(For previous posts about the oligarchy, see here.)
I have repeatedly said that progressives have to be most on the alert when Democrats are in power. It is under Democratic administrations that the oligarchy tries to achieve major goals because the party’s base, ever-vigilant to guard against encroachments when Republicans hold power, falls asleep when their own party is at the helm. We see Obama doing things in the name of national security that would have evoked howls of protest if Bush had done them. We see Obama treating Wall Street with a generosity that would be loudly protested if a Republican did it.
The big prize for the oligarchy is, of course, Social Security. The privatization of Social Security has been a long-cherished dream of Wall Street anxious to get their hands on that trillion-dollar account. In general, Republicans have been thwarted when they tried to do it. George W. Bush tried to privatize it in his second term but was beaten back and gave up on it. The Democratic Party has long been seen as the defenders of Social Security, which is why the oligarchy sees it as a better agent for achieving its goals.
It is not well known that Bill Clinton also secretly set in motion attempts to privatize (they use the euphemism ‘reform’ or ‘save’) Social Security, following his successful move to gut welfare programs for the poor. These secret plans were well advanced and getting down to the level of fine-tuning details in preparation for a public announcement. But as Robin Blackburn explains in this 2004 article, he was thwarted, not by the party’s base, but by the Monica Lewinsky scandal which forced him to appease his base in order to save his political skin.
We have this on the authority of high-ranking members of the Clinton Treasury who gathered in Harvard in the summer of 2001 to mull over the lessons of the 1990s. At that conclave it was revealed that on Clinton’s orders a top secret White House working party had been established to study in detail the basis for a bipartisan policy on Social Security that would splice individual accounts into the program. Such was the delicacy of this exercise that meetings of the group were flagged under the innocent rubric “Special Issues” on the White House agenda.
In the mid-1990s pessimism about the future of Social Security was rife in seminars, conferences, op-eds and learned papers by which elite consensus is fashioned. The media lent an eager ear to charlatanry from outfits like the Third Millennium, which ventriloquized a supposed consensus amongst youth that the program would not be there for them when they came to retire – and that consequently their best bet was to take their FICA payments and put them in a private share account in soar-away Wall Street.
Third Millennium was, of course, a front for the privatization lobby. But it did tap into a vein of public anxiety and skepticism concerning Social Security finances and, with the stock market soaring upward, its Wall Street connections were an asset not a liability.
But in 1998 the Lewinsky scandal burst upon the President, and as the months sped by and impeachment swelled from a remote specter to a looming reality, Clinton’s polls told him that his only hope was to nourish the widespread popular dislike for the hoity-toity elites intoning Clinton’s death warrant.
In an instant Clinton spun on the dime and became Social Security’s mighty champion, coining the slogan “Save Social Security First”.
In his 1999 State of the Union address Clinton seized the initiative from the privatizers with a bold new plan that gave substance to the “Save Social Security First” slogan. He proposed that 62 per cent of the budget surplus should be used to build up the Social Security trust fund. He promised to veto any attempt to divert Social Security funds to other uses, and he urged that 15 per cent of the trust fund should be invested in the stock market, not by individuals but by the Social Security Administration.
The first part of the plan to privatize Social Security, which has long been in evidence, is to soften up the public by persuading all people that the system is in dire crisis, and especially the young, that they are being ripped off because Social Security will not be there for them when they retire. This is a lie. There is no long-term problem with Social Security that cannot be fixed with minor tinkering within the system. This graph of the Social Security trustees projections of future financial status (as a percentage of GDP) shows that there are no runaway costs in Social Security in the foreseeable future and the gap between revenue and outlays can be easily closed. Furthermore, the current surplus in the trust fund (well over three trillion dollars) that has been built up over the years can be used to fund the deficit in the current account at least over the next two or three decades without any changes at all in the system.
The economic minds behind Clinton’s moves were Larry Summers and Gene Sperling, both of whom are now close Obama advisors. There is no doubt in my mind that Barack Obama also wants to raid Social Security in some way to benefit the oligarchy, to do what Clinton and Bush could not. His reduction of the payroll tax contribution and his adoption of the alarmist rhetoric about the need to ‘fix’ Social Security has laid the groundwork for meddling with it. You can be sure that his economic team is already working on it. The real question is when he will reveal the details of what he has in mind, whether he will keep his plans secret for longer or whether he will reveal at least part of it in this year’s State of the Union speech to be given this evening.
The cautious thing to do would be for Obama to wait until his second term, like Clinton and Bush, so that he does not have to worry about any negative impact on his re-election chances. But Obama seems to have an arrogant confidence about his ability to get his followers to rally behind him whatever he does, and he may well think that he can tackle Social Security now and escape unscathed.
And he will unless people protest loud and long. Monica Lewinsky played her part. Now it is up to the rest of us to save Social Security.
As I said in the previous post in this series, the elites who work in comfortable conditions in well-paying jobs have no idea of what work is like for the vast majority of people. And they live in this cocooned world where the media feeds their inflated sense of self-worth. The ever-oblivious New York Times columnist David Brooks is one of those people who serves the needs of such people, someone who can say with no sense of irony: “I was going to say that for the first time in human history, rich people work longer hours than middle class or poor people. How do you construct a rich versus poor narrative when the rich are more industrious?”
The rich are more industrious? How clueless can you get? Does he have any idea how hard manual laborers like farm and construction workers or waiters work, on their feet, each and every day? I’ll let Matt Taibbi dissect him:
I would give just about anything to sit David Brooks down in front of some single mother somewhere who’s pulling two shitty minimum-wage jobs just to be able to afford a pair of $19 Mossimo sneakers at Target for her kid, and have him tell her, with a straight face, that her main problem is that she doesn’t work as hard as Jamie Dimon. [Dimon is CEO and chairman of JPMorgan Chase whom economist Simon Johnson calls the most dangerous man in America for the harmful effect he has on the economy-MS]
Only a person who has never actually held a real job could say something like this. There is, of course, a huge difference between working 80 hours a week in a profession that you love and which promises you vast financial rewards, and working 80 hours a week digging ditches for a septic-tank company, or listening to impatient assholes scream at you at some airport ticket counter all day long, or even teaching disinterested, uncontrollable kids in some crappy school district with metal detectors on every door.
Most of the work in this world completely sucks balls and the only reward most people get for their work is just barely enough money to survive, if that. The 95% of people out there who spend all day long shoveling the dogshit of life for subsistence wages are basically keeping things running just well enough so that David Brooks, me and the rest of that lucky 5% of mostly college-educated yuppies can live embarrassingly rewarding and interesting lives in which society throws gobs of money at us for pushing ideas around on paper (frequently, not even good ideas) and taking mutual-admiration-society business lunches in London and Paris and Las Vegas with our overpaid peers.
Brooks is right that most of the people in that 5% bracket log heavy hours, but where he’s wrong is in failing to recognize that most of us have enough shame to know that what we do for a living isn’t really working. I pull absolutely insane hours in my current profession, to the point of having almost no social life at all, but I know better than to call what I do for a living work. I was on a demolition crew when I was much younger, the kind of job where you have to wear a dust mask all day long, carry buckets full of concrete, and then spend all night picking fiberglass shards out of your forearms from ripping insulation out of the wall.
If I had to do even five hours of that work today I’d bawl my f—— eyes out for a month straight. I’m not complaining about my current good luck at all, but I would wet myself with shame if I ever heard it said that I work even half as hard as the average diner waitress.
What is even more annoying is when well-to-do people express annoyance when they discover that people doing what they consider low-skilled and demeaning jobs (like sanitation workers) may sometimes earn enough wages to provide a modestly comfortable life for their families and even take vacations or drive a reasonably nice car. They seem to think that a job that requires low entry-level skills should always pay poorly. When people say such things in my presence, my response is always to tell them that if they think those people have got such a great deal, whether they would consider giving up their current jobs and in exchange for those, or at least encourage their children to seek those jobs. Of course, the thought had never even crossed their minds.
What is perfectly understood but left unsaid by the oligarchy is that if all jobs, however menial, paid a decent wage, then the cost of things would rise and the rest of us would have to pay more for clothes, food, and other services, leaving the rich with slightly less disposable income for restaurant meals, and hotels, and to pay for tee-times at their country clubs. As Voltaire said, “The comfort of the rich depends upon the abundance of the poor.”
The attempt by the oligarchy to get their hands on the social security trust fund is spearheaded by people who have consistently lied about its viability. The reality is that the founders of the social security program back in 1935 were not stupid or innumerate but were mathematically savvy people who anticipated most of the demographic changes that subsequently occurred (including the likelihood of increased lifespan) and took them into account in their actuarial planning, making social security one of the best programs ever. The one thing they failed to anticipate was the post-war baby boom, which is what necessitates some tinkering now. The ‘zombie lies’ (to use Digby’s words) that are spread about social secuirity must be combated.
POST SCRIPT: Parody of Old Spice ad
There are some things that just cry out to be parodied and one of them is this ad for Old Spice that I am sure that everyone must have seen because it has received so much publicity.
The Brigham Young University Library (of all places) has produced one of the best parodies.
The doomsayers have managed to persuade the majority of people that they will not receive anything from social security, though that is completely false. The idea that the only way to solve the overblown social security ‘crisis’ is to raise the age of full benefits eligibility from 65 to 70 is wrong. There are other ways to fix social security other than raising the retirement age. The most obvious is to remove the cap that limits the social security payroll tax to only those incomes below $106,800 (the ceiling for 2009). Currently all incomes above that limit do not contribute to the social security trust fund. But there should be no upper limit. As Kevin Drum points out in a handy chart, that one move alone would solve the Social Security problem but there are other ways.
Of course, lifting the cap on earnings that are subject to the social security tax is one of those solutions that will adversely affect only rich people who will hardly notice it but since it is this same group that forms the oligarchy that runs the government and the media and sets policies, such policies are not even considered because this greedy group cares only about increasing its wealth even more, aided in their attempts by the media ignoring this systemic feature. The New York Times recently ran a disapproving article about how the elites in Pakistan avoid paying taxes: “That is mostly because the politicians who make the rules are also the country’s richest citizens, and are skilled at finding ways to exempt themselves.” I wonder when the NYT will realize that the US is not much better?
How much one cares about the issue of raising the social security retirement age depends on what kind of job one does. It matters greatly if one has an easy job or a hard one. The attitude to work of elites in well-paying and interesting jobs done in comfortable conditions is a far cry from the experience of people who work because they must and are forced to do hard physical labor every day or work in conditions where they do mindless routine work under the constant supervision of bosses and at jobs that provide no intrinsic satisfaction. The former group enjoys working and tries to continue doing so as long as they can while for the latter group, retirement is a welcome relief, something they look forward to, a brief period of time when they can relax and enjoy life while still (hopefully) having fairly good health, before they become decrepit and die. Such people view raising the retirement age with horror and who can blame them?
Take my job. I spend my days almost entirely in climate-controlled buildings sitting at a desk. I have a lot of control over what I do and when I do it. The work is not repetitive and is intellectually stimulating. I enjoy my work so much that I take it home and do it on weekends and holidays too. So while I may put in a lot of hours at my job, it is not really work in the sense that most people conceive of work, and it would be absurd for me to claim that I am overworked. A raise in the retirement age would not be a blow to me.
And yet, all the media bloviators seem to not recognize this obvious fact about the importance of the quality of work that one does. They act as if it is only the number of hours that one puts in that matters, and not the nature or conditions of work. I am sick of hearing business and financial types justifying their high incomes by bragging about how hard they work. The media seem to venerate these people as highly industrious, as if an hour put in as an investment banker is the same as an hour working in an assembly line or on a construction site or as a waitress or picking fruit and vegetables on a farm.
The arrogance and sense of entitlement of Wall Street types is amazing. They seem to think that they are doing us all a favor and that if we make reforms that cut into their astronomical earnings, that they will teach us all a lesson by ‘going Galt’ on us, quitting what they do, taking over our jobs, and throwing us out of work, as seen in this email from one such person that has been widely circulating:
What’s going to happen when we can’t find jobs on the Street anymore? Guess what: We’re going to take yours. We get up at 5am & work till 10pm or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we’ll eat that.
For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We’re going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I’ll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much.
So now that we’re going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we’re going to stop buying the new 80k car, we aren’t going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We’re going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.
Yes, all you lazy landscapers and chicken pluckers and farm workers and teachers out there whining about low pay and lousy working conditions. You better not blame the investment bankers and put restrictions on what they do and can earn because they will quit and come and take your jobs in revenge! Do you realize how impossible it is to live on just $85,000 a year ‘without upside’ (whatever the hell that is)? Because you know something? The reason they have been successful so far is because they are not only much smarter than you but they are also genetically programmed to work hard irrespective of what the job is or how much it pays, and they can do your job, whatever it is, much better than you can. So you better not mess with them.
The reality is that the despised landscaping or farm worker jobs are not only much harder than white-collar jobs but also actually produce things that people need and use. The Wall Street types represented by the author of the above email are actually parasites, making a living off other people’s money. They have no idea what real work is and yet think they do.
POST SCRIPT: The Wall Street business model
Cartoonist Tom Tomorrow gives the perfect summary of the thinking and morals of the Wall Street investment bankers who caused the financial crisis with their speculative practices.
(Continuing a series from March 2008.)
If you want to implement policies that really stick it to poor people, you have to do it when the Democratic Party is in power. The reason that Democratic administrations are the most useful vehicle for harming the poor is that those who call themselves ‘liberals’ are far more vigilant when Republicans are in power, rightly seeing them as out to serve the interests of the wealthy. But the Democratic party, while serving the interests of the same oligarchy, has fooled people into thinking that they are in favor of economic justice, so when they attack the poor, liberals are caught wrong-footed and do not mount a vigorous counter-attack.
That is something that the oligarchy that runs America realized some time ago but hasn’t quite sunk in with liberals because of their fixation on shoring up the Democratic Party’s electoral fortunes. This interesting comparison between those who call themselves liberals and those who say they are progressives is worth pondering. One key difference is that “Progressives pursue issues; liberals support candidates”. Liberals who think they must support Obama at all costs because otherwise his opponents will benefit at the polls are falling into the same trap as with Bill Clinton, and will end up enabling policies they should oppose.
Despite Ronald Reagan railing against so-called welfare queens, he met vigorous opposition when he tried to pursue policies that harmed the poor. It was only after Bill Clinton’s election that we had so-called ‘welfare reform’ that resulted in a lot of poor people, including single mothers with young children, having their meager benefits cut off. (It was also Bill Clinton who signed the anti-gay Defense of Marriage Act.) Barack Obama and his Secretary of Education Arne Duncan are pursing education policies that would have aroused strong opposition from liberals if Republicans had proposed them.
But the biggest prize that the oligarchy seeks is to destroy social security as a government program and safety net for the poor. George W. Bush wanted to privatize social security and got such a fierce response that it forced him to abandon the attempt. But now during the Obama administration and with Democrats controlling both houses of Congress, we hear a lot of talk about reducing Social Security benefits, primarily by raising the retirement age for full benefits from the current 65 to 70. Although Republicans like John Boehner have initiated discussions on this, key Democrats are also going along with it.
Like he did with health care reform where he sabotaged the public option, Obama is handing off to others the unpleasant task of cutting the social security benefits of poor old people so that he can avoid responsibility. In this case he has appointed a commission (called the National Commission on Fiscal Responsibility and Reform but is derisively referred to as the ‘Catfood Commission’ because its likely recommendations will force old people to eat cat food to make ends meet) comprised entirely of elites (with one exception). As one blogger says:
[T]he Obama Administration appears to have chugged the austerity/jack rates/cut the deficit Kool-Aid insanity by forming the National Commission on Fiscal Responsibility and Reform. They stuffed it with offensive idiots like Alan Simpson whose sole purpose is to screw the little people out of their social security savings. Hence the sickening nickname, the Catfood Commission.
This blogger is, however, still trapped in the ‘liberal’ mindset, saying, “I still find this hard to comprehend happened under a Democratic Party administration.” He does not realize that this is not an anomaly but precisely the role that the Democratic Party plays in the system.
The arguments in favor of raising the retirement age are presented in economic and demographic terms and in terms of fiscal responsibility. We are told that the social security trust fund will be unable to keep pace with the demands of retirees because we are living longer than we were when the program was started. That is true but the state of the trust fund is nowhere near as dire as it is often painted.
Also, while it is true that life expectancy has increased by 12 years (from 65 to 77) since 1935 when the program was established, that is not the whole story. Life expectancy has gone up because we have had success in reducing infant and childhood mortality with the development of vaccines and other medicines. The relevant figure for the social security discussion is the amount by which life expectancy has increased for people who reach the age of 65. Susan Gardner quotes from Nancy Altman’s book The Battle for Social Security: From FDR’s Vision To Bush’s Gamble:
For Social Security purposes, the correct question is not how many live to age 65, but rather how long those reaching age 65 live thereafter. Here the numbers are not as dramatic. In 1940, men who survived to age 65 had a remaining life expectancy of 12.7 years. Today, a 65 year old man can expect to live not quite three years longer than he might have in 1940, or 15.3 years beyond reaching age 65. For women, the comparable numbers are 14.7 years beyond age 65 in 1940; 19.6 years in 1990. [Emphasis added.]
The second major issue that is being ignored is that the people who are blithely suggesting raising the retirement age are well-to-do people who work in jobs that are interesting, pay really well, and are not physically demanding. It should be no surprise that Members of Congress, media personalities, corporate executives, Larry King and Andy Rooney, etc. are able to, and want to, work well past 65. They work indoors in air-conditioned buildings with legions of assistants to take care of the drudge work. They have plenty of vacation time and the money to relax how and when they feel like it. For such people, retirement would likely mean a less enjoyable life. Why would you want to give those things up? Furthermore, the rich are the very ones for whom the social security benefits form a negligible part of their retirement income. What they lose in social security benefits is negligible compared to what they gain on tax cuts.
Furthermore, life expectancy is much greater for those who are well off (and thus working at easy jobs) than for those who are worse off and thus likely to be working at difficult jobs, and the gap is increasing. For males age 60 in the bottom half of the earnings distribution, life expectancy only increased from 77.7 in 1972 to 79.6 in 2001. In contrast, the corresponding increase for the top half of earnings distribution went from 78.9 to 85.4.
So the people who work the hardest are the ones who already have the least time to enjoy retirement.
Furthermore, nowadays it is very hard for older people who get laid off to get another job and raising the retirement age would consign them to an even longer period of poverty. I also do not see the point of keeping older people working longer because that would mean fewer jobs for younger people, exacerbating the unemployment problem.
POST SCRIPT: Retirement is for losers
Cartoonist Tom Tomorrow on raising the retirement age.
(For previous posts in this series, see here.)
While Social Security is not in a crisis, it does require periodic adjustments to make it work, as the economy and demographics of the population change. It can be made solvent with minor tinkering at the edges such as removing entirely the cap on payroll tax income or increasing the rate of taxation by small amounts or by lowering the annual cost-of-living increases in benefits or, in the worst case, by slightly reducing the benefits. We are not facing the catastrophe the doomsayers predict.
The major problem with Social Security is not with the retirement benefits part but with rapidly rising Medicare costs. Currently the Social Security tax (the part that goes towards retirement benefits) is 12.4% of income up to the cap, which is $102,000 for 2008. The tax rate for Medicare is 2.9% of your gross income. Your employer pays half of this 15.3% total, unless you are self-employed in which case you are responsible for the entire amount.
It is the Medicare costs that are already outstripping Medicare revenues and rising rapidly, and thus straining the government’s finances. But this is largely a health care costs problem, caused by the hugely wasteful profit-making health system that currently exists in the US that has resulted in per capita costs that are at least twice as much as the costs in other developed countries and yet produces worse results. Introducing a single-payer system like that which exists in France or Canada would result in savings, greater ability to control costs, and better health care overall. (See the series of posts on health care where these arguments are presented in more detail.)
As far as Social Security is concerned, one thing that could and should be done immediately is to remove the cap on incomes that are taxed for Social Security. The existence of this cap means that people earning more than that pay no Social Security taxes at all on the extra income, and thus pay a smaller proportion of their total income into Social Security than those making less than the cap. Thus the richer you are, the smaller the fraction of your income that goes towards Social Security, making it a very regressive tax.
Social Security and Medicare are programs that can be made solvent for a long time. The ‘problem’, such as it is, is that the way to do so goes against the dreams of those ideologues who want to privatize Social Security funds and preserve the huge exploitative profits of the health care and health insurance industries. These people have sought to divert more and more wealth to a very few.
So how have their plans worked out? Very well, it turns out. The share of the income of the rich has been increasing at a rapid pace at the same time that their share of taxes has been decreasing. The March 5, 2008 issue of the Wall Street Journal reports:
The nation’s top 400 taxpayers reported a total of $85.6 billion of income on their federal income-tax returns for 2005 — an average of $213.9 million apiece, according to Internal Revenue Service data obtained by The Wall Street Journal.
Just to make the cutoff to join this exclusive club, you had to report income of at least $100.3 million, up sharply from $74.5 million the previous year. The average income among the top 400 in 2004 was $172.8 million.
. . .
Indeed, the top 400 taxpayers have greatly increased their share of individuals’ income since the mid-1990s. The group accounted for 1.15% of total income in 2005, up from 1.02% the prior year — and more than twice as large as its 0.49% share a decade earlier. It’s the highest percentage since the early 1990s, which is as far back as the IRS data go.
. . .
The average federal income-tax rate for the group was 18.23% . . . well below the average income-tax rate of nearly 30% back in 1995,
As the article points out, the way the data was collected actually underestimates the wealth since it takes into only the adjusted gross income (AGI).
The assault on Social Security is part of the generalized rhetorical attacks on all public services, including public education, Medicare, Medicaid, and welfare by those who would seek to destroy them. A key strategy in this war is to portray all government as bureaucratic, wasteful, and incompetent. Bush’s contribution to this war was to appoint to high positions people who were either actually incompetent (so that they would mess things up, feeding into perceptions of a useless government) or those who were ideologically committed to having the government avoid its obligations.
My worry is that the pro-war/pro-business interests and the Wall Street investment classes may think that they have got all the goodies that they are likely to get from Republican administrations and think that they need a Democratic administration and Congress to be able to overcome the grassroots opposition to attempts to subvert Social Security, Medicare, Medicaid, and all the other government services that try to provide a much needed social safety net.
This is why even greater vigilance will be needed if and when Democrats take control of government. Bill Clinton got away with a lot of things because he was able to talk populism while acting in the interests of Wall Street. That should not be allowed to happen again.
POST SCRIPT: Telephone opera
As readers of this blog know, I am not a big fan of television. But one of my favorite TV programs is Sesame Street. It can’t be beaten for its unique combination of great music with clever lyrics, genuine humor, education, and positive messages, all without being preachy. I used to watch it almost every day when my children were younger and now, thanks to YouTube, I can watch again some of my favorite segments.
In this sketch, Placido Flamingo and other Muppets affectionately parody opera.
(For previous posts in this series, see here.)
In deciding whether Social Security is in trouble or not, it is important to bear in mind different measures. Let us start by assuming that no changes at all are made in the system and that current projections for future demographics hold for the next fifty years. This is a very big ‘if’ indeed, but a starting point for analysis. The alarmists look at the year in which projected Social Security benefits paid out in that year exceed the revenues from the payroll tax that same year. That is expected to occur around 2018. But that alone does not constitute a crisis. Social Security has been running a surplus all these years so by that time the trust fund will have about 3.7 trillion dollars in reserve. This fund earns interest and the interest can be used to supplement the payouts following the year when the expenditures start to exceed the revenues. At a 4.5% interest rate on the US treasury bonds, the accumulated trust fund can generate an annual growth of about $170 billion due to interest alone. Using this interest to pay benefits can be done for some time during which the size of the trust fund will remain the same or will still be increasing, though more slowly.
There will then come a year when the addition of the interest to the payroll tax revenues is not sufficient to cover the cost of the expenditures. The trust fund principal will then have to be used to pay benefits and will thus start to decrease. The worst-case scenario is having all the trust fund be used up, which is quite far into the future, somewhere around 2050. Actually, this scenario is actually the original Social Security model. It was designed as a pay-as-you-go system, with each year’s payroll tax revenues going to meet that same year’s benefits expenditures, without running up big surpluses or deficits.
But there is no reason to think that even this ‘worst-case’ scenario is inevitable. Dean Baker and Mark Weisbrot, co-directors for the Center for Economic and Policy Research, in their book Social Security: The Phony Crisis demolish the scaremonger arguments about Social Security by those who would love to turn over all that money to investors to speculate with. In an op-ed article, they write a detailed point-by-point rebuttal of all the myths propagated and conclude:
The latest Social Security trustees’ report, whose numbers even the White House uses, predicts that the Social Security program can pay all promised benefits for the next 38 years—with no changes at all. The June 2004 estimate from the nonpartisan Congressional Budget Office projects that Social Security can pay all promised benefits without changes for even longer, until 2052. That’s nearly half a century.
And we are supposed to be worried about this?
. . .
The bottom line is that Social Security is more financially sound today than it has been throughout most of its 69-year history, according to Social Security trustees’ numbers.
. . .
The impending crisis of Social Security is a myth. Without it, however, Bush’s initiative to slash benefits and partially privatize the program wouldn’t have a prayer.
Inside the Beltway, doomsaying about Social Security — declaring that the program as we know it can’t survive the onslaught of retiring baby boomers — is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are.
. . .
But the “everyone” who knows that Social Security is doomed doesn’t include anyone who actually understands the numbers. In fact, the whole Beltway obsession with the fiscal burden of an aging population is misguided.
As Peter Orszag, the director of the Congressional Budget Office, put it in a recent article co-authored with senior analyst Philip Ellis: “The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country’s financial health will in fact be determined primarily by the growth rate of per capita health care costs.”
How has conventional wisdom gotten this so wrong? Well, in large part it’s the result of decades of scare-mongering about Social Security’s future from conservative ideologues, whose ultimate goal is to undermine the program.
Thus, in 2005, the Bush administration tried to push through a combination of privatization and benefit cuts that would, over time, have reduced Social Security to nothing but a giant 401(k). The administration claimed that this was necessary to save the program, which officials insisted was “heading toward an iceberg.”
But the administration’s real motives were, in fact, ideological. The anti-tax activist Stephen Moore gave the game away when he described Social Security as “the soft underbelly of the welfare state,” and hailed the Bush plan as a way to put a “spear” through that soft underbelly.
Fortunately, the scare tactics failed. Democrats in Congress stood their ground; progressive analysts debunked, one after another, the phony arguments of the privatizers; and the public made it clear that it wants to preserve a basic safety net for retired Americans.
. . .
Social Security isn’t a big problem that demands a solution; it’s a small problem, way down the list of major issues facing America, that has nonetheless become an obsession of Beltway insiders. And on Social Security, as on many other issues, what Washington means by bipartisanship is mainly that everyone should come together to give conservatives what they want.
Orszag, Krugman, Baker, and Weisbrot point their fingers at the real problem, which is the out-of-control rise in health care costs. Of the 15.3% of the income below the cap that goes as payroll taxes (half of which is paid by employers), 2.9% goes towards Medicare. It is these rapidly rising health care costs that will cause huge budgetary problems in the future, not paying Social Security retirement benefits.
Scaring us about Social Security serves the purpose of diverting out attention from the very real problem of high health care costs. After all, the administration and Congress are completely in the pockets of the health care industry (the insurance and pharmaceutical companies and the hospital and doctors lobbies) and they want to avoid for as long as possible the fact that a government-run single-payer system of financing health care is the only long-term solution to this problem.
Next: What needs to be done
POST SCRIPT: This woman is very upset
Before he started playing the doctor in the current TV series House, Hugh Laurie played goofy characters in comedies on British TV. Here he plays a hapless TV news reporter in a sketch from the BBC TV show A Bit of Fry and Laurie.
(For previous posts in this series, see here.)
We currently see this curious double-talk taking place about the US bonds that form the assets of the Social Security trust fund. When trying to scare people about Social Security, people in this administration talk about the bonds in the trust fund being ‘worthless’ pieces of paper. But when trying to actually sell the bonds in international markets to finance its deficits, the government talks about how robust the US economy is. Like all double-talking politicians, the two different faces are presented to two different audiences, with the hope that the audiences will not overlap.
There are many who would have you believe that Social Security is in dire straits and that it will go broke soon, so that younger people who are paying into it now will not get any benefits when they retire. While Social Security regularly requires tinkering to remain solvent, this kind of rhetoric is misleading but has been systematically promoted to make young people think that they are being swindled by the old, and thus generate intergenerational warfare. It is the tried-and-true divide-and-rule strategy. The goal is to scare people into agreeing to give private investors access to the money in the Social Security trust fund. (For a fascinating history of how the various forms of social safety nets, including eventually the Social Security system, came about, see here.)
Social Security is designed as a ‘pay as you go’ system, with the money being taken in now in so-called payroll or employment taxes (officially called FICA taxes) going to pay the benefits of those currently retired. It is presently running a surplus (i.e., each year it takes in more money than it spends) so that there is an increasing accumulation of reserve funds in the account, which is called the ‘trust fund’.
The confusing thing about understanding the government budget is that since Social Security is not an independent financial entity, the money that comes in as Social Security revenue is not kept separately from other government revenues, i.e., the ‘trust fund’ is not a separate vault of cash. What the government collects as revenue in any form (Social Security taxes, Medicare taxes, income taxes, import duties, etc.) can be used to fund general government expenditures.
But that does not mean that the trust fund is a fiction. How the government gains access to the money in the trust fund is by using that money to buy US government treasury bonds and what the Social Security trust fund holds is not cash but these government bonds. The trust fund reserves are thus in the form of government guarantees to honor its financial obligations, no different from the government’s obligations to honor its treasury bills, currency, and other forms of IOUs.
What is required by law is that the trust fund be accounted for separately and it is thus said to be “off-budget”. So the government is required by law to keep separate accounts for Social Security and the rest. But when government budgets are presented to the public, the government likes to mix the two budgets (Social Security and the rest) together (i.e., make Social Security “on budget”) so that the annual Social Security budget surpluses that go into the trust fund can be used to hide the huge annual deficits that are being run up elsewhere, the latter caused by massive tax giveaways to the rich, spending huge amounts on needless wars (thus subsidizing the military-industrial complex), and the runaway health care costs that are endangering Medicare.
So the trust fund is being used (in terms of book-keeping sleight-of-hand) to hide the scale of the huge budget deficits being run up in the rest of the government. The real problem is not with Social Security but the way that the government has been fiscally irresponsible overall.
The future solvency of Social Security depends on projections of future revenues (which depends on the size of the workforce and its levels of income) and future payouts (which depends on the projected number of future retirees and their longevity).
One of the planks on which the scaremongering about Social Security is based is the indubitable fact that the percentage of retirees will increase shortly due to baby-boomer retirements, thus projecting increased payouts without comparable increases in revenue.
The other plank that people have used is the well-known fact that the trust fund consists, as I discussed above, not of actual cash but of US treasury bonds. They argue that the Social Security trust fund, although rich on paper, contains nothing more than ‘worthless’ government IOUs.
But this is absurd. The belief that the US can honor those and similar bonds that the government sells to other countries is what keeps the dollar as the world’s reserve currency and is what makes foreign governments purchase those bonds, without which the US could not finance its deficits. The net foreign debt owed by the US to foreign entities and held by them in the form of such bonds has risen from $311 billion in 1994 (4.4% of GDP) to $2.4 trillion in 2004 (23% of GDP).
If these US government treasury bonds ever do become truly ‘worthless’, as alleged by the scaremongers, that would mean that the US government has become unable to honor its debt obligations. That would signal that the entire US economy has totally collapsed and that the US dollar has ceased to have any value. If such an unlikely scenario as the failure to honor to its government bonds were to ever come about, this would lead to global economic upheavals on an unprecedented scale, since all these foreign governments and other entities would also be holding worthless pieces of paper and we would then have far more serious matters to worry about than Social Security.
This does not mean that there should be complacency. A watchful eye needs to be kept on the solvency of Social Security and the rest of the government’s budget. There are indeed reasons for concern. The continuing massive deficits and the decline in value of the dollar (last week saw it reach record low levels against the euro) are a source for global concern about the health of the US economy and have led to grumblings and some talk of switching to the euro as the world’s reserve country. But those alarms have not reached major proportions as yet. The idea that the US government might default on its debt obligations (and thus leave the Social Security trust fund truly worthless) is not even being considered.
Next: Double talk on Social Security
POST SCRIPT: Why Obama’s message seems more effective than Clinton’s
Bob Harris has a perceptive take on a significant difference between the rhetoric coming from the Clinton and Obama camps.