The Trillion Dollar Social Security Hustle

Yesterday may have brought the first salvo in the fight for Social Security.  From Yahoo! News:

The White House said on Monday for the first time that Bush's plan to add personal retirement accounts to Social Security would be financed in part by new government borrowing that could top $1 trillion.

 Bush has made reform of the U.S. retirement program a top priority in his second term and will push for creating private accounts in a meeting later in the day with top congressional leaders.

What's all this worth to the American public?  From that same article:
 A recent analysis by the White House Council of Economic Advisers found that tapping the bond markets to pay for private accounts would increase the nation's debt-to-GDP  ratio by 23.6 percentage points by 2036.

 Under this scenario, the debt held by the public would increase by as much as $4.7 trillion. But the new government bonds would be repaid 20 years later, eliminating Social Security's unfunded liability while reducing the tax burden in the long term, advocates said.

 "[Bush], at this point, has not endorsed a specific plan," McClellan said.

 But Republicans say the Bush administration favors a plan that would allow workers to voluntarily redirect 4 percent of their payroll taxes up to $1,000 annually to a personal account.

So... increasing the nation's debt to the point where the liability may damage our ability to repay the treasury bonds that make up the current Social Security Trust Fund - all for the possiblity of "up to" $1,000 annually in a personal account - assuming that this "up to" will only occur for those earning in excess of the FICA cap of around $86,000.  (For an idea of what risks excessive borrowing creates, see this article from today's Economist.)

Is risking the entire system really necessary?  Not really, according to an column today from Paul Krugman:

Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.

As Bill Clinton once said:  "Mend It, Don't End It".

So if the problem is really minor,  what's really pushing this political emergency?  Simple, really - it's false market populism hidng a Trillion-Dollar Hustle:

With our Social Security money entrusted to Wall Street, its  priorities will become the nation's priorities; its demands for  deregulation, de-unionization, low wages, and generous  “stimulus” packages whenever the Dow looks a little weak will be  recast as the demands of little old ladies in Beardstown and  blue-collar workers in Providence. Who would dare to legislate for  higher minimum wages, say, or stricter protections for arctic  wildlife, when such a move could be construed as an attack on the  nation's beloved retirees? Although we can only glimpse the  possibilities now, this mind-boggling reconfiguration of economic politics is the real promise of privatization, the thing that makes it  worth the insane gamble: instantly, privatization would reverse the  polarity of the famous “third rail of American politics,”  transforming Social Security from the bane of the business community  into its most potent weapon, an argument-ending current that would  crackle through the fingers of every P.R. man and corporate  lobbyist. Touch Wall Street and you're dead.

To follow a theme from John Drury's earlier post, is the Social Security Trust Fund really worth gambling with for little to no real "upside" - but the potential for disastrous "downside"?  It sure is to the Wall Street financiers that promise (yet again) untold wealth and prosperity - we just have to place our faith in the market gods.

It would also transform Social Security into an anti-Labor club that could be the weapon used to justify cheap labor and globalization policies - anything to boost the stock price!

Another thing to keep in mind:  Social Security has been one of the most successful government programs ever created.


This was the legacy of our parents and grandparents - what is going to be the legacy of the current generation?