaven. Partly, well mostly, for show, I had brought 
     along a copy of Hannah Arendt's newly published The Origins 
     of Totalitarianism. I opened to the first page, read the 
     first paragraph to myself, then read it aloud.
       ``Two world wars in one generation, separated by an 
     uninterrupted chain of local wars and revolutions, followed 
     by no peace for the victor have ended in the anticipation of 
     a third World War between the two remaining world powers. 
     This moment of anticipation is like the calm that settles 
     after all hopes have died.''
       Silence. At length the senior officer present allowed: 
     ``There must be a bar car somewhere on this train.''
       That war never came and soon there were signs of 
     instability in the Soviet empire. In 1975 I returned from a 
     spell in India convinced that the Czarist/Soviet imperium 
     would soon break up, as had all the other European dominions 
     following that Second World War. Shortly thereafter I was at 
     the United Nations when the Soviet Under Secretary for 
     Security Council Affairs defected to the United States. The 
     diplomat, a man of great intelligence, had simply ceased to 
     believe any of the things he was required to say. Doctrine 
     was receding even as ethnicity was rising.
       Then there was Moscow in 1987. I was there on a mission of 
     possible importance. Was treated with great courtesy, 
     including a tour of Lenin's apartment in the Kremlin. Behind 
     his desk was a small bookcase, with two shelves of French 
     language and two of English language authors. They could well 
     have been Lenin's or possibly were put there for the 
     delectation of visiting intellectuals in the 1930s. No 
     matter. I found that I had personally met three of the 
     writers. Next day I called on Boris Yeltsin, then Mayor of 
     Moscow. Our excellent ambassador introduced me, recounting 
     the authors I had recognized. It was clear Yeltsin had never 
     heard of any of them. Could care less. After a pause he 
     looked at me, and through a translator declared, ``I know who 
     you are and where you come from. And what I want to know is 
     how the hell am I supposed to run Moscow with 1929 rent 
     controls?''
       Housing. Fairly basic, and in desperate short supply. At 
     the other end of the consumer spectrum, as we were leaving 
     what was still Leningrad, I told our KGB handler that some 
     constituents in New York had given me the names of relatives, 
     hoping I might call them. But it seemed there was no 
     telephone book in our room. Perhaps he could find one for me. 
     He went off; came back. There was no telephone book in 
     Leningrad. None that is available to the public.
       In the years preceding and the years following this brief 
     adventure it appeared to me that ethnicity was the central 
     conceptual flaw of Marxism-Leninism. The workers of the world 
     were not going to unite. The Red Flag, red being the color of 
     the blood of all mankind, was not going to fly atop the 
     capitols of all the world. I continue to think that, and to 
     suppose that the 21st century will see even more ethnic 
     division. But I have added to my views a further component to 
     the failure of communism which is nothing more mundane than 
     consumerism.
       It serves to recall the fixed belief of the early Marxists 
     that free markets--capitalism in that ugly French term--would 
     bring about a steady lowering of living standards, from which 
     a politicized proletariat would rise in revolt. In John 
     Kenneth Galbraith's phrase, ``The prospect of the progressive 
     immiseration of the masses, worsening crises and . . . bloody 
     revolution.'' But as a new generation of Soviet leaders 
     ventured abroad, they came to realize that nothing of the 
     sort was happening in the West. While at home . . . In the 
     end they simply gave up.
       Let us see if these two categories can be related in terms 
     of our future as the one remaining world power, to use the 
     phrase of the moment. Which will not necessarily or may not 
     be current two or three generations hence. Unless, in my 
     view, we ought to tend to certain domestic issues very soon 
     now.
       Begin with ethnicity. It would be just forty years ago that 
     Nathan Glazer and I finished Beyond the Melting Pot. Our 
     subject was ``The Negroes, Puerto Ricans, Jews, Italians and 
     Irish of New York City,'' but we had something more in mind. 
     Marxist theory predicted, you might say, that these groups 
     would meld together as a united and militant mass, as 
     espoused by assorted left-wing organizations. We argued that 
     nothing of the sort had happened, or would; if anything, 
     groups tended to become rather more distinctive with time.


       We wrote that ours was a beginning book, and after forty 
     years I can report that a more than worthy successor has come 
     along.
       In yet another remarkable achievement, The New Americans: 
     How the Melting Pot Can Work Again, Michael Barone, drawing 
     in part on our earlier paradigm finds parallels with new 
     immigrant groups, notably Latins and Asians, members of the 
     largest wave of immigration in our history. Demography is a 
     kind of destiny. If there are any parallels in history, and 
     there are, should we not look to a new era of inequality, 
     competition, and conflict of the sort we experienced in the 
     late 19th and early 20th century? I would think we ought, and 
     would further contend that we got through that earlier time 
     in our history in considerable measure through the social 
     provision made by governments of that era, culminating in the 
     New Deal of the 1930s. I would add, gratuitously if you like, 
     that much of that social contract began with New York 
     Governor Alfred E. Smith, who rose out of the quintessential 
     melting pot, the lower east side of Manhattan.
       Here, then is a proposition. Our response to the end of the 
     cold war has been singularly muted, both in foreign and 
     domestic affairs. In particular there has been no domestic 
     legislation of any consequence. Neither as reward or 
     precaution. (The G.I. Bill of Rights of 1944 was a bit of 
     both. A reward to the veterans, and a measure to moderate the 
     anticipated return of high unemployment.) I can envision a 
     similar combination, albeit in reverse order.
       In a word, unless we act quickly, we are going to lose 
     Social Security established in that first era as a guaranteed 
     benefit for retired workers, widowed mothers, and the 
     disabled and their dependents.
       We have just fifteen years before outlays of Social 
     Security exceed income. This after eighty years of solvency 
     and surplus. Again, demography. Social Security began as a 
     pay-as-you-go system. The population cohort in the work force 
     paid taxes that provided pensions for the population cohort 
     that had retired. A Social Security card was issued to each 
     worker, with the faint suggestion that there was a savings 
     account of some sort somewhere in the system. Franklin D. 
     Roosevelt famously told Luther C. Gulick, a member of his 
     committee on government organization, that while it might 
     indeed be a bit deceptive, that account number meant that 
     ``no damned politician'' could ever take his Social Security 
     away. But all understood the reality.
       Problem is that in the early years there were thirty odd 
     workers providing benefits for one retiree. No longer. Today 
     there are three. By 2030 there will be two.
       To repeat, as the Trustees now calculate, by 2016 the 
     system will pay out more money than it takes in. There is 
     nominally a trust fund representing surpluses accumulated 
     over the years, but to redeem the bonds will require general 
     revenue. The system is no longer self-financing, with all 
     that implies.
       Obviously we ought to forestall insolvency. But would it 
     not be well, at the same time, to address the matter of 
     intergenerational transfer. This was well and good when there 
     were so few retirees. No longer. Would it not then be prudent 
     to enable workers within the Social Security system to 
     accumulate savings of their own to be used as they see fit 
     during retirement?
       I will argue that we have to do the first, and if we do, in 
     the process we would be enabled to do the second.
       The workings of such a system are not complex, or so I 
     would contend. Mentored by David Podoff, I introduced a bill 
     in the 105th Congress. With some refinements I reintroduced 
     it in the last Congress, the 106th, as S. 21, a first day 
     bill. Senator Bob Kerrey of Nebraska, a fellow member of the 
     Finance Committee, was a co-sponsor.
       Four measures are required to ensure solvency:
       First. Social Security benefits are tied to the Consumer 
     Price Index compiled by the Bureau of Labor Statistics. Some 
     forty years ago as an Assistant Secretary of Labor I was 
     nominally in charge of the B.L.S. where, in the aftermath of 
     a study carried out for the National Bureau of Economic 
     Research, it was agreed that the C.P.I. overstates inflation. 
     It can't be helped; it is in the nature of the beast. It 
     simply needs to be corrected. A 0.8 percentage point drop 
     would do it nicely. We need normal taxation of benefits; as 
     with other pensions.
       Second. We need to bring all newly-hired State and local 
     employees into the system. (It is still optional, a holdover 
     from the 1930s when the Supreme Court would probably have 
     ruled that the Federal Government could not tax State 
     governments or subdivisions thereof.) Well down the line we 
     will

[[Page 9061]]

     need to raise the retirement age once again. We did this in 
     1983, providing a gradual ascent to age 67 by 2027. This will 
     one day need to rise by similar small steps to, say, 70 at 
     mid-century. But consider; we estimate that persons who 
     retire at age 70 in the year 2060 will on average live 
     another 17 years. Surely a goodly spell. And note that the 
     majority of today's beneficiaries retire before reaching 65. 
     Benefits are lower, but the option is there and most persons 
     take it. (It would be well for the now freestanding Social 
     Security Administration to do some survey research to sort 
     out the different reasons folk take this option.)
       Third. We should tax benefits in the same way other 
     retirement payments are taxed. We began partial taxation in 
     1983.
       Fourth. We would increase the maximum computation period 
     over time from 35 to 38 years, and by stages increase the 
     OASDI contribution and benefit base to $99,900.
       Now to a thrift savings plan. The payroll tax began in 1935 
     at 1 percent for employee and employer. It rose by degrees 
     until in 1977 it was set at a combined rate of 12.4 percent, 
     scheduled to take place in 2011. However, a combination of 
     miscalculation, the Consumer Price Index, and misfortune, a 
     sharp inflation owing to oil price increases, led to a sudden 
     crisis. In 1982 the revered Robert J. Myers judged that under 
     the existing law ``the OASDI trust fund will very likely be 
     unable to pay benefits on time beginning in July, 1983.'' A 
     Presidential Commission was created, and in the end it 
     succeeded. Deficit was avoided. But the date that the maximum 
     rate of 12.4 percent to kick in was advanced to 1990. Hence 
     the current surplus.
       We argue, however, that with the adjustments I have 
     outlined, the earlier 10.4 percent payroll tax will provide 
     present retirement benefits for the required 75-year period.
       This is crucial. We must absolutely guarantee that the 
     present benefit structure will continue in place before we 
     start devising a thrift savings component. To do otherwise is 
     to invite the most shrill protests of raiding a sacred trust 
     for the benefit of Wall Street, and so on.
       However, we can do both. And oughtn't we? At this point in 
     time our income tax system is remarkably progressive. The top 
     5 percent of taxpayers pay 53.8 percent of income tax. The 
     bottom 50 percent pay 4.2 percent. But Social Security is 
     paid on the first dollar of income however low that income 
     might be.
       We could, of course, repeal the 1977 increase. It would 
     mean some money in people's pockets, but not so much as you'd 
     notice.
       Or we could start thrift savings accounts for the work 
     force at large, much along the lines of the Federal 
     government program begun in the 1980s. An add on, not a 
     ``carve out.'' Employees would choose among a number of 
     plans, from government securities to market funds, and switch 
     about from time to time. It is not unreasonable to forecast 
     that such funds would double every ten years; making for a 
     sizable portfolio after, say, forty years. A third to half a 
     million dollars. As much a twice that for two-earner 
     families.
       An argument up front for doing this is that it would 
     immediately affect the Personal Savings Rate which literally 
     vanished in the 1990s. In 1980 annual personal saving as a 
     percent of disposable personal income was 10.2 percent. By 
     1990, 7.8 percent. By 2000, -0.1 percent. Last February -1.3 
     percent.
       I don't claim to understand this, but surely it needs 
     attention. And I assume a national thrift savings plan would 
     help.
       Why, then, has our proposal been so little welcomed in, 
     well, the Democratic Party and organizations with similar 
     political and social perspectives? A possible partial 
     explanation is that in the early 1970s conservative 
     economists began talking up the so-called ``Chilean model'' 
     in which all social insurance funds are invested in private 
     securities. Not a good idea, I would think. But an idea 
     withal. And we need ideas.
       I would hope we could be spared a left-right imbroglio 
     here. The risk, as Kenneth S. Apfel, the first Commissioner, 
     1997-2001, of the newly freestanding Social Security 
     Administration, has recently written that if we do we will 
     end up in a ``stand off.'' Which is to say we will do 
     nothing, until there is nothing to be done. The system goes 
     into deficit and becomes politicized beyond recognition.
       Apfel makes four proposals. First, those ``on the left side 
     of the political spectrum'' have to give up the notion that 
     ``future Social Security benefits can never be reduced even 
     modestly.'' Our bill would have done that modestly. (Although 
     a C.P.I. correction only reduces the rate of growth.) Second, 
     he continues, those on the left must need to give up the 
     stand ``That mandatory retirement savings proposals are out 
     of the question.'' That I fear is now doctrine of the old 
     cadre of Social Security administrators. But why persons on 
     the left would oppose providing workers with a measure of 
     wealth would seem a mystery. (But, alas, may not be.) 
     Respected economists such as Martin Feldstein have proposed 
     investment accounts as an extension of what is already going 
     on with the various private retirement savings plans already 
     in place and widely in practice.
       As for the ``right,'' Apfel argues that first they must 
     give up the notion ``That private savings accounts should be 
     carved out of Social Security benefits.'' He means that money 
     be diverted from providing the existing benefit schedule. To 
     which I surely agree. To say again, we propose an add on, not 
     a carve out. Secondly, he contends the right must give up the 
     notion ``That future Social Security revenues should never be 
     increased even modestly.'' Again, agreed.
       As for the current surplus in the funds, Apfel is more 
     adventurous than I might be, or my colleague, David Podoff. 
     President Clinton briefly mentioned the idea of investing 
     some of the surplus in private equities. I suspect that would 
     have been Apfel's idea, and he holds to it. Keep in mind that 
     between now and 2015 we will accumulate a surplus of near $5 
     trillion. If it is not invested outside government, it will 
     be spent on other things. And so a respectful hearing is in 
     order, withal I would be cautious. We have learned to manage 
     private and public pension funds without interfering with 
     markets. But direct Federal investment poses temptation. Or 
     invites blunder.
       But what really are the prospects of such a transformation 
     in our Social Security system? I know we could do it, for we 
     have done. In the early 1980s we were on the edge of 
     insolvency. A bipartisan Presidential Commission was 
     stalemated, but solutions were worked out in a final two 
     weeks of intense, albeit secret negotiations. In his account 
     of the events, Artful Work, Paul Light cites my observation 
     at the time: ``Only by defining the problem as manageable, 
     can you manage it.'' It may also be worth noting, as recorded 
     in an article in the current issue of Foreign Affairs, 
     Germany, France, Spain, and Italy are evidently going to have 
     to move from pay-as-you-go state pension systems to 
     investment in securities.
       The 2000 election campaign may have seen a breakthrough. 
     The Republican candidate called for a thrift savings 
     component. Let it be clear that there was no mention, has 
     been no mention, of the preconditions I set forth earlier. 
     Still. The Democratic candidate dismissed the idea as 
     ``risky.'' And more. William Galston, a professor of 
     government associated with Democratic politics later 
     observed, with professorial candor, ``He [Governor Bush] 
     touched the third rail of politics. We turned on the juice. 
     Nothing happened.'' Indeed polling during the campaign showed 
     voters approved the program by fair to considerable margins. 
     And so in his first address to a Joint Session of Congress, 
     now President Bush called for a thrift savings component to 
     Social Security that would provide ``access to wealth and 
     independence'' for all. Again, no mention of the unpleasant 
     preliminaries. Even so, let it be recorded that the 21st 
     century began with an avowedly conservative president 
     espousing perhaps the most progressive social insurance 
     measure since the New Deal. Come to think, though, Theodore 
     Roosevelt might have liked it. Even those early 20th century 
     British conservatives who called for a ``property owning 
     democracy.''
       We are not to expect that anything like this will happen 
     soon. But it is scarcely too soon to get serious about the 
     subject.
       In a typically concise article in The Wall Street Journal 
     of April 26, Albert R. Hunt described ``An Electorate Up for 
     Grabs.'' Looking at recent polls he finds ``The bottom line: 
     Neither party commands a comfortable majority.'' He cites 
     Robert Teeter: ``Right now . . . neither side has the makings 
     of a governing coalition.'' Then James A. Johnson, a 
     Democratic counsel, who concludes: ``If both realize that, 
     it'll drive them to bipartisan solutions.''
       Could that be a Thrift Savings Component for Social 
     Security?

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