Four Lies About Social Security
A CBS News poll taken in August 2001 found that a majority of Americans do not believe that Social Security will be able to pay their retirement benefits. A similar majority believe that investing part of our Social Security funds in the stock market is a good idea.
That speaks to the success of a brilliant, multi-year public relations campaign engineered by rich Wall Street firms, in conjunction with their friends in conservative Washington think tanks. Their goal: to convince the public to consider dumping Social Security in favor of private accounts. It's a campaign built on misinformation, distortion, and outright lies.
What's Wall Street's stake in all this? They want to get their hands on the one trillion dollars currently sitting in the Social Security trust fund -- probably the largest single stash of dough ever amassed in human history. If Social Security were privatized, that giant trust fund would be sliced up into individual retirement accounts, managed by the banks, one account for every man, woman and child in America. Each one of those accounts would generate management fees for the banks, a never-ending Niagara Falls of fees, cascading forever into the coffers of Wall Street.
Although Social Security projects such an air of humility that it would never say so itself, it is probably the most successful social program ever devised. It has reduced the poverty rate among the elderly from 35% in the 1950s to about 10% today. Social Security pays a basic, but guaranteed, benefit that can't be taken away. It protects people from rising prices with annual cost-of-living increases. It keeps on paying until you die. The benefits are relatively low, but in exchange, you get a rock-solid guarantee that the program will be there as long as you need it. And that drives the sellers of private retirement plans crazy.
To satisfy their shareholders, companies must make bigger and bigger profits each year. One way companies do that is to take customers away from their competitors. For companies in the retirement account business, their biggest competitor by far is Social Security. If Social Security were dismantled, mutual fund firms could collect management fees on 300 million individual retirement accounts, a massive boost to market share and a staggering profit potential. So it makes sense that the Fidelitys, Prudentials, and Morgan Stanleys of the world would be working overtime to take customers away from Social Security.
But there's a problem. Social Security is not optional. Potential customers couldn't take their Social Security taxes and give them to Wall Street firms, even if they wanted to. Before the bankers and brokers can convince Social Security's customers to make a consumer choice -- to pick their mutual fund -- they have to get them to make a political choice. They have to get those customers, millions of Americans, to agree to the abolition of Social Security.
But that will require some persuasion. So the Wall Street firms are relying on an advertising concept called the Unique Selling Proposition, that special something that makes a given product unique or better than all the alternatives: Gillette Mach III razors provide the closest shave; Michelin tires provide the safest ride for cars carrying small infants; the best part of waking up is Folger's in your cup.
Since its first monthly check was mailed out in 1940, Social Security's Unique Selling Proposition has been summed up in two small but mighty words: No Risk. To defeat Social Security, the bankers and brokers need to attack that Unique Selling Proposition. They need to make Social Security appear risky. To do this, the bankers have relied mostly on politicians of both parties, purchased via millions of dollars in campaign contributions and lobbying expenses. These politicians, with help from conservative and libertarian think tanks, have spent the last decade or so shamelessly merchandising lies of various sorts about Social Security. Here are the top four:
Lie #1: The Baby Boomers are about to bankrupt Social Security. Actually, way back in 1983, Congress figured out that the Baby Boom generation would have to be dealt with at some point. Like a wise 35-year old planning for her golden years, Congress's solution was to put aside some extra money for the nation's retirement. To do this, Congress raised Social Security taxes by a little bit. The tax hike worked exactly as planned. Each year since 1983, extra money has flowed into the Social Security Trust Fund. That fund now holds over one trillion dollars, and over $170 billion is now being added every year. In 2008, the oldest Baby Boomers begin to retire. In 2016, they will begin drawing down this vast storehouse of money, just as designed. Yet, politicians who know better are waving around this 2016 date as some sort of Social Security doomsday.
Lie #2: The Social Security Trust Fund is a sham. Since the trust fund is growing and on schedule to work exactly as planned, the privatizers have been forced to resort to another lie: the trust fund is worthless. This one is especially appalling because it has been repeated by Treasury Secretary Paul O'Neill, someone who certainly knows better. This falsehood turns on the fact that the trust fund contains U.S. Government Bonds, not cash. Social Security's enemies are running around claiming that these bonds are nothing more than worthless "I.O.U.s." But they are the same sort of Treasury Bonds that are traded every day on Wall Street. They possess the same claim on the U.S. Government as the Treasury Bonds sitting in the vaults of America's corporations, pension funds, and money market accounts. Calling the bonds worthless implies that the Government would refuse to honor them, something that has never happened in the history of the United States.
Lie #3: The stock market is definitely a better deal. The pro-privatization President's Commission to Strengthen Social Security has claimed that stocks will have an annual "return" of 7 percent, while the current Social Security system only returns about 3 percent. But the Commission does not provide any hard numbers to back up their 7 percent estimate. That's a stunning omission, given the fact that the whole argument for privatization rests on projected stock market returns. The truth is that the stock market is a much shakier investment than most people realize. Even with recent drops, stock prices are still high by historical standards. At this writing, the Dow Jones stands around 10,000. But Alan Greenspan warned that stock prices were too high (by making his "irrational exuberance" comment) back when the Dow was way down below 7,000! Another problem is Social Security's own accountants are projecting that corporate profits will grow much slower over the next 75 years than they have in the past. Since stock prices are tied to corporate profits, this can only dim the prospects for stock market returns. Economist Dean Baker of the Center for Economic and Policy Research crunched Social Security's own numbers and came up with a future stock market return of 3.6 percent a year. When you subtract the fees that banks will charge to manage the accounts, the stock market drops back into a dead heat with old reliable Social Security. Except that with the private accounts, it would still be possible to lose everything in a stock market crash. So far, the President's Social Security Commission has failed to refute or even respond to Baker's calculations.
Lie #4: Tax cuts are "raids" on Social Security. Meanwhile, the Democrats are also needlessly scaring people, but for a different reason. They want to argue against Republican tax cuts by claiming that they are "raids" on Social Security. This is a lie because it is impossible to raid Social Security. The bonds in the Social Security Trust Fund can only be used for one purpose: Social Security. They cannot be converted to cash to pay for tax cuts for the wealthy. Tax cuts for the wealthy are bad policy, but not because they raid Social Security.
Right now, Social Security does face a long-term funding gap, mostly due to the happy fact that we will be living longer, healthier lives in the future. The gap is quite small, does not appear for 36 years, and if the economy does even a little bit better than expected, will not appear at all. But it may appear. If so, we will have to tweak the system a bit, just as we have in the past. We could take longer life expectancies into account by raising the retirement age. Or, we could levy Social Security taxes on a person's entire salary, not just the first $84,900 as we do currently. Or, as a last resort, we could very slightly raise Social Security taxes, by a percentage point or so. In any case, these fixes impose a much smaller cost on the typical American worker than exploding health care costs or the continued stagnation of wages -- two real, and most importantly, current problems that ought to loom much larger on our national radar screen.
Happily, the President's Commission to Strengthen Social Security is demonstrating for all the world to see that privatization won't work. The commission was stacked with the very same financial services firms that stand to benefit from privatization, and President Bush tied the panel's hands, requiring that privatization be a part of whatever plan the commission recommended. But the commission's final report, issued late last year, contains a nasty surprise for proponents of private accounts. The report recommends paying for the conversion to private accounts by sharply cutting guaranteed benefits and raising new funds from unknown sources. In other words: the numbers don't add up.
Because of those deadly words, "benefit cuts," the Republicans in Congress will most likely stay away from the Social Security issue until after the 2002 elections. After that, though, Social Security privatization could rear its ugly head again. If that happens, look for more lies and distortions about the program. Meanwhile, Social Security will keep right on sending out benefit checks just as it has, every day, since 1940.
This article originally appeared on www.impactpress.com.