Social Security, Dead Capital and Economic Inequality

Economic inequality in America continues to grow, taking on ever greater economic and political importance. The reasons for increasing inequality are complex and widely debated, as are potential policies to address it. This paper focuses on a vital but unrecognized part of the story: how the social security retirement program has become a major systemic barrier to the acquisition of wealth by low- and moderate-income families, worsening inequality in general and the racial wealth gap in particular. Most families have no meaningful financial assets other than their social security wealth. Unlike other retirement savings, however, social security wealth is “dead capital,” completely inaccessible to families in need of resources to invest (in homeownership, most importantly) and to cope with unexpected financial shocks. After setting out the nature and magnitude of the problem, this article proposes a straightforward, practical remedy – the creation of Social Security Downpayment and Financial Emergency Loans – that would reduce inequality by helping families build financial security for themselves and wealth for future generations. These loans would counter the adverse effects of social security’s forced-but-inaccessible savings, opening the way to a much broader distribution of wealth.