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Will Democrats ABANDON Social Security?

In a paroxysm of pleasure over the Republicans' sex-scandal-assisted suicide, Democrats have been busy closing ranks behind their President. Even as Clinton laid out a series of initiatives worthy of Ronald Reagan, including a $110 billion increase in Pentagon spending, a trade policy that steps up competition for cheap labor, and a first step toward privatizing Social Security, liberal members of his party, except for a few mavericks, applauded him. What's going on here?

"There's enormous anticipation that this fight [the scandal] is just pure political gravy for the Democrats," says Bob Borosage, a former adviser to Jesse Jackson and co-director of the Campaign for America's Future, a nonprofit group with ties to organized labor and progressive Democrats. "They don't want a fight with Bill Clinton, and they don't want a fight with Al Gore. So we're not hearing about the truly big things that are at issue: Are we going to fund the military at Cold War levels? Are we going to privatize social insurance? Are we going to have a global New Deal?"

The Social Security debate is a case study of Clinton's twisted relationship with the left wing of his party.

If Clinton's welfare reform bill undermined the foundation of New Deal liberalism, his bid to "save" Social Security from insolvency and begin investing part of the program's funds in the stock market may finish the job.

Many Democrats are supporting Clinton in this effort--even though they don't believe Social Security is in any danger of going bankrupt. They publicly accept the idea of "saving" the system from a projected shortfall, because, they say, that's what the public believes must happen.

"The AFL-CIO has had polling done, and they convinced the unions and convinced me that the rightwing propaganda has been so successful, if you say there's no crisis, people won't listen to you," says Representative Jerry Nadler, a progressive Democrat from New York, who supports the President's Social Security plan.

Does that mean the Democrats are backing a plan to fix a problem that doesn't exist?

"That's exactly right," Nadler says. "The problem is illusory, but you have to act as if it's real."

Republicans favor more individual control over retirement savings--returning Social Security withholdings to taxpayers in the form of private investment accounts. The Clinton plan would retain the federal guarantee of Social Security, but would invest part of the trust fund in the stock market, and would put government matching funds into separate, individual investment accounts. It's up to Democrats and Republicans in Congress to hash out an agreement on the program's future.

Following their President's lead, progressive Democrats find themselves in a strange dance. They are embracing their opponents, keeping quiet about their concerns, and playing along on the theory that if they take the "middle path"--supporting partial privatization, while adopting the rhetoric of those who want to tear the system down--they'll wind up in a better position to save it. Or so they hope.

Nowhere was the perversity of the Democrats' position on Social Security more apparent than in a debate on January 21 in front of the House Ways and Means Committee. Jesse Jackson, former Democratic Presidential candidate, head of the Rainbow Coalition, and occasional White House spiritual adviser, squared off against Jack Kemp, former Republican Congressman from New York, President Bush's Secretary of Housing and Urban Development, and trickle-down economist.

The mood in the room was overwhelmingly collegial. The testimony began with football banter. Jack Kemp pointed out that both he and Jackson had been quarterbacks on their college football teams (although Kemp went on to play in the pros and Jackson didn't). "Jesse played with many of my future teammates on the Chargers and the Buffalo Bills," Kemp said. Waving his right hand, with his big, gold Buffalo Bills Hall of Fame ring, Kemp declared that he and Jackson share an "audacious faith in America."

J.D. Hayworth, Republican of Arizona, chimed in to thank the "dueling quarterbacks," and to disclose that he was once an offensive lineman. "Although in my college days it should also be noted I was recruited as right tackle but ended up left out." Jackson chuckled appreciatively at that line, and punched Kemp in the arm.

Committee Chairman Bill Archer, Republican of Texas, announced to this happy group that he had sobering news: "A nationwide, bipartisan survey ... by Oppenheimer Funds will be released today.... It shows that two-thirds of Americans under fifty believe it's more likely that a pro wrestler will be elected President than believe they'll collect all the Social Security they're entitled to," Archer said. "And half of all Americans believe a $1,000 bet on the Super Bowl will give them a better return than the taxes they pay into the Social Security system."

After this paean to the effectiveness of the mutual-fund companies' propaganda, Archer went on to propose a radical plan to dismantle Social Security, warning ominously about the "redistribution of wealth" and insisting that we not forget "what we learned from Eastern Europe"--as if the Social Security system as it exists brings us dangerously close to Communism.

He closed by praising a woman named Regina Jacobs--who spent her whole life mopping and dusting classrooms at the University of West Virginia: "Regina earned only $10,000 a year as a custodian, and yet she drives a GMC Jimmy," he said. "She also just donated $93,000 dollars to the university's law school--$93,000! How did she do that? Well, for many years, she rented a piece of property that she had inherited. And she invested her rental income along with her salary. She said, `I didn't make a lot of money but what I did mike I kept.' ... That's what happens when you combine the power of ideas with opportunity.... I believe with low taxes, less government interference, and more freedom, there's nothing the American people cannot do."

Kemp spoke next, and trumped Archer's story about Regina Jacobs with his own tale of a waitress in New York who invested $4,000 in the stock market in 1946 and ended up with $22 million.

Gesturing emphatically, and looking like a poster child for irrational exuberance, Kemp further explained how we can become a nation of millionaire janitors and waitresses:

"I want to make sure you know why Anne Scheiber is my woman of the year," he said. "She's my woman of the year because when they asked her, `Why didn't you sell over the generations that you held onto those stocks?' ... And she said, and I quote: `The capital-gains taxes were too high.'

"In other words, the tax system was biased toward holding onto the asset, keeping the capital locked up. So a young black, Hispanic, male or female, never got his access to capital. And I suggest that is the single biggest problem in the country with poor folks."

The capital-gains tax?

No one can challenge Kemp's claim that he's audacious: Cut capital gains taxes! Let the poor become millionaires! But this is the Republicans' program for Social Security?

The scariest part of the Ways and Means Committee hearing was not the radical Republican proposals, however. It was that the Republicans and the Democrats were not so far apart.

At first, Jesse Jackson hit many of the right notes in defense of a public Social Security system. He pointed out that it's been the most successful anti-poverty program in the nation's history: "Without Social Security, half of all those over sixty-five would live in poverty," he said. As a bottom line,"Social Security must remain a program of shared insurance, not individual risk." Any plan to save it must continue to pay disability and survivors' insurance, must reject raising the retirement age, and must not substitute risky, private accounts for a government guarantee.

But then Jackson doffed his cap to Wall Street.

Defending the President's plan, Jackson found himself in the ridiculous position of refuting Republican claims that government involvement in the stock market might be dangerous.

Chairman Archer challenged Jackson on his support for the President's proposal to invest Social Security trust fund moneys in the private market. "Would you advise the President that any investment decisions be based on so-called corporate responsibility," Archer asked, "or simply the higher return?"

"I cannot imagine our government ever again making a foreign policy decision that excludes human rights or one that excludes domestic rights," Jackson replied. "It's a matter of corporations upholding the American standard of law. Now the law is inclusion, which by the way, leads to growth, so you're doing well and doing good at the same time."

This was too Pollyanna even for Jack Kemp. "That's the problem with the President's proposal," he said. "It's the reason that Chairman Greenspan suggested it is a dangerous path down which he doesn't believe we would want to or should go.

"I went to the web site of the United States Justice Department, anti-trust division, yesterday," Kemp said. "There are 340 cases on their web site of so-called, alleged anti-trust violations.... Are you going to, a priori, rule out the investment in any company under attack by the United States government? You mentioned tobacco, I mentioned gaming, you could mention apartheid--and many of us in this room supported the divestment in the apartheid regime. But there are issues of great complexity that some people will think are moral, others immoral.... We should not go down this path. It should be personalized. That's the beauty of free choice for the American worker."

Having had the prospect of corporate irresponsibility raised for him, Jackson rushed to tell Kemp and Archer that companies have an economic incentive in behaving well. "When there's growth, everyone's a winner," Jackson intoned. "No one wins when we have exclusive practices in corporations that limit market, limit money, limit growth.... I frankly think most of the major companies would want government investment, and would tend to honor the law. It could very well be a stimulus to meet government standards because you stand to gain more by being on good terms with our government."

This, of course, is exactly why the Republicans oppose investing part of the Social Security trust fund in the stock market. What if the federal government used its leverage as a $700 billion investor to try to impose fair labor practices, environmental clean-up, or divestment in companies that did business with military regimes?

The President's partial investment plan is all but dead anyway, thanks to the vocal opposition. But now that Clinton has opened the door to discussing private investment, Kemp and others are pressing ahead, saying they want to leave it up to individuals to pick stocks.

Instead of a universal system of social insurance, Americans could end up with what consumer advocate Ralph Nader calls a system of "Anxiety Risk Accounts" for individual retirement. While the Republicans like to talk about poor people who became millionaires by investing in stocks, there is also the downside to market investment. Poor people are disproportionately the victims of pyramid schemes, get-rich-quick scams, and just plain bad investments.

Nader lays out a less-than-audacious view of what might happen if the government gets involved in the stock market.

"There will be an explosion in investment fraud committed by snake-oil hucksters," he says. Not only will fly-by-night investment scams that target the poor and elderly increase, Nader predicts, but big investment houses will get into the act.

Echoing the point that Archer and Kemp raised about the government's conflict of interest in dealing with the private market, Nader pointed out that the SEC in January imposed fines on some of the biggest firms on Wall Street, including Merrill Lynch, Morgan Stanley, Salomon Smith Barney Inc., even Oppenheimer. Twenty-eight brokerage firms and fifty-one individual traders agreed to pay more than $26 million in civil fines for market manipulation, keeping inaccurate records, delaying trade reports, and failing to execute customers' orders in a timely way, in order to enhance their own profits.

Even leaving aside the issue of fraud, Nader pointed to what he called the "Lake Wobegon effect" of the stock market: "Everyone assumes they'll do better than the average. But of course there are losers," he said. "What if the stock market crashes? What should government do if people invest badly? Or if they're ripped off by hucksters?" Either the government must bail out the losers, creating an incentive to take risks, Nader said, or it will simply let people suffer. Neither option is acceptable.

It's hard to imagine a more fundamental ideological debate than the argument over Social Security.

Archer posed the question this way: "When it comes to Social Security, is the role of government simply to redistribute existing wealth, or is it to foster conditions that enable everyone to make more wealth? Should the government solve problems and protect people against adversity? Or should the government help equip people to help themselves?"

It's clear which side Archer is on. Unfortunately, the Democrats haven't been doing much to stake out the opposing view--that the government does have a redistributive role, and that it should protect the elderly and vulnerable from the vagaries of market cycles.

Not only has Clinton opened the door to privatizing Social Security, in his budget plan he commits most of the surplus in the U.S. treasury to shore up Social Security by paying down the federal debt. This is a dramatically conservative plan. In essence, Clinton is committing himself to an austerity budget for social programs in an era of unprecedented wealth as well as unprecedented inequality, with one-fifth of the nation's children living in poverty. If the government can't afford to take a more expansive approach to social spending now, when the coffers are full, the argument for basic social justice may never have a chance against the world view of Wall Street.

By halftime in the House Ways and Means debate, Kemp had scored many more points for intellectual honesty than his opponent.

The Republicans prodded Jackson about using the government surplus to pay down the debt--wouldn't he rather spend the money? Jackson stuck by the President's ultraconservative economic program: "Reducing the debt obviously gives us more strength; it allows us to save Social Security," Jackson said.

Kemp gently disagreed. Focusing relentlessly on paying off government debt is like saying you should buy a house only when you can pay for it up front in cash, he explained. "I'm in favor of debt to pay for long-term expenditures," said Kemp. "We grew out of World War II's debt. The deficit in 1946 was 50 percent of GNP--50 percent of GNP! But we have had continued expansion.... The answer to debt is growth--it's reducing debt as a percentage of the pie, keeping our economy on a growth track. It's doing well today, but I tell you my friend, Reverend Jackson, the actuaries of Social Security are scaring the American people by coming to the conclusion that if our economy slips to 1.3 percent growth over the next three years, retirement will not be there for them."

Here, before he was quickly cut off by Chairman Archer, Kemp let the cat out of the bag: If we continue having even modest economic growth, there is no reason to believe the Social Security system will reach a crisis.

The projected shortfall in Social Security, around the year 2032, according to the system's trustees, is based on the astonishingly pessimistic assumption that the U.S. economy will all but grind to a halt.

The real news, writes economist Doug Henwood in his book Wall Street: How It Works and for Whom, is not that Social Security is going belly-up, but that "either the trustees are using deliberately bearish growth assumptions to promote public doubt of the system ... or are foreseeing seventy-five years of depression ahead of US."

Progressive economists like Henwood oppose drastic efforts to "save" Social Security, because, like Kemp, they note that the system is not in any real financial trouble.

If it seems odd that a left-winger like Henwood and an exuberant free marketeer like Jack Kemp would agree, consider: The Social Security trustees' dismal projections of economic growth mean that the stock market is headed for a colossal downturn.

This is the fundamentally fraudulent part of the argument that we can "save" Social Security by investing it in the stock market: A booming stock market that produces good returns for retirement, and a massive economic slowdown that would make the Social Security trust fund run dry, simply can't happen at the same time.

"The privatizers say we'll all get rich in the stock market if we invest," says Dean Baker, an economist with the Economic Policy Institute. "The President said it in his State of the Union address--the government could get about a 7 percent return by investing in the stock market. That looks a lot better than a 2.9 percent return on government bonds."

But where do they get the number 7 percent, Baker asks.

"It turns out that 7 percent is, in fact, the average return over the last seventy years in the stock market," Baker says. "And it usually makes sense to assume the future will look like the past. [But] when they project a shortfall for Social Security, we're assuming the future is not going to be like the past at all. In fact, we're assuming the growth rate of the future will be about half that of the past! I challenge anyone to tell me how you get the same returns in an economy that's growing by 1.4 percent instead of 3.3 percent--which is what they assume will happen when they predict the Social Security shortfall."

To arrive at their dismal conclusions about economic growth, the Social Security actuaries abandoned professional standards of practice, according to David Langer of Consulting Actuaries, a New York City firm that specializes in employee benefit plans. Langer reviewed the last twenty years of Social Security Administration reports.

"I've come to the conclusion that the actuaries of Social Security disregarded the edict of looking at the long-term past in developing future assumptions," he said. "They are assuming a 50 percent drop in GDP. If you use figures from the past seventy-five years, GDP looks a lot better than that. Had the actuaries followed the rules, there would be no shortfall."

Economist Mark Weisbrot of the Preamble Center, a nonprofit group in Washington that opposes Social Security privatization, makes a final point about economic growth that one might have hoped to hear from Jesse Jackson: "Median income has fallen for twenty years, but Social Security privatizers say the problem is our aging population. The real problem is present trends in income distribution. If we have growth with higher wages--not growth with stagnant wages as we've had since the 1980s--that would take care of the Social Security shortfall." Instead of worrying that there will be fewer young people paying into the Social Security system, we should worry that young workers aren't earning enough to make a significant contribution. If earnings go up, so will Social Security funds, Weisbrot says.

Democrats haven't been touting such common-sense analysis, however, because, as Nadler puts it, "We've lost the political war."

The President's plan isn't really so bad, they argue. And it's not: It protects the basic guarantee of Social Security, sets up private accounts that are entirely separate from the Social Security system, and creates a kind of floating pension fund for workers.

But the problem with the plan is that it has to run the gauntlet of a conservative Congress, which is ready to seize upon the idea of creating private accounts and come up with a "compromise" plan that throws retirees on the mercy of Wall Street.

Underlying the whole Social Security discussion, of course, is the Democratic Party's political calculations about retaking Congress and the White House.

Privately, Democrats and their staff say they hope to drag out the debate over Social Security long enough so that nothing will get done this year. That way, they can make saving Social Security an issue for the 2000 elections.

"We just think it would be a disaster if anything passed this year," says Roger Hickey, co-director of the Campaign for America's Future. "It would be a total, sell-out compromise. Clinton has made a commitment to protect the Social Security system--which we celebrate. Now he's going to be tempted to fritter it away. We've got to hold his feet to the fire. If he can resist the lure of making a deal, and we can kind of bob and weave for the next year, we can work to make sure Al Gore campaigns on saving it. Then we can float all kinds of explanations for why privatization is bad, and we'll be in a much stronger position."

If Gore wins, and if Democrats take back power in Congress, progressives and unionists are betting they can hold the line on Social Security and stave off the privatizers.

But what if that doesn't happen?

"If this economy turns down, and we've got job flight and low wages, and the Democratic position is paying down the debt and the Republican position is `Let's stimulate growth with a tax cut,' we're going to go into the 2000 elections sounding like Calvin Coolidge, and they'll go in sounding like FDR," says Hickey's colleague Borosage. "It's unimaginable."

Unlike some of his friends and allies, Ralph Nader has not been hesitant to criticize the President's Social Security plan. The President's private, individual "USA Accounts" will likely be twisted by Congress into a much more radical form of privatization, Nader says. And they also encourage people to identify their interests with Wall Street--instead of working for clean air, anti-trust enforcement, and tough labor laws.

"This would be the greatest example of corporate welfare in history. It would push up the value of stock without firms doing anything but lobbying for a proposal, and without the underlying companies' increasing their value or the solidity of their stock," Nader says."The primary beneficiary will be private investors who take big risks--knowing a government bailout is around the corner. And Congress will legislate with even more of an eye to Wall Street."

"Maybe so," responds Jerry Nadler, who is a friend of Nader's and helped arrange to have him speak at a recent gathering of progressive Democrats. "Investing might have some down sides," Nadler concedes. "But what are the alternatives? We're behind in a political battle that was hardly even fought for ten years. If you don't deal with the political situation you're in, things will be worse."

"Jerry, Jerry--five years of unanswered propaganda!" Nader said.

"I know," Nadler replied.

RELATED ARTICLE: Giving Up the War of Words

The finance industry is the biggest lobby in Washington. Within it, securities, investment, and insurance companies are the biggest players. They spent $97 million on lobbying in 1997, according to the Center for Responsive Politics. On Beltway pundit shows, television commercials tout private pension plans. And a snowstorm of press releases circulates from the Cato Institute and other groups determined to persuade us Social Security is in crisis and must be turned over to Wall Street. Meanwhile, the Oppenheimer Fund continues to pump out surveys showing that people believe the hype. By sheer force of propaganda, the Pro-privatization lobby has persuaded public officials that it's no use denying that Social Security is in need of reform.

Unfortunately, two major groups that could fight back in the war of words aren't up for the task.

Insiders at the AFL-CIO confirm they've been conducting a series of focus groups, from which they say they've determined the message that Social Security is not in crisis just doesn't sell. Historically, the federation has been loath to criticize the Clinton Administration anyway, and while it officially opposes "privatizing," it supports Clinton's partial privatization.

The American Association of Retired Persons is taking a similar approach: "Is there a crisis? No, not in any near-term sense," says John Rother, political director of the AARP. "But in the long term, yes, there is. More to the point, we've got a very large number of young people today who don't believe that Social Security will be there for them."

Unlike organized labor, which at least has an ideological inclination to resist freemarket solutions, the AARP is no stranger to Wall Street. It sells investment services, insurance policies, and credit cards to its thirty-three million members. "To say to Americans that they ought to have no involvement in the stock market is silly. The market has been very, very good to people," Rother says. And Rother's outlook is somewhat more conservative than the President's: "The measure of our success would be if a Social Security trustees' report came out that said the program is adequately funded," says Rother, who accepts the trustees' pessimistic economic projections. "The President's plan only gets us partway there. More work needs to be done this year, so we can achieve seventy-five years of solvency."

RELATED ARTICLE: Kucinich's Crusade

The boldest opponent of privatization in Congress is Representative Dennis Kucinich, Democrat of Ohio, who made his political reputation twenty years ago when, as mayor of Cleveland, he fought a David-and-Goliath battle to save the city's electric utilities from privatization.

Kucinich disagrees adamantly with the idea that Democrats should adopt the rhetoric of those who say Social Security is in crisis: "Just because someone says the sky is falling, you don't put up a net to catch the sky," he says. "ThE opponents of privatization are giving up their strongest argument, which is that Social Security is financially strong. Social Security is facing a political crisis, not a financial one. And the political crisis it faces is, without a doubt, the most serious effort of redistribution of the wealth upward that this country has ever seen."

Along with a few other progressives in Congress, including Barbara Lee of California, Peter DeFazio of Oregon, Bernie Sanders of Vermont, and groups like the NAACP and the National Council of Senior Citizens, Kucinich is determined to break free of the Clinton Administration's accommodationist approach.

"I predict that this single issue has the ability to change the politics of the country," he says. "This is core to what the Democrats and labor are about. Neither the Democratic Party nor labor can retain their credibility unless they're ready to start an all-out fight against privatization. Either you believe that Social Security is a fundamental right in our American society, or you don't. I don't see any middle ground here. The middle ground for some is partial privatization, and that's the beginning of the end of Social Security as we know it."

Ruth Conniff is Washington Editor of The Progressive.
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Title Annotation:privatizing Social Security
Publication:The Progressive
Date:Mar 1, 1999
Previous Article:Farewell to a Fad.
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