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There are few issues that matter more to the public than Social Security. It is a hugely popular and hugely successful program.
Social Security was set up to provide retirees and disabled workers with a core income either in retirement or in the event a disability made them unable to work. This is exactly what the program does. In its seven decades of existence it has lifted tens of millions of retirees out of poverty and allowed millions of disabled workers to maintain a modest standard of living.
It accomplishes these goals with a minimal amount of fraud and in a highly efficient manner. Its administrative costs are less one-tenth as a high as those of private sector insurers.
This is the reason that the program enjoys enormous popularity across the political and ideological spectrum. Not only Democrats, but the overwhelming majority of independent and Republicans consistently tell pollsters that they support Social Security and do not want to see benefits cut. Conservatives and even self-identified supporters of the Tea Party also oppose cuts to the program.
This is why it is striking that Governor Romney has explicitly called for large cuts to the program. It is perhaps even more striking that President Obama indicated in his first debate that he agrees with these cuts.
Romney has outlined a proposal on his website that calls for further increases in the retirement age to 69 or 70. It also calls for cuts in benefits for middle-income retirees. Under the Romney proposal, middle-income workers just entering the labor force can expect to see benefits that will be reduced by more than 40 percent compared with currently scheduled levels.
This might be reasonable policy if we had some cause to believe that workers in the future will be better prepared for retirement than current retirees; however there is no evidence to support this view. The median wealth for those near retirement (ages 55-64), is just $170,000.
This calculation includes everything they own, the equity in their home, their retirement accounts, even the value of their car. To give a basis of comparison, the median house price is $180,000. This means that if the typical person in this age group used all their wealth, they would have almost enough money to pay off their mortgage. They would then be entirely dependent on Social Security in their retirement.
If we look at the group 10 years younger, ages 45-54, median wealth is just over $70,000. And remember, half of households will have less.
The basic story is that our systems of retirement savings outside of Social Security have collapsed. Traditional defined benefit pensions are quickly disappearing outside of the public sector. The 401(k)s that have replaced them have been a bonanza for the financial industry, but have done little to help most workers accumulate enough for a secure retirement.
The amount put into these accounts is generally far too small to provide for a decent retirement. Furthermore, the fees charged by the financial industry can easily eat up one-third of the earnings on these accounts, sharply reducing accumulations over time.
The result is the situation we now see. For most middle-income workers their home equity is by far their greatest source of wealth. Money held in a retirement account is a distant second.
Given this reality, it would be sound policy for President Obama to insist, in contrast to Governor Romney, that Social Security cuts are off the table until we have fixed the larger retirement savings system. If anything, it would be reasonable to suggest increasing Social Security benefits, especially for low and moderate income workers.
While this would be good policy, the polls indicate it would be great politics. In a close election it could easily make up the margin of victory, especially in a state like Florida with a large elderly population. Yet President Obama told the country that there is not much difference between his position on Social Security and Romney’s position.
There is a simple explanation for Obama’s refusal to defend Social Security. In elite Washington circles the willingness to cut Social Security is taken as evidence of courage. These people do not depend on Social Security. In fact, as Governor Romney demonstrated at his famous fundraiser speech, they actually have contempt for the people who do depend on Social Security.
If Obama were to take a strong stand defending Social Security he could expect to be attacked harshly by these elites. In news stories and editorial columns, outlets like the Washington Post and National Public Radio would denounce President Obama in harsh terms. Needless to say, his wealthy funders might also have second thoughts.
This fear is likely the reason that President Obama will not defend Social Security. If he loses the election, this fear of the wrath of the elite will clearly be the villain.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.
This essay originally appeared in Yahoo Finance.