What Social Security crisis?
In politics, much ado about relatively little almost always suggests a hidden agenda. In this case, that agenda--the virtual destruction of one of the New Deal's most significant and enduring contributions to our political economy--is far more dangerous than any distant shortfall.
But this agenda is not new.Attempts on the life of Social Security go back to its earliest days and Republican presidential nominees Alf Landon (1936) and Barry Goldwater (1964).Their ignominious defeats put this agenda on hold, though phoenixlike it seems to reappear every generation or so.What makes this incarnation more ominous is that it occurs at the conjuncture of several other dangerous trends. These indude two decades of relatively slow wage and productivity growth, the distrust of government, the decline of labor, and the rise of budgetary fundamentalism.
The presumed bankruptcy of Social Security is now being used to give greater plausibility to further attacks on labor protection and positive government.Thus, if for no other reason than to slow the steady march to a corporatedominated economy, it is important to provide a different perspective on the rationale and workings of Social Security.
The case against Social Security is based upon four related contentions:
* Continuing budget deficits are bankrupting the U.S. economy.
* Paying benefits to a growing cadre of aging baby boomers will further erode the budget.
* Closing those deficits with higher Social Security taxes would sow intergenerational warfare by padding the accounts of many already affluent elderly.
* A more generous but less costly retirement program could be implemented through reductions in the guaranteed minimum benefits coupled with individually managed retirement accounts.
Each of these contentions is either wrong or misleading.
Cutting government programs with a goal of continuously zero deficits is a route to disaster. Money borrowed by governments--at all levels--to finance schools, basic research, health care, and transit is an investment in our future. No modern economy grows without these investments. Requiring these to be paid for out of current income is like limiting home ownership to those who can pay in cash. The result of such fiscal consenatism will be slow growth and escalating unemployment; those concerned about the performance of our economy might well look elsewhere. Trade treaties that neglect labor's rights and budget priorities that emphasize military spending over education and transit mobilization would be good places to start.
The notion that this society can no longer afford Social Security is based upon even more suspect assumptions. Social Security makes up an increasing share of the budget not merely because the percentage of elderly citizens has grown but also because the economy itself has failed to expand anywhere near as rapidly in the last two decades as in the quarter century after World War II. Predictions of Social Security bankruptcy are based upon assumptions that payroll taxes will be collected from an economy growing more slowly than at any period in our nation's history. Then, Social Security's critics turn around and assure us that the value of individually managed retirement portfolios will grow rapidly in this sluggish economy. Unfortunately, reductions in a cost-effective program of income support for the elderly are only likely to erode their purchasing power during downturns and make the economy ever more fragile.
Even if we must raise taxes to keep the system solvent, there are good reasons not to worry. Jeff Faux, president of the Economic Policy Institute, argues that the best way to measure the economic burdens on any working population is to calculate the ratio of all nonworkers to workers. That ratio today stands at about 0.7 to 1. It was as high as 0.946 to 1 in 1960, when the baby boomers were all in school and the United States stood on the brink of its greatest boom. With lower birth rates now the norm, this ratio is expected to reach only 0.795 to 1 in the next forty vears. Even using the Social Security Administration's most pessimistic estimates of economic growth, the fund could be kept solvent under current accounting conventions with an increase in Social Security taxes of only 0.1 percent per year between 2010 and 2040. The modest pain attached to such minute increases would be offset in part by relative decreases in the amount of money society would need to commit to the very slow-growing population of the young. And if benefits were financed by a tax on all earned income (simply by removing the $65,000 cap on income subject to Social Security taxation), the tax burden on the poorest workers would be reduced even more.
There are rich people on Social Security, but Social Security is not the source of their affluence. The largest pension is about $15,000.Three-quarters of Social Security recipients have total incomes (including Social Security) under $25,000. Rates of poverty among the elderly have decreased in the last generation but, in large measure, because Social Security has been so successful and efficient a program.
Social Security isn't a retirement plan. It's a form of social insurance for everyone, including our own parents and grandparents. Those who spend most of their lives working and paying taxes merit adequate protection when illness or age makes work more difficult. Most Americans don't want to allow the elderly to starve, regardless of how well or how poorly their life efforts fared. If Social Security's critics were genuinely interested in class or intergenerational justice, they would take a closer look at estate taxes, labor law, and minimum wage standards. If giving more Americans a chance to play the market is their goal, adequate wages and private pensions would be a good start. Turning Social Security into a smaller, sub-subsistence program supplemented with individually managed stock accounts will foster big winners--but, more importantly, big losers. And the winners are likely to have diminishing interest in supporting even the most minimal guarantees. (Welfare politics has surely taught us this lesson.)
Limited investment by a government agency of some of the Social Security Trust Fund in the private economy might have merit. Nonetheless, any form of public investment in the market should include public guarantees of minimum levels of performance. Over very long periods, stocks have outperformed other investment vehicles, but most of us have little choice as to when we retire or become ill. Social Security, by providing a cushion against economic vicissitudes, has not only eased personal suffering, it has stabilized the market economy. Embracing fixes that will endanger these features may well occasion a real crisis.
John Buell is a freelance writer with a special interest in labor and environmental topics. He is also tbe author of Democracy By Other Means: The Politics of Work, Leisure, and the Environment.
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|Title Annotation:||Humanistic Economics|
|Date:||Jul 1, 1997|
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