Let's cut Social Security to pay for banker bailouts!

You are about to be hit by another wave of disinformation about how Social Security is going broke and needs reforming (meaning, your benefits must be cut). It's not true.


Michael Lind
May 12, 2009 2:35PM (UTC)

On Tuesday, May 12, the trustees who oversee Social Security and Medicare will issue their annual report. I don't know what will be in the report. But I do know what the response will be. Conservatives, libertarians and center-right Democrats will take whatever the report says as evidence that there is an "entitlement crisis," which should require us not only to address spiraling healthcare costs (a genuine issue, affecting the private sector as well as Medicare and Medicaid) but also the alleged "crisis" of Social Security (an imaginary problem).

The coalition of libertarian zealots, Jeffersonian conservatives, center-right Democrats and bankers and brokers who would like to earn fees or commissions from the diversion of Social Security payroll taxes into IRAs recycles the same arguments against Social Security, rain or shine, boom or bust. They've been doing it for more than a quarter-century, ever since a couple of libertarians wrote up a guide for small-government conservatives on how to spread doubts about a popular, solvent and effective entitlement. These tried-and-true arguments will be dusted off and dragged through the media once again, after the latest Social Security Trustees' report is published. Among the bogus arguments you can expect:

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The date at which Social Security will become bankrupt has advanced! From annual report to annual report, the two key dates -- the date at which Social Security payouts from the Trust Fund exceed payroll tax intake, and the date at which the Trust Fund is exhausted -- advance or retreat, depending on the contemporary economy and changes in calculations. For example, in 1997 payouts were supposed to exceed revenues in 2012 and the Trust Fund was supposed to be exhausted in 2029. By 2004, the trustees were more optimistic: The two dates were 2018 and 2042, respectively. If as a result of today's bad economic conditions future growth rates are revised and the two dates are slightly closer to the present in the latest report, should you be concerned? No. Relax. When estimates vary so much, it would be crazy to try to make public policy for the United States of nearly half a century from now.

We have only two choices, or a combination -- cutting benefits or raising the payroll tax. False. There are at least two other choices that the deficit hawks never mention. One is more rapid economic growth, which would make it easier to pay Social Security taxes in the future without either benefit cuts or tax increases. The other option that the doomsayers never discuss is an infusion of money from other revenues, to supplement the payroll tax. Medicare is already paid for partly by a payroll tax and partly by general revenues. Why not cut the payroll tax and make up the difference out of general federal taxes? If you want to be revenue-neutral, the Social Security shortfall of about 2 percent of GDP between now and mid-century could be patched with general revenue funds diverted from defense, if without endangering our safety we could gradually lower defense spending from its present wartime level of about 4 percent of GDP to 2 percent, which is more than most other advanced industrial countries spend on defense.

Social Security and other entitlements are responsible for unfunded liabilities of more than $100 trillion -- and as the baby boomers begin to retire, the bill is coming due! Total nonsense.

About a decade ago, conservative and libertarian economists who oppose Social Security, Medicare and other entitlements came up with a clever rhetorical strategy. They would calculate the gap between the payroll taxes that pay for these programs and estimated costs over time. But there was one problem: The gap isn't all that scary, at least in the near future. So in order to frighten the American people and their elected leaders, deficit hawks cite the sum total of Social Security's "unfunded liabilities" over 75 years. But even this -- a paltry $4.3 trillion over three-quarters of a century, according to the 2008 report -- isn't sufficiently terrifying.

In order to frighten gullible Americans, anti-Social Security crusaders conflate Social Security with Medicare and talk about the "entitlement crisis" in general. This masks the fact that Social Security's projected shortfalls are minor, compared to those of Medicare. Better yet, it produces a suitably spooky 75-year shortfall of $42.9 trillion. And if this is not alarming enough, deficit hawks can cite the truly apocalyptic figure of $101.7 trillion in combined "entitlement" spending over an infinite time horizon.

The anti-Social Security lobby always presents the "unfunded liabilities" of "entitlements" in scary dollar terms, rather than as percentage points of GDP. Here's why: Over the next 75 years, the Social Security shortfall at most hovers around 1 percent of total U.S. GDP over that same period. Yes, that's right -- around a whopping 1 percent of U.S. GDP. And that is only in the unlikely event that some combination of growth, taxes and benefit cuts do not eliminate the shortfall in the future.

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Dishonest deficit hawks also won't tell you that the Social Security shortfall, at its worst, is only a minor cause of the total budget deficit, which mainly has other origins. Among those are the off-the-budget wars and the Bush tax cuts, which, if they had been made permanent, would have created a 75-year shortfall between three and six times greater than the Social Security shortfall (Furman and Greenstein). By allowing tax rates for the rich to return to pre-Bush levels, Obama has already averted huge potential revenue shortfalls that would have made the gradual reduction of today's emergency-driven deficits much harder.

 

By the way, the huge expansion of the deficit and debt in the last year has had nothing to do with Social Security (without which not only retirees but the economy as a whole would have been much worse off). Indeed, thanks to the modest stimulus and the much larger bailouts, the contribution of Social Security to long-term deficits -- always pretty small -- has just gotten a lot smaller in relative terms. Anyone who says that the costs of the bailout mean we must now cut Social Security is literally saying that in order to bail out the bankers who created this crisis we need to slash benefits for American retirees.

Who is behind this disinformation campaign? The deficit hawks include billionaires like Ross Perot and Pete Peterson, Republican conservatives, libertarians and "fiscally conservative" Blue Dog Democrats. This coalition has campaigned against Social Security for more than a quarter of a century.

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In 1983, in the Cato Journal published by the libertarian Cato Institute, Stuart Butler, a transplanted British Thatcherite, and Peter Germanis published their manifesto "Achieving a 'Leninist' Strategy." Small-government conservatives, they argued, should learn from Lenin, who sought to shape history rather than wait patiently for the inevitable evolution of socialism: "Unlike many other socialists at the time, Lenin recognized that fundamental change is contingent both upon a movement's ability to create a focused political coalition and upon its success in isolating and weakening its opponents."

Our two Leninist libertarians went on to argue: "First, we must recognize that there is a firm coalition behind the present Social Security system, and that this coalition has been very effective in winning political concessions for many years. Before Social Security can be reformed [destroyed], we must begin to divide this coalition and cast doubt on the picture of reality it presents to the general public." Because the "political power of the elderly will only increase in the future," Butler and Germanis argued that any plan to phase out Social Security should assure the elderly and near-elderly that they would get their benefits: "By accepting this principle, we may succeed in neutralizing the most powerful element of the coalition that opposes structural reform."

While pursuing a divide-and-rule policy to "neutralize" the elderly and other supporters of Social Security, the authors of the Leninist strategy called for libertarians to build up a counter-alliance consisting of institutions that could profit from the privatization of Social Security: "That coalition should consist of not only those who will reap benefit from the IRA-based private system ... but also the banks, insurance companies, and other institutions that will gain from providing such plans to the public [emphasis added]." They continue: "The business community, and financial institutions in particular, would be an obvious element in this constituency. Not only does business have a great deal to gain from a reform effort designed to stimulate private savings, but it also has the power to be politically influential and to be instrumental in mounting a public education campaign."

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In true cunning Leninist fashion, the opponents of Social Security would disguise their revolutionary goal by pretending to be interested only in modest, piecemeal reforms: "The first element consists of a campaign to achieve small legislative changes that embellish the private IRA system, making it in practice a small-scale Social Security system that can supplement the federal system." Only when all of the pieces were in place -- when the concerns of the elderly had been "neutralized" by reassuring words, when banks and other businesses seeking to cash in on Social Security privatization were part of the libertarian alliance, and when business-funded campaigns of "education" [that is, propaganda] had convinced most Americans that Social Security was untrustworthy, would the Leninist right reveal its true colors: "If these objectives are achieved, we will meet the next financial crisis in Social Security with a private alternative ready in the wings -- an alternative with which the public is familiar and comfortable, and one that has the backing of a powerful political force."

I mean, really. Is this the ultimate smoking gun, or what? Twenty-six years ago, Butler and Germanis, in a journal they must have expected few if any non-libertarians to read, laid out the elements of the dishonest and cynical campaign against Social Security that the right has pursued ever since, right up to George W. Bush's support in his second term for the partial privatization of Social Security. Stuart Butler is still at it; only last year he called, again, for abolishing Social Security as an entitlement and turning it into a program for the poor that would be funded or not from year to year at the whim of Congress.

Even a Republican Congress was unwilling to touch the proverbial "third rail," and in the aftermath of two stock market crashes in less than a decade the idea of funneling Social Security funds into Wall Street is going nowhere. But that doesn't mean the threat to Social Security isn't over. Even if they can't directly privatize it, the Leninists of the right will keep trying to "educate" Americans into believing falsely that they personally are unlikely to receive their full benefits and that Social Security somehow will bankrupt the country -- even while they remind America's battered bankers and brokers just how much money they could make on commissions by flipping stocks if Social Security were gradually replaced by IRAs. Meanwhile, they will keep trying to whittle away at America's most successful social insurance program. They will call for converting it into a means-tested welfare program, or rejiggering benefits formulas so that inflation will render Social Security negligible as part of the retirement income of most Americans. And all the while these radicals of the right will disguise their true radicalism, pretending to be centrist "fiscal conservatives" concerned about "fiscal responsibility" and about "our children and grandchildren." (Interestingly, children and grandchildren are not mentioned in the Butler/Germanis manifesto, which contains several references to "the business community, and financial institutions in particular.")

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So be prepared, America. As soon as the latest trustees' report is out, the media will be full of doomsayers and hand-wringers telling us again, as they have told us year after year, decade after decade, that we can't afford Social Security anymore. When they call on us to take action now, we should indeed respond. With a yawn.

 


Michael Lind

Michael Lind is the author of Land of Promise: An Economic History of the United States and co-founder of the New America Foundation.

MORE FROM Michael Lind

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