University of Chicago Press, 2000
Review by Edward Herman
This fine book contends, and demonstrates compellingly, that the only “crisis”
Social Security faces is posed by its enemies, who have created a phony
one to provide the moral and intellectual basis for weakening and destroying
a highly successful and completely viable system. It is Social Security’s
very success that upsets ideologues of the market and their corporate backers,
as an efficient and effective government-managed poverty reduction program
suggests that marketization of everything may not be in the public interest
and that the government can serve ordinary citizens well. If acknowledged,
Social Security’s success might justify its extension to a program to universalize
medical insurance and control medical costs by a national medical budget
policy, highly desirable—even urgent—and widely used elsewhere, but threatening
to powerful insurance and medical profession interests. Of course privatization
of Social Security would be a huge bonanza to the securities industry,
which has pumped money into the Cato Institute and elsewhere to foster
claims of a crisis.
These powerful interests threatened by, or hoping to plunder, Social Security
have dominated the political and media treatment of the subject. It is
now an established truth that, as the great trimmer has declared, “nearly
everybody knows that something substantial, really substantial, has to
be done to reform the Social Security system to accommodate the baby boomer
generation and then, subsequent, the generations after that” (Clinton),
and those espousing such truths have been free to make their case repeatedly
and misleadingly, with only weak rebuttals usually permitted. This was
nicely illustrated when the New York Times once again gave significant
op-ed space to Republican investment banker Peter Peterson’s demagogic
piece “Our Graying Budget Priorities” (September 18, 2000), one of whose
key frights was an alleged $21 trillion Social Security deficit 75 years
out. A letter by Dean Baker noting that Peterson had failed to mention
that the projected GDP at that distant time was $2,100 trillion, making
the projected deficit “a much less scary one penny on the dollar,” was
refused publication. Peterson, using his Concord Coalition and affiliates
like Third Millenium, has made a profession of Social Security bashing
over the past decade or so, and his media access and friendly treatment
have been exceptional. With both parties and the mainstream media in agreement
that there is a desperate Social Security system crisis, a majority of
young adults has been convinced that Social Security will not be there
when they become old. It therefore clearly needs “reform.” The debate is
skewed accordingly.
As Baker and Weisbrot note, the phony crisis is built around the Social
Security Fund Trustee’s legal obligation to provide each year a 75-year
forecast of the system’s financial position. The Trustees give a range
of forecasts based on various assumptions regarding productivity growth,
employment rates, longevity, and other variables. The median forecast usually
cited, which has assumed that the productivity growth rate for the next
75 years will be well under the rate for the past 75 years (1.5 versus
2.5), and that the unemployment rate will be a high 5.5 percent, concludes
most recently that the Social Security system will have exhausted its reserves
by 2037, and dependent thereafter only on Social Security tax revenues
would have to cut benefits if no further changes were made.
Baker and Weisbrot note first that 37 years—not to speak of 75 years—is
quite a distance into the future, and that it is unusual for the establishment
to be worrying intensely about an alleged crisis so remote. They point
out that if we extrapolate the rate of prison population growth over the
past several decades out to 2037, some 11 million people would be in jail.
That is a more genuine crisis than Social Security, as they demonstrate
(and I describe below), but Clinton, Peterson, and company have not proclaimed
a prison crisis demanding urgent action.
They also note that the Social Security fiscal problems of the future are
based on assumptions about the distant future that are hardly more than
guesses. And they are conservative. If we assume a productivity growth
rate that matches that of the prior 75 years, the Social Security fund
would be virtually in balance and the “crisis” would disappear even at
the distant 75 year target date. Given the establishment’s optimism about
the great effects of the information technology revolution, and the assumption
that the stock market will continue to do well, which rests on an assumed
high rate of productivity growth, one would think that spokespersons for
the Social Security crisis and need for privatization would be highly optimistic
on future productivity growth. If they are pessimists this suggests a hidden
agenda that demands proof of a crisis, at whatever cost to intellectual
consistency.
The mythical crisis also rests on the assumption that taxes are fixed and
that for some reason funds for Social Security can’t be obtained from general
revenues; and it assumes that any needed increases in Social Security taxes
would somehow crush the workers of the future. Peterson says that as Social
Security is a pay-as-you-go system, Congress “would have to raise taxes,
cut other spending, or borrow from the public,” which he rules out a priori
for serving Social Security interests, although he would never do the same
for a priority item like “defense.” But the restoration of the corporate
income tax and capital gains tax rate to 1976 levels would easily pay for
any Social Security deficit, and funds released by a cutback in military
spending to reasonable post-Cold War levels would do the same. Even eliminating
the $76,200 ceiling on Social Security tax payments would allow the system
to preserve benefit levels for a number of years after 2037. But Peterson
is protecting his elite friends, whereas the cutbacks in Social Security
benefits that he makes out to be the only proper solution would be at the
expense of the workers and poor people whose interests he pretends to be
concerned about. (Baker and Weisbrot have solid details on how the already
implemented and proposed future cutbacks of Social Security benefits increase
poverty and hurt blacks and women disproportionately.)
Peterson has stated elsewhere that the Social Security system has $8 trillion
in “unfunded liabilities,” a scare number that he avoids in his NYT op-ed
piece where he prefers to stress its de facto pay-as-you-go financing.
But in both cases he skirts around the fact that Social Security is a social
insurance system, not a “funded” pension system. It covers disability and
the care of survivors of direct beneficiaries; its 44 million beneficiaries
today include 5.5 million people with disability benefits and 7 million
survivors of deceased workers. The system provides about $12 trillion worth
of life insurance, and its “unfunded liabilities” are no more threatening
than the multi-trillion national debt as both rest ultimately on the federal
government’s tax power.
The Social Security System trustees have also noted that an increase in
the Social Security payroll tax of only 1.89 percent would by itself keep
the system solvent for the next 75 years. That would be a burden on workers
of the future, but as Baker and Weisbrot point out, if wages rise in accord
with the growth in productivity wages would be some 40 percent higher in
2037, so that worker real incomes net of the Social Security tax increase
would be far larger than real wages today. This tells us that the claim
of “generational warfare” is completely fraudulent, and that young people
who believe they are being taken for a ride by greedy geezers today are
being bamboozled.
Baker and Weisbrot examine some of the side tricks that support the claim
of generational warfare. One is the rise in the ratio of oldsters to workers
that will supposedly burden later workers—and Peterson refers to the prospective
slower growth of the labor force in the future as a demographic fact that
will slow up economic growth. But this is taken into account in the Social
Security Trustees estimates of future needs, which yields their finding
that only the modest 1.89 percent increase in the payroll tax will keep
the system solvent. (Baker and Weisbrot also show that it is not mainly
the bulge in retiring baby boomers that will put pressure on the Social
Security system’s finances but rather the greater longevity of the aging.)
Peterson and the other generational warriors neglect the partially offsetting
fall in ratio of young dependents to workers, but more importantly underplay
the effects of the steady rise in productivity that reflects the contribution
of past and present workers to the welfare of workers tomorrow. They note
that the percentage of the labor force in agriculture has fallen from 5.1
to 1.1 percent over the past 40 years, so we must be suffering an overall
serious shortage of food.
Another side trick in producing a “crisis” in Social Security is conflating
it with Medicare, which Peterson does by using the rubric “entitlements”
to keep both together. Medicare will definitely present very serious fiscal
problems in the future if current trends continue, but Baker and Weisbrot
stress that this is a function of the mismanagement of the healthcare system
and the transfer of the double-digit inflation in private medical costs
to Medicare. It is unconnected to Social Security and fusing them as Peterson
does is dishonest. Furthermore, a genuine cure requires that we take a
direction exactly the reverse of that pushed by Peterson and the privatizers.
The financial threat to Medicare arises “as this relatively more efficient
system—its administrative costs are less than one-fourth those of the private
system—is subjected to increasing ‘marketization’.”
One of the most valuable features of Social Security: The Phony Crisis
is that it not only shows the Social Security crisis to be a creation of
its enemies, it shows what a beautiful diversion that mythical crisis is
from the real crisis besetting U.S. workers. The real one has rested on
the failure of the system to benefit ordinary workers over the last 25
years, despite the substantial productivity growth, as demonstrated by
the facts that the median real wage today is slightly below that of 1973,
and that inequality has soared. The attack on and decline of unions, downsizing,
globalization, the weakening safety net, and a tight money policy geared
to serve bond holders, together represent a class war that has kept wages
down and made workers more insecure. Helped along by a shrinking of private
pension plans, this class war has made it more difficult for workers to
save for retirement. Baker and Weisbrot calculate that if the inequality
trends of the past decade or two continue, that will cost the typical family
about 25 percent of their income—far more than the hypothetical increase
in Social Security taxes needed to keep that system solvent.
In the policy of pushing non -issues, we now have the Social Security crisis,
but before that we suffered the “welfare crisis” and “budget deficit crisis.”
The latter two crises were solved at the expense of the general population,
who remain mired in a condition of stagnant wages and insecurity, with
inequality still rising. “Yet no legislative agenda, constitutional amendment,
or campaign for high office has been centered on this very real and continuing
threat to the well-being of future generations.” Instead we have now the
phony Social Security crisis, whose proposed resolution by people like
Peterson and the two property parties will continue to damage ordinary
citizens.
This book has other merits, including an extensive and devastating critique
of the push for Social Security privatization, as well as a sophisticated
analysis of the controversy over an allegedly overstated consumer price
index, which it questions and shows to be an integral part of the campaign
to weaken Social Security. It also notes how even liberal economists like
Paul Krugman and Lester Thurow have fallen into the “crisis” trap, although
Krugman at least has acknowledged having been gulled. (They never mention
Mike Males, a purported leftist, whose The Scapegoat Generation cites Peterson
favorably and swallows completely and gives heavy weight to the claim that
the greedy geezers are carrying out a generational war against “youth.”)
This is the book to read to understand the class war root of the phony
crisis, to see the crisis claim dismantled, and to see how that crisis
has been substituted for a real crisis for ordinary citizens. It should
not surprise that, just as Baker’s letter confuting Peterson was not publishable
in the New York Times, so also this work on a key issue of the day has
not been reviewed in any of the major media publications.
But Baker and Weisbrot are free to speak out, and they can even start their
own newspaper in competition with the Times and Washington Post if they
want. Z
