Will Obama Go After Social Security? My Editor and I Have a Bet
I have a bet with my editor, Jan Frel. He thinks that President Barack Obama is going to go after Social Security. It's a huge honeypot sitting in a country that's had an enormous amount of wealth shaken out of it, and if it were looted, it might produce enough in fat management fees alone to resuscitate Wall Street's ailing financial giants.
Jan's not alone. William Greider, writing in The Nation, noted that "Governing elites in Washington and Wall Street have devised a fiendishly clever 'grand bargain' they want President Obama to embrace in the name of 'fiscal responsibility.' "
The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system. They are also targeting Medicare and Medicaid. The pitch sounds preposterous to millions of ordinary working people anxious about their economic security and worried about their retirement years. But an impressive armada is lined up to push the idea -- Washington's leading think tanks, the prestige media, tax-exempt foundations, skillful propagandists posing as economic experts and a self-righteous billionaire spending his fortune to save the nation from the elderly.
I think Obama may offer some lofty but vague rhetoric about reforming "entitlements" as part of a broader set of policies designed to stabilize Medicare, and I believe that it's entirely possible -- and perhaps quite wise, politically -- that he'd make the very small tweaks that most progressive analysts agree will be needed, eventually, to keep a system that's fundamentally sound today healthy and fully funded in the future.
My reasoning is simple. Obama is, above all else, a shrewd politician, and going after Social Security in any substantive way -- privatizing it in whole or in part, or significantly cutting future benefits -- is political suicide. In an instant, he would lose his entire base of support, alienate labor, the AARP and the "Democratic wing of the Democratic Party" -- as the late, great Minnesota Sen. Paul Wellstone called progressive lawmakers -- and the result would leave him incapable of getting anything else on his agenda passed. See Bush, George W. -- he got Congress to go along with his disastrous and unjustified wars, pass the Patriot Act, and sit idly by as he used the Constitution as toilet paper, but when he chose (partially) privatizing Social Security as his signature domestic policy, it went nowhere fast.
Anyway, during Obama's address to Congress on Tuesday night, he made a reference to Social Security that caused Frel to tell look at me and say, without joy, "I'm going to win this bet."
"Not so fast," I replied. Here's what the new president said:
Now, to preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.
I'm sure my editor wasn't alone in picking up on that last part. After all, it was Bush who touted the wonders of private savings accounts to harness the "magic" of the stock market -- yes, the same market that has lost half its value in the past 18 months -- to beef up Americans' retirement security.
But there is a huge difference between substituting private accounts for the Social Security system we have now and adding some form of "universal savings account" as a new program to strengthen working people's economic security. The former is essentially the Bush plan, pushed by Greider's "think tanks, prestige media, tax-exempt foundations [and] skillful propagandists posing as economic experts." The latter is quite different. It is, in fact, a very old and very progressive idea for creating a society in which everyone is guaranteed the same shot at getting ahead. It's a proposal that might lead to a more equal, just economy.
So, parsing Obama's words, it's important that he said that he'd tinker with Social Security "while creating tax-free accounts," not "by creating tax-free accounts." (Jan argues that the key point is that Obama's promise of "comprehensive" reform, however nebulous that phrase might have been in his address, opens the door to something decidedly regressive.)
Creating universal private accounts as a new program to tackle wealth inequality is not a new idea. Michael Sherraden, a professor at Washington University in St. Louis, first proposed using them to build assets among the poor in his seminal 1992 book, Assets and the Poor: A New American Welfare Policy.
Since then, the idea of spreading ownership around has been reiterated many times. It's become a signature idea in center-left policy circles. Ray Boshara, director of the Asset Building Program at the New America Foundation, argued for a bold approach to America's spiraling inequality that he dubbed the "$6,000 solution." He'd give every baby born in America $6,000 in an "American Stakeholder Account," which he explained like this:
Every one of the 4 million babies born in America each year would receive an endowment of $6,000 ... If invested in a relatively safe portfolio that yielded a 7 percent annual return, this sum would grow to more than $20,000 by the time the child graduated from high school, and to $45,000 by the time he or she reached 30 (assuming that the account had not yet been used). Funds in the American Stakeholder Account would be restricted to such asset-building uses as paying for the cost of higher education or vocational training, buying a first home, starting a small business, making investments, and, eventually, creating a nest egg for retirement. Withdrawals would of course decrease the account; work and saving would build it back up. Family members and others could also add money to the account.
The accounts could be made highly progressive by matching lower-income families' savings, either with direct contributions from the government, or through refundable tax credits. As Gene Sperling, former director of Bill Clinton's National Economic Council (and an advisor to the Obama campaign), advocated using "government funds to match contributions made by middle-income and lower-income workers," spreading "individual savings and wealth creation to tens of millions of American families currently falling through the cracks by offering all Americans the generous incentives and automatic savings opportunities that the best employer-provided 401(k)s offer their employees."
He suggested that the government kick in $2 for every buck poor families sock away, and a dollar-for-dollar match for middle-income families.
It's unlikely that Obama would propose anything as bold as Boshara's $6,000 Solution. But Bill Clinton twice called for the creation of "USA Accounts" on a smaller scale and, during the 2008 campaign, candidate Sen. Hillary Rodham Clinton called for new (optional) private accounts in which low-income families would be encouraged to save through refundable tax credits that would match the first $1,000 families manage to tuck away.
To varying degrees, these proposals address the kernel of truth behind Bush's rhetoric about creating an "ownership society" -- asset ownership is a darn good thing. But its concentration is at a crisis point in this country. And while progressives get into a lather -- rightly so -- about income inequality, it pales in comparison to wealth inequality; it's why "upward mobility" has largely become a myth in America -- a fond remembrance of another age.
The ugly truth is that your parents' wealth is the single greatest predictor of your lifetime success -- forget about pulling yourself up by the bootstraps. Dalton Conley, director of New York University's Center for Advanced Social Science Research and author of Being Black, Living in the Red, told me: "When you look at how similar parents and children are on a variety of economic or social measures like education level, or what job they hold, the similarity in terms of wealth is greater. Wealth very manifestly displays the anti-meritocracy in America -- the reproduction of social class without the inheritance of any innate ability."
But while progressives have been talking about this for some time, it took the conservative message machine to frame the issue of asset inequality in an accessible way. They threw in a few financial "crises" looming, supposedly, just over the horizon and then crafted "solutions" according to their ideology -- by trying to privatize great swaths of the public sector. They branded it with that catchy phrase -- an "ownership society."
It's possible that my editor will win his bet in the end. But I think it's more likely that Obama has in mind exactly the kind of center-left, technocratic solution that a modest universal savings account plan would represent.