Corporate America's Plan to Loot Our Pensions Is the Latest Battle in Decades-Long Assault on the Middle Class
The severe economic crisis, now in its fourth year, is being used to batter the remnants of the social welfare state. Having decimated aid to the poor over the last 30 years, especially in the United States, the economic and political elite are now intent on strangling middle-class benefits, namely state-provided pensions, health care and education.
The initial neoliberal assault under Ronald Reagan and Margaret Thatcher reorganized the capitalist economy and hammered private-sector unions into submission. This was accomplished by putting labor back into competition with itself by off-shoring industrial production, through deregulation and with frontal assaults on labor rights, organizing and solidarity.
Similarly, the current attack is a two-pronged effort to reorganize state social services, either by eliminating or privatizing them, and decimate public-sector unions whose workers provide those services. While the safety net is being withered by attrition, police and spying agencies are getting more powers and funding, and the wealth of the super-rich and record corporate profits are deemed off-limits to taxation to close any government budget gap.
Simply put, the elderly are superfluous to capitalism. With high rates of joblessness the “new norm,” more and more people are being made disposable. This leads to an efficient if brutal logic: cutting old-age income and health care will make it easier to scrap old, useless workers. In fact, this reality is already coming to pass. One study published in 2008 found that over a 16-year period life expectancy had declined for many poor American women — precisely those who are disproportionately represented among the elderly heavily dependent on Social Security and Medicare.
Slashing social services affects everyone by increasing the pool of workers desperate for any sort of paying job, pushing down wages and benefits. This will all be pushed under the rubric of “personal responsibility,” and it will probably be successful as long as opposition is weak and divided. The main beneficiaries will be the super-wealthy who gain both from tax cuts as the social sector is chopped up and higher corporate profits as wages and benefits are slashed more deeply.
The attack on pensions is mainly occurring in the West and those countries close to its orbit. So while the United States, Greece, Ireland, Japan, France, Turkey, Spain, Poland and Latvia have been cutting or trying to squeeze state-run pensions, others such as Bolivia, China and Venezuela have been increasing funding of old-age pensions in recent years (though within these countries the picture is more complicated because social spending may be declining overall and inflation increasing).
The Right has stridently opposed Social Security since it was enacted in 1935, but the modern attack on pensions originated during the Reagan-Thatcher era. While he proposed making Social Security voluntary during the 1964 Goldwater campaign, when he reached office Reagan temporarily froze cost-of-living adjustments, raised the future retirement age to 67, taxed benefits of higher-income earners, made it more difficult for the disabled to claim benefits and forced the self-employed to pay 100 percent of payroll taxes. Then under Clinton, according to some economists, inflation was understated to suppress cost-of-living adjustments, resulting in benefits that should be 50 percent higher than the current average of $1,072 a month. Thatcher and Tony Blair formed the same one-two punch as Reagan and Clinton, but they went further by partially privatizing much of the state-run pension system.
The second historical component is the current crisis, which is severely widening the economic chasm. According to the New York Times, corporate profits “have grown for seven consecutive quarters, at some of the fastest rates in history,” hitting a record of $1.66 trillion on an annual basis. Taking advantage of Federal Reserve and U.S. Treasury monies, Wall Street has notched record profits over the last two years. And the top one percent actually increased their share of the wealth through the end of 2009.
As for the overall economic picture, industrial production is back to where it was in 2000 and the all-important capacity utilization rate – which measures how much of existing manufacturing plants are actually operating – is below 75 percent, compared to a level above 80 percent before the crash. This is like saying more than one-fourth of factories are idle. The trade deficit is at 3.7 percent of the gross domestic product. Only 874,000 jobs were created during the first 10 months of 2010, well short of the 1.2 million needed to keep up with population growth, and some 260,000 state workers lost their jobs during this period, leaving 7.5 million fewer jobs than when the recession began.
The household picture is even grimmer: family income shrank more than 4 percent in 2008 and 2009; the official poverty rate of 14.3 is the highest since 1994; 13.5 percent of home mortgages are in delinquency or foreclosure; the percentage of people receiving health insurance through their employer has dropped by 13 percent over the last decade and the real unemployment rate -- the “U6 rate” which includes those who have given up looking for work -- is at 17 percent. Household debt stands at 118 percent of after-tax income.
Most economists say there are really only four sources of potential growth in our economy: consumer spending, business investment, trade and government. As the data above indicates, the first three are on life support, while the Obama White House bungled the stimulus plan, helping the right in discrediting government intervention, which is still the only remaining option. These economic conditions prevail throughout the West, which is the backdrop for the global assault on pension plans. Thus the conclusion is stark: there is no functioning engine to drive economic growth.
With so much idle productive capacity, the bromide of giving tax breaks to spur business investment is little more than throwing away money. With American families drowning in debt, getting smacked with rising healthcare costs, having lost $15.8 trillion in wealth and fearing joining the armies of unemployed, they are incapable of pulling the economy out of its funk with increased consumption. Increased trade is one possibility, which would require a weaker dollar to make U.S. exports more competitive. But, as Paul Krugman points out, this is opposed by Republicans who believe continued economic decline will enhance their electoral chances in 2012. Despite investment money pouring into the BRIC countries – Brazil, Russia, India and China – agricultural commodities and precious metals, these markets are too narrow and shallow to form a new asset bubble, such as the ones in tech and housing that fueled economic growth for nearly two decades. And in any case, we know how well those bubbles worked out.
When business investment, consumption, trade, debt and speculation all falter, that leaves government as the only sector that can revive a capitalist economy. But, as I first pointed out in December 2008, the Obama administration knew the stimulus was almost certain to fail because the downturn was sapping a staggering $1 trillion a year from the economy at that point, while the plan offered a relatively meager $787 billion. Of that, only $600 billion of stimulus money was spent in the last two years and, according to Paul Krugman, more than 40 percent of that was in tax breaks that tend to offer the least bang for the buck. So in early 2009, faced with an economy leaking 7 percent of the GDP a year, Obama offers a plan that plugs 1 to 2 percent a year.
In the final equation, the Obama stimulus only covered some of the shortfall in state and local budgets. But that money is drying up, and that, to a large degree, is the reason state services and workers are now under attack.
But now we are in for more bloodletting of social services and government workers because the failed stimulus has legitimized the establishment hysteria over the federal debt. Debt matters but the simplest way to reduce it is by a combination of economic growth and inflation. This is what happened to U.S. debt after WW2, which peaked at about 120 percent of GDP, far more than today even with the economic depression and bailouts. Instead, the right is pushing policies that may result in a worst-case scenario. Cutting spending and taxes –which Obama has endorsed – could lead to further economic contraction and deflation. This will make federal debt payments doubly onerous because tax revenues will shrink as the dollar strengthens.
There is another solution to reviving the economy without piling on debt: tax the wealth of the elite. According to economist Rick Wolff, “high-net-worth” Americans have around $12 trillion in investable assets, which excludes the value of their homes. A 13 percent wealth tax would wipe out the entire 2010 federal budget deficit of $1.56 trillion while doing little to crimp the economy because this money is literally lying around.
Yet Obama never seriously considered even the Keynesian policy of debt-driven financing for national re-industrialization because he was the darling of Wall Street – and number one recipient of its dollars – for his unwavering support of the Bush bailout in September 2008 and by taking counsel from Larry Summers and Tim Geithner during the campaign. Once in the White House Obama shunned jobs programs on a massive enough scale to revive the economy because the indirect method of debt-driven financing would shore up benefits, wages and labor bargaining power, thus cutting into corporate profits, while the direct financing method, taxing the rich, would mean they would have to pay for programs that would eventually cut into their profits.
The Obama administration has consistently fought for policies that involve weakening labor -- such as its attacks on auto workers and teachers and the cynical gesture of calling for a freeze on the pay of federal workers– driving down wages, letting unemployment rise, and squeezing social services and benefits, all to transfer more wealth upward.
The wealthy have profited three times off the crisis: from the bubble itself, during the bailouts and from government bonds sold to them to pay for the bailouts. Putting pensions on the chopping block would give them a fourth opportunity to profit off the same crisis.
If debt is a problem, then bondholders should take a haircut because they took the risk. Of course, that’s not how capitalism works. So, in the case of Social Security, which has nearly $2.6 trillion in its trust fund and can meet ALL obligations through 2037 even assuming no changes are made, the plan is to raid it to pay off bondholders.
That’s why a crisis is being manufactured. Obama’s deal to reduce payroll tax by two percentage points will pilfer an estimated $120 billion from the trust fund that will supposedly be paid back by revenues from the general treasury. This means the deficit will increase, feeding into the fabricated panic over Social Security and debt.
For any country, cutting pensions is disastrous to long-term economic health. In the United States, Social Security accounts for 40 percent of the income of the population over 65 and nearly 50 percent for women in this group. It would also leave more people in the workforce as older workers delay retirement. Because the elderly tend to spend their benefits right away, on housing, food, transportation and medical services this means less demand and lower economic activity. And combining all this with trying to crush public workers also means more unemployed, less tax revenue and a shrinking economy.
It all adds up to a recipe for a depression. Two conclusions are inescapable: Obama is far more Herbert Hoover than FDR, and change will only come from creative independent movements instead of marching into the tomb of the Democratic Party.