TCS Daily


Paul Krugman's FDR Problem

By Nick Schulz - February 9, 2005 12:00 AM

New York Times columnist Paul Krugman is a great economist (he was awarded the prestigious John Bates Clark medal), but he'd be a much better polemicist if he knew some important facts about Franklin Delano Roosevelt.

On Tuesday Krugman wrote in his Times column that President Bush's proposal to change Social Security by creating private accounts was an effort to "undermine the legacy of Franklin Roosevelt." He went on to write:

        "Moderates and liberals want to preserve the America F.D.R. built. Mr. Bush 
        and the ideological movement he leads, although they may use F.D.R.'s 
        image in ads, want to destroy it."

Last week my colleague Duane Freese pointed out an extraordinary quote he unearthed uttered by the same FDR whose legacy Mr. Krugman claims President Bush and his ideological confreres are trying to destroy. In a memo to Congress in 1935, FDR said:

        "In the important field of security for our old people, it seems necessary 
        to adopt three principles: First, noncontributory old-age pensions for those 
        who are now too old to build up their own insurance. It is, of course, 
        clear that for perhaps 30 years to come funds will have to be provided 
        by the States and the Federal Government to meet these pensions. 
        Second, compulsory contributory annuities that in time will establish 
        a self-supporting system for those now young and for future generations

        Third, voluntary contributory annuities by which individual initiative 
        can increase the annual amounts received in old age. It is proposed 
        that the Federal Government assume one-half of the cost of the old-age 
        pension plan, which ought ultimately to be supplanted by self-supporting 
        annuity plans
." [emphasis added]

That message sounds a lot like what President Bush is proposing today. In his recent State of the Union address, Bush said:

        "If you're a younger worker, I believe you should be able to set aside 
        part of that money in your own retirement account, so you can build a 
        nest egg for your own future."

Indeed, one irony of today's Social Security debate is that the conservative Bush is pushing to realize the liberal Roosevelt's vision for "security for our old people" by introducing the idea of "contributory annuities that in time will establish a self-supporting system for those now young and for future generations" -- personal accounts.

FDR understood something that has been forgotten by those who oppose structural changes to Social Security. The purpose of smartly conceived government welfare programs should be to empower people to help themselves and to become self-sufficient, not -- as the current Social Security program does -- to make them permanent wards of the state. That's why FDR said "the old-age pension plan... ought ultimately to be supplanted by self-supporting annuity plans." In this sense, FDR was an early architect of what the President now calls "the ownership society."

The structural changes proposed by the Bush administration for Social Security have the goal of self-reliance and self-sufficiency -- just as FDR wanted.

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