For as long as I can remember, Social Security has been considered the “third rail” of American politics. No party dared to tinker with the overwhelmingly successful and popular social program. The public, particularly the older, more-likely-to-vote public, would quickly rise up against any politician who would dare to suggest cutting benefits or changing eligibility.
Those days are gone. George W. Bush and his band of treasury-looting anti-Robin Hoods are coming for your Social Security. The problem, you see, is that there’s just not enough money floating around in the markets on Wall Street to make his friends as decadently rich as they’d like. The solution is all that money just lying around in the Social Security Trust Fund.
The first matter at hand is to convince you that Social Security is in imminent danger. You know, like Saddam and his weapons of mass destruction. We’ve just got to do something now or Social Security will not be there for the young workers when they retire.
This is where the discussion usually breaks down with a bunch of numbers, projections, and best guesses. Before you know it your head is swimming in a pool of percentage points, revenue forecasts, and economic mumbo-jumbo.
Let’s ignore the numbers for a moment in favor of some common sense. Social Security is in no imminent danger. The government’s own Congressional Budget Office shows that the Social Security trust fund is solvent for the next fifty years, and even after that, it will not be broke, it would only be forced to reduce benefits somewhat.
Just think about the last twenty years. Haven’t you been hearing that Social Security was going to go broke almost every year since Reagan was elected? Yet it still keeps chugging along, paying benefits to retirees, survivors, and the disabled, all while costing very little in administration. It’s not just a successful government program, it’s wildly successful.
But if George and the gang can’t convince you that it’s broke, they can’t convince you that it’s in need of fixing. Particularly the fix they have in mind: privatization.
The idea here is that Social Security, while incredibly reliable, is also a poor performer as a retirement investment. Just like most reliable investments, government bonds, for example. You get a low rate of return but you can be sure that you will get that rate.
However, stocks and other market-based investments can have very high rates of return. They can easily outperform Social Security. The problem is they can also go belly-up. Ask anyone who had their 401k invested at Enron. Also, market-based investments incur transaction and broker fees – in other words, middlemen. Privatizing Social Security makes a whole lot of money for middlemen, and maybe, if you’re lucky, some extra scratch for you.
If only there was a somewhat analogous situation from history we could learn from. Oh, wait, there is. Back in 1984, Margaret Thatcher rode a wave of conservatism into office in Britain. Claiming a mandate, she set about to privatize lots of government programs. One of those was their national retirement plan. Britons were given the option to place part of their retirement tax into private accounts. Twenty years later, it’s been judged a monumental failure.
Now, what was happening in the US at about that time? Well, President Reagan was faced with some of the same Social Security issues as today. What did the Gipper do? First he tried some massive cuts to the system, which the Senate blocked. After losing 26 House seats in 1982, Reagan did an about-face and agreed to a $165 billion bailout of Social Security. Furthermore, he increased payroll taxes, added federal workers to the Social Security system, and for the first time taxed the Social Security benefits of the richest recipients. Raising taxes to save a popular New Deal program? Damn that liberal Reagan!
I guess I shouldn’t expect George to learn anything from history, though. He’s proved remarkably dense to the historical comparisons between Vietnam and Iraq, so why should Social Security privatization be any different. It’s one of my favorite conservative idiosyncrasies: if a policy is a failure, try it again, only this time, try harder.
George talks a lot about an “ownership society”, the idea being that we should own and control more of our money instead of the government. It’s a really seductive mantra. Why shouldn’t you be able to control your own retirement money?
Because it’s not your own retirement money. The money you’re paying in Social Security taxes now is paying for the benefits of the currently retired and disabled. It’s a promise we make to our seniors. We as a society will contribute a small portion of our paychecks to a trust fund to insure grandma and grandpa and our disabled uncle won’t be destitute.
Also remember, there’s a generation gap in the trust fund. You’re paying for grandpa; your grandkids will be paying for you. If we suddenly are allowed to manage a portion of our Social Security for ourselves, it means we are taking that money away from grandpa. Estimates are that switching over from paying the previous generation’s benefits to paying for our own would be a shortfall of almost two trillion dollars. That’s a lot of money, even in Washington.
Where are these two trillion dollars going to come from? The neo-cons will try to neo-con you with some more numbers. It’s not a very big portion that we want to privatize, they’ll say. We only want to allow citizens to play roulette with a meager 4% of their Social Security. That can’t hurt anyone, right? So what if your private Social Security gets Enronized, you’ll still have 96%, right? It’s only a wafer-thin 4%, after all.
This is neo-connery of the highest order. They don’t want you playing dice with only 4% of your contribution, it’s four percentage points. Huge difference. See, your contribution to Social Security is 12.4% of your income. 6.2% comes out of your paycheck (that’s that FICA line) and 6.2% is matched by your employer. Of that 12.4%, they want you privately investing four percentage points, or in other words, almost a third of your Social Security investment. You get to play 4% of your income on the Wall Street craps table, while 8.4% still goes into Social Security.
Think of it this way. Suppose that by the time you retire, Social Security as it is now will guarantee you $2,000 per month in benefits. But if the Neo-Cons have their way, you’ve been able to play a third of your contributions on the market. Perhaps you’re a shrewd investor and by retirement, you’re getting $3,500 per month. Or perhaps you bet on Enron, Tyco, Global Crossing, and Adelphia, and now you’re only receiving $1,400 per month in benefits. Doesn’t sound very secure, does it?
Another way they try to neo-con you is to say that the whole scheme is voluntary. You don’t have to contribute to private accounts. You can keep the same old Social Security you’ve always had.
Sure, but the problem is that Social Security is a shared risk investment on behalf of all workers. Suppose that I and a few other market-paranoid/wise folks keep the same old Social Security, expecting that $2,000 per month, while the rest of you go gambling almost a third of your contributions on Wall Street. Then there’s a massive market crash; no matter how you’ve invested, almost everybody takes a loss. Now, not only are you going to get just $1,400 per month in benefits, but now there’s not enough money in the trust fund to pay us wise folks the $2,000 we’ve been promised. We have to take a hit because you guys all wanted to play the neo-con slot machines.
If those bits of neo-connery fail, they’ll point to other warning signs. The latest one I’ve heard was something about there being 14 workers for every benefit recipient in 1950, but there will only be 2 workers for every benefit recipient in 2030, thanks to the baby boom generation all retiring at once. Or how there will have to be changes in Social Security, either in reduced benefits, later retirement ages, or increased taxes. Just remind yourself that these were the people that warned you about stockpiles of 50,000 tons of sarin gas and missiles that could reach us in 45 minutes and the smoking gun that would be a mushroom cloud.
They lied to you before to convince you to support their agenda. It only cost $150 billion dollars, two years, and 1365 American soldiers’ lives to prove those assertions as lies. Now they want to steal your Social Security. This will cost $2 trillion, but it will take many years and will affect millions of older and disabled Americans’ lives before it will be painfully obvious that this was another neo-con lie. Social Security may need some tweaking, but it does not need to be fundamentally altered. Mend it, don’t end it.