Auerback: Which Party Poses the Real Risk to Social Security’s Future?

[ozymandius]

This was posted on the 75th birthday of Social Security. The author is one among many voices to examine the inherent conflicts of interest that many on this Commission carry with regards to the future of Social Security.

Hint: it’s not Republicans.

Social Security remains one of the greatest achievements of the Democratic Party since its creation 75 years ago. Although Republicans have historically fulminated against the program (Ronald Reagan once likened it as something akin to “socialism”), they have actually made little headway in touching this sacred “third rail” in American politics. President Bush pushed for partial privatization of the program in 2005, but the proposal gained no policy traction (even within his own party) because Social Security continues to be hugely popular with American voters. It’s a universal program that benefits all Americans, not a government handout to a few privileged corporations.

Which is why it’s odd that Democrats seem almost embarrassed to continue to champion the legacy of FDR. The party frets about long-term deficits and the corresponding need to “save” Social Security from imminent bankruptcy and, in doing so, opens the gate to radical cuts in entitlements that will do nothing but further destroy incomes and perpetuate our current economic malaise. It is true that some Republicans have signed on to the idea of privatization, notably a proposal championed by Rep. Paul D. Ryan (Wis.), the senior Republican on the House Budget Committee. But only a handful of GOP lawmakers have actively embraced the measure and, in the aftermath of the worst shock to the financial system since the Great Depression, many Republican lawmakers would just as soon see the idea forgotten.

Mr. Auerback makes an important point: The legacy of FDR needs friends. We have seen this Congress promote weak attempts to provide the populist programs that brought economic and political strength to the working and middle classes which FDR championed in 1933. Consider the herculean efforts to support the Banksters from hardship while decent paying jobs have become so scarce. The ratio of applicants per job has risen, on average, from 6:1 to now 8:1.

Now consider the potentially higher lopsided ratio increases if the age threshold for Social Security benefits were raised. College graduates would compete with their grandparents for jobs. Let's continue...

Now that the President has opened this Pandora’s Box, it is hard for him credibly to make the case, as he attempted to do in last Saturday’s weekly radio address, that “some Republican leaders in Congress want to privatize Social Security.” In fact, it is an idea enthusiastically embraced by a number of Wall Street Democrats who are funded with huge campaign contributions from Wall Street itself. (Candidate Obama received more money from Wall Street in 2008 than Hillary Clinton.)These contributors would be the Rubinites who for decades have played a huge role in allowing for greater financial leverage ratios, riskier banking practices, greater opacity, less oversight and regulation, consolidation of power in ‘too big to fail’ financial institutions that operated across the financial services spectrum (combining commercial banking, investment banking and insurance) and greater risk. Privatization of Social Security represents the last of the low hanging fruits for Wall Street. Who better to provide this to our captains of the financial services industry than their major political benefactors in the Democratic Party?

Reagan's legacy is still fresh in the minds of the Washington bubble. Reagan's legacy appears to carry much more credibility today than that of FDR. Our current economic problems began with the first Reagan administration and his servant, Alan Greenspan. Greenspan promoted the idea of limiting taxable contributions to Social Security at the first $90k of income. (It has since risen to $106k). This is the same administration and Federal Reserve that slammed on the brakes on raising the minimum wage while supplanting rising income levels with debt. These actions tangentially cut the flow of funds to Social Security. Evidently, Reagan and Greenspan were not through with their attempts to abuse and hobble the system.

Greenspan feigned "concern" over the future of Social Security when he convened his Greenspan Commission. The increases in Social Security contributions that would have strengthened the program were undermined by policy changes in the Executive branch.

Consider, as well, the deficits under Reagan, GHW Bush, Clinton and GW Bush in relation to the national debt. Greenspan's idea for baby boomers to front-pay their retirement benefits from Social Security became a back-door income tax as those dollars were diverted to government deficit expenditures. Military spending received the largest share. Calculated Risk provides a good overview of the relationship between Social Security and federal spending.

Back to Auerback...

At the very least, these kinds of ties raise questions in regard to proposals for dealing with Social Security. Many members of the Commission stand to become clear direct and indirect beneficiaries of the privatization that the President is now warning against. It’s disappointing that these ties have not been fully explored by the press, and it is extraordinary that the President would exhibit such political tone deafness in making these kinds of appointments. It tends to undercut the message of his last radio address.

As for Social Security's solvency, Professor Stephanie Kelton has illuminated the issue here.

As some of the Commission members have hinted about what is being discussed behind closed doors, speaking noncommittally about the future of Social Security, with an heir of flippancy, one can reasonably deduce that there is genuine lack of concern for its future as part of the social safety net. Their words and actions also suggest that this Commission remains beholden to the dismantling of this institution that began under Ronald Reagan.

Link to Auerback's column

[ixion]

1. Hint: both of them

since they are both now, or have been, in control.

[fogonthelake]

2. yes, and them working in concert is deeply dangerous.

[glitch]

7. Bi-Partisan with these guys is TOXIC to the People.

However, the Corporations are pleased.

[ozymandius]

3. "If this is 'the Recovery,' god forbid if we ever officially enter into a double-dip."

From diarist Bob Swern at DailyKos.

Three posts from Calculated Risk from Thursday, August 19th (alone, just one day of god-awful economic story after story that screams to me: "If this is 'the Recovery,' god forbid if we ever officially enter into a double-dip."):
Commercial Real Estate: Moody's: Commercial Real Estate Price Index declines 4% in June.

Ongoing Economic Contraction: Philly Fed Index shows contraction in August, first time since July 2009.

Unemployment: Weekly initial unemployment claims at 500,000, highest since November 2009.

All in one day's news cycle!

As this relates to Social Security: continued high unemployment and shrinking tax revenues increases pressure to draw from alternative revenue resources (i.e. Social Security).

[Dr.Phool]

4. Another example of the "Washington Bubble" vs.The Real World.

They talk about raising the retirement age to 70.

How many 70 year old carpenters, ditch diggers, landscapers, road maintenance workers do you see on the job today. Hardly any. The reason being that in a lot of jobs requiring physical labor, your body starts giving out in it's mid-40's, and it's all downhill from there. It's quite a different thing than sitting around sucking lobbyist ass and playing golf for a career.

And why, in the midst of a major recession, would you want to keep people in the labor force, instead of freeing up jobs for younger people with families? If anything, they should remove the cap, and lower the retirement age to 60. That's a stimulus right there. You'd also have to lower the eligibility for Medicare to 60, since a lot of people opt out of early retirement at 62, just to keep health benefits.

[Demeter]

6. Second the Motion!

(Sorry--TWO board meetings this week!)

[glitch]

8. Anything to preserve (or increase) their precious Bush tax cuts. Fucking parasites. nt

[snot]

5. K&R'd.

[ozymandius]

9. Consider the cluelessness of Dean Baker

From Professor Kelton's piece:

Some of the members of the president's National Commission on Fiscal Responsibility and Reform are using the trumped-up crisis in Social Security to push their decades-in-the-making agenda of privatization. For example, Andy Stern, one of the commission's key members, wants to see the system transformed from one that guarantees a minimum standard of living to the elderly, their dependents and the disabled into one that leaves them (in whole or in part) dependent on the vagaries of the market.
Asked to comment on Stern's privatization proposal, Dean Baker recently said:

"I don't think it's necessarily a bad idea …. If he's talking about getting money out of the trust fund for that purpose, I could live with it. You'd get a higher return now that stocks are falling."

To defend his position, Baker pointed out that the Trust Fund, which consists almost entirely of non-marketable government securities, is only earning about three percent but that "it would be reasonable to assume a six or seven point return" on funds invested in the stock market. Hmm . . .

Now compare this to the logic of the Bush administration's fucked-up scheme to privatize Social Security. Again, Kelton's excerpt:

"The way that the election is put before the individual in a personal account structure of this type is that in return for the opportunity to get the benefits from the personal account, the person foregoes a certain amount of benefits from the traditional system.
Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase as a consequence of making that decision . . . .

How in the hell did this hat full of stupid get selected to this post?

[Dr.Phool]

10. Kick and Rec.