O'Neill was chairman and CEO of Alcoa from 1987 to 1999, and retired as chairman at the end of 2000. Prior to joining Alcoa, O'Neill was president of International Paper Company from 1985 to 1987, where he was vice president from 1977 to 1985.
Why should there be any social insurance at all?


In Washington, a "gaffe" occurs when a high-level official accidentally says what he means. The Bush administration has been remarkably gaffe-free so far, with almost everyone sticking to the same bland script. All except Treasury Secretary Paul O'Neill, that is, whose gaffes offer a glimpse into the real philosophy of the Bush corporation that now runs the United States. O'Neill's latest occurred in a recent interview with the Financial Times in which he questioned why the government should provide Social Security, Medicare or any other social insurance. "Able-bodied adults should save enough on a regular basis so that they can provide for their own retirement and, for that matter, health and medical needs," he said.

The Treasury secretary's candor goes a long way toward explaining why Bush's giant $1.3-trillion tax cut--most of whose benefits will go to multimillionaires like O'Neill--hasn't caused more worry in the White House about what will happen to Social Security and Medicare when the baby boomers retire and there's no money left to pay the bill. Bush Inc. assumes that boomers will just take care of themselves.

Seen in this light, the commission recently launched by George W. Bush to recommend ways to save Social Security (packed with people already committed to "privatizing" it) and the new White House move to overhaul Medicare with "market-based changes" are fig leafs for a long-term strategy to get rid of these social insurance schemes altogether.

O'Neill's candor is refreshing. It deserves more than a "gotcha" from Democrats looking for ways to scare elderly voters in the 2002 mid-term elections and the 2004 presidential contest. The Treasury secretary raises one of the most fundamental questions society faces: Why should there be any social insurance at all?

The idea for Social Security was dreamed up by Labor Secretary Frances Perkins and signed into law by Franklin D. Roosevelt in 1935. Unemployment insurance and welfare were parts of the original scheme. Medicare was President Johnson's doing, 30 years later.

The broad idea was easily understood by the generations that experienced the Depression, World War II, the Cold War and some deep recessions. Any family could find itself down on its luck through no fault of its own. Family savings could go down the drain if the economy turned really sour. Its breadwinner might lose his (almost always "his") job and have a hard time finding another. Or he might become disabled or die, leaving his wife and children destitute. An elderly person or couple might lose everything in an economic down draft and face their twilight years in grinding poverty.

A humane society, it was assumed, would pool some of its resources to guard against these personal misfortunes. Like any insurance system, citizens would be expected to pay small premiums. But unlike private insurance, everyone would be included regardless of the likelihood that they'd need to draw on the insurance pool. Rich and poor, healthy and sick, young workers and older workers--all would pitch in.

Treasury Secretary O'Neill would prefer going back to the days before social insurance, when individuals either had to save their own earnings against the possibility they'd need help down the line or buy their own private insurance. Presumably, if the responsibility rested entirely on their shoulders, they'd save more and take better precaution to avoid harm's way.

Some families, however, don't earn enough to allow them to save much of anything. And some harms--a catastrophic illness, a disabling accident, a factory closing, a stock-market plunge--can't be avoided.

Meanwhile, private insurers naturally will do everything they can to sign up clients at the lowest risk of needing them, while eschewing the high risks. After all, insurance companies and HMOs aren't charitable institutions--they need to show profits. And all are becoming more efficient at discriminating among potential consumers, weeding out the high risks and marketing to the low.

So without social insurance, people who are poorer or who face higher risk of having bad things happen to them won't be covered. People at the other end--richer and at lower risk--will efficiently pool their resources and get insurance at a much lower rate than if they had to bear the extra cost of insuring the poorer and the riskier.

It's coming to be like that all over the land. The richer, healthier, younger, well-educated and well-connected and their children are doing better and better. (They even got a big tax windfall just now.) And the gap between them and the bottom half of the nation widens.

It's not just an income and wealth gap. It's also a geographical gap--they live farther and farther apart. And a psychological gap--the better off don't even encounter the other half or understand them or empathize with the daily burdens and challenges they face.

The welfare "safety net" that was included in the Social Security Act of 1935 already is in shreds. Unemployment insurance reaches a far smaller percentage of people who lose their jobs than it did two decades ago.

And now Social Security and Medicare are on the dock.

When Americans faced a common problem--the Depression, a hot war, a cold war--we understood intuitively that we were all in it together. Someone's misfortune could be anyone's: "There but for the grace of God go I." Social insurance was a natural impulse, a first cousin to patriotism.

But that sense of commonality is waning as we drift into separate worlds of privilege and resignation.

Treasury Secretary O'Neill and the administration of which he is a part may see the future of American society better than we would like to admit to ourselves. But if that's the future, it won't be much of a society.

Robert B. Reich,
Secretary of Labor in the Clinton Administration,
Professor of Economic and Social Policy
Brandeis University

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