Social Security: It's Not Broken, So Don't Fix It
Four years ago Dean Baker and I wrote a book entitled "Social Security: The Phony Crisis" (University of Chicago Press, 2000). We showed that there was no financial, economic, actuarial, or other reason to be worried about the future of Social Security. The whole idea that Social Security would run into trouble when the baby boomers retire was an urban legend -- and still is.
Among others, The Economist -- a conservative British magazine -- reviewed the book and agreed. In fact no one dared challenge what we wrote. How could they? The numbers we used were the same that everyone -- including the current campaign of President George W. Bush -- uses. They are straight from the Social Security Trustees' annual report.
We hoped that our book would put an end to all the nonsense about how to "fix" Social Security. And indeed there has been some progress over the last four years. Last March, the New York Times editorial board stated, for the first time, that "those worried that Social Security will not be there for them when they retire are simply mistaken."
Four years ago, the idea of partially privatizing Social Security had majority support in some polls. This was partly a result of aggressive advocacy on the part of right-wing think tanks and politicians, backed by Wall Street firms that stand to gain tens of billions of dollars from privatization. These people had not only convinced most of the public that they would never see their Social Security benefits, but that they could get more for their money in the stock market.
In our book we showed that the latter claim was also wrong. We demonstrated arithmetically, as no one else had done, that the bubble-inflated stock prices at the time were incompatible with any plausible projected rates of growth for profits and the economy. As we predicted, the stock market bubble burst, and with it went a lot of the support for privatizing Social Security.
But the Bush team is still promoting such privatization. Their proposal has a number of pitfalls: it would add to our federal budget deficit, which is already at a near-record (as a percent of the economy) level. It would increase the administrative costs of Social Security enormously, which would subtract from future benefits. It would expose future retirees to the risks of a volatile stock market that is still, by historical measures of price relative to earnings, overvalued.
And it would undermine the political support for America's largest anti-poverty program by splitting future retirees into two camps: the wealthier ones would get a large share of their Social Security income from the privatized accounts, while most others would not.
This is perhaps the privatizers' main purpose: Social Security is not a retirement account but a system of social insurance. It is a commitment by society from one generation to another; we all pay in, and we all draw out, because we never know how we will fare in our old age. The program also provides disability and survivors' insurance. The idea that "we are all in this together," on which Social Security is based, has always been unpalatable for those who believe in "every man for himself" and the law of the jungle.
Social Security is currently more financially sound than it has been throughout most of its entire history. To cover any shortfalls that may occur over the next 75 years would require less than we came up with in each of the decades of the 1950s, 60s, 70s, or 80s. All we have to do to save Social Security is to keep the privatizers' hands off of it.
Who Wants to Cut Social Security Benefits?
Sometimes the news makes me laugh out loud. Here's a good one:
"On Social Security," reported the New York Times last week, "45 percent said a proposal to permit people to invest their Social Security withholding money in private accounts was a bad idea; 49 percent said it was a good idea."
Get it? The NYT/CBS poll cited here asked people whether they would like to have a choice about what happens to their tax dollars. No wonder almost half said yes.
What the pollsters inadvertently left out of the question was the down side: big cuts in Social Security benefits.
That's right, according to Reform Plan 2 of the carefully misnamed "President's Commission to Strengthen Social Security," this partial privatization would mean a sizeable loss of benefits for most Americans.
A 20-year-old just entering the labor force would lose 34 percent of his or her expected benefits under this plan. This would amount to almost $134,000 over a lifetime of retirement. They would have a chance to gain back, on average, about $47,000 of this from an individual account -- provided the stock market doesn't tank like it did from 2000-2002, just in time for their retirement.
For the next poll, here is a more accurate question: would you like to see your Social Security retirement benefits cut by 34 percent, and have a chance at getting back a fraction of that from a private account? That's for the young workers. The amount of the cuts decreases as you move up the age ladder, but the plan still provides a net loss for the vast majority of Americans.
How many people do you think would say yes to a deal like that? But that's the deal that President Bush appears to be offering. His commission, which unlike other such bodies was stacked with people who favor privatization, came up with three plans. Mr. Bush hasn't explicitly chosen one, but shortly after the November 2 election he indicated that he is talking about Reform Plan 2.
Note to journalists covering this issue: let's get the headline news up front. Big cuts to create private accounts, and for what? So that people can invest some of their Social Security taxes in a stock index fund? We already have a number of means by which people can take their earnings tax-free and put them in the stock market, such as Individual Retirement Accounts or 401 (k) accounts. Yet less than 5 percent of employees are taking full advantage of these opportunities.
It would be a good idea for the Federal government to make such retirement savings accounts more universally and cheaply available. But there is no need to raid Social Security, and cut benefits, to do that.
Nor is there any reason to "fix" Social Security any time soon. According to the numbers used by everyone, including the President's Commission, Social Security can pay all promised benefits for the next 38 years without any changes at all. The non-partisan Congressional Budget Office just upped that estimate to 48 years. By either measure, Social Security is in better financial shape that it has been for most of its 69-year history.
Any shortfall that might occur forty or fifty years from now will is easily manageable, and less than we have dealt with in the past, when we had much less income.
Yet Social Security "reformers" have spent the last decade and a half convincing most of the public that Social Security is in dire straits. Now they offer us a plan that will cut benefits, add untold hundreds of billions of dollars to our already oversized federal budget deficits, and increase Social Security's administrative costs more than ten-fold.
And for what?
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net), and co-author, with Dean Baker, of Social Security: the Phony Crisis (2000, University of Chicago Press).