Don't Blow Away
Social Security
There is no Social Security crisis. But if Democrats
and Republicans get their way and privatize the system, there will be.
"It’s weird," says economist Dean Baker of the Preamble
Center, who has been studying and writing about Social Security reform. "We’re
all looking at the same numbers, and what the numbers say — even the pessimistic ones
— is that we could take absolutely no action on Social Security for the next 34
years, and the program would continue to pay out all its benefits." And yet,
politicians of both parties are all aflutter about the need to radically reform Social
Security right away.
The picture they paint does sound grim: Mostly because people are living
longer, today’s workforce is supporting a greater and greater number of Social
Security recipients. And the trend will probably continue. In 1995, there were nearly five
people under 65 for every one person over retirement age. But by 2030, the ratio will be
more like three workers for every retiree. And since Social Security is actually a
pay-as-you-go system — current workers pay for current retirees — that spells
trouble. (See "Social Security Basics")
For the time being, we can supplement the shortfall by drawing from the extra pot of money
the Social Security system has amassed (the Social Security Trust Fund). But then, in
2034, according to some projections, that fund will be depleted, and Social Security money
will have to come from active workers alone. And, under the current formula, they would
only be able to cover about 75 percent of the benefits retirees had been promised from
Social Security.
President Clinton and members of Congress say "saving" Social
Security is at the top of their agenda (after impeachment, of course). Many recipes have
been written for rescuing Social Security. The most extreme plans involve privatization.
Some people want the Social Security payroll withholding to go into our own "personal
security account" that we can invest ourselves. Less radical plans would allow the
Social Security Trust Fund to be invested in the stock market, where it would supposedly
get a higher return than where it is invested now, in U.S. Treasury bonds.
President Clinton favors a combination of both ideas: He wants to invest
part of the Social Security Fund (eventually up to 15 percent of it) in the stock market.
He also proposes setting up voluntary new private accounts for middle- and low- income
Americans — but outside the Social Security system.
At a time when the stock market is in the stratosphere, record numbers of
Americans are investing, and the airwaves are full of experts advising the general public
on how to get the best return, the idea of turning Social Security into a personal Wall
Street investment portfolio is appealing to a lot of people.
But not everybody’s sold on the idea. To begin with, many people
question whether there even will be a Social Security shortfall. They argue that the
Social Security hullabaloo is all based on some very gloomy economic projections made by
Social Security trustees. In their reports, the trustees assume that over the next 75
years, the U.S. economy will grow at less than half the rate it has grown for the past 75
years. According to a report by the New York-based Century Foundation, an increase in
annual economic growth of just .15 percentage points over the next 35 years would raise
output by as much as the combined increase in the cost of both Social Security and
Medicare. Meaning: Workers of the future may have no trouble supporting the growing ranks
of the retired.
And yet, our politicians have managed to convince a majority of Americans
that there really is a crisis at hand. Polls of younger Americans show that many believe
they can expect little or no money from Social Security when they retire (unless, perhaps,
the system is radically changed).
So who started this rush for a "solution" to the Social Security
"crisis"? Follow the money. Wall Street could stand to gain $240 billion in fees
within the first 12 years of a privatized system, according to economist Christian Weller.
That, he points out, is enough to give 20,000 fund managers an annual salary of $1 million
each. No wonder the financial industry has spent millions of dollars of late to promote
the idea of Social Security privatization.
Economist Dean Baker believes there’s a deeper motive behind the
privatization push: "I think much of this is being driven by people who are just
plain anti-government," he says. "And Social Security is the government’s
flagship social program."
It may be, says Baker, that some minor adjustments will need to be made to
allow the Social Security system to continue in good health. (See "What We Should Do.") But
privatizing the system and investing Social Security money in the stock market is not the
way to go. In fact, he believes, it would take the "security" out of Social
Security. Most of us would see our retirement incomes dramatically reduced.
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