Social Security:
A Fake Crisis


To save Social Security, Bush wants to destroy it. And, in doing so, it would require the government to borrow at least $2 trillion to make up the immediate shortfall. However, the Social Security System is not only solvent, it's in much better shape than the rest of the federal government. "The people who hustled America into a tax cut to eliminate an imaginary budget surplus and a war to eliminate imaginary weapons" Paul Krugman wrote recently, "are now trying another bum's rush."

If you're twenty now, you'll be hitting retirement around 2052. That's the year the Congressional Budget Office says the trust fund will run out. In fact, many economists say it may never run out. If the economy continues to grow at an average rate, the trust fund could quite possibly last forever. Even if the trust fund does run out, Social Security will still be able to pay eighty percent of promised benefits. Once the whole baby-boomer generation is into the retirement pool, Social Security's share of the gross domestic product will only increase by about two percent. President Bush's tax cuts are more than two percent of GDP, and they're happening right now, not fifty years from now. On the day the trust fund is exhausted, Social Security revenue will cover about eighty percent of the cost of benefits. Right now - today - if you look at the U.S. government outside of Social Security, revenue covers only about sixty-eight percent of total government spending. So on the day the trust fund is exhausted, forty-seven years from now, Social Security will be in better financial shape that the rest of the U.S. government is today. It is hard to understand why anyone would want to return us to the days before the New Deal, when millions of elderly people lived in poverty. Social Security is the biggest social-insurance program that we have. It's been highly successful, and it's extremely popular. It's one of the things that makes people feel somewhat good about government - and so, therefore, it must go.

Wall Street poured a lot of money into both of Bush's campaigns, hoping he will divert Social Security into the stock market. First, the fees charged on private accounts will be a significant drain on returns. In a typical portfolio, we're probably looking at a return of four percent. But fees are likely to take at least one percent, like they do in Britain. And since Bush wants to borrow $2 trillion to pay for the transition, we're talking about borrowing at interest rates of three percent to establish private accounts that will yield three percent - with a lot of additional risk. So it's a lose-lose proposition, except for the mutual fund industry. The second problem with the market is that some people - probably many people - will end up getting much less than they would have under the current system, depending on which funds they pick and how the market does. A lot of people will hit age sixty-five with very little in their private account - and that means a big return of poverty among the elderly which is exactly what's happening in Britain right now.

The only possible way that stock returns can be high enough to make privatization work is if the U.S. economy grows at three to four percent a year for the next fifty years. But Social Security's own trustees expect the economy's growth rate to slow to 1.8 percent. If that happens -0 if their own assumptions are correct - then privatization would be a disaster. And if that doesn't happen - if the economy continues to grow at a steady rate - then the trust fund is good for the rest of the century, and we don't need privatization.

Social Security is simply not the biggest problem facing the government today. If you really want to get scared about something that can happen between now and 2052, you should talk about Medicare and Medicaid. The entire system of private health insurance is gradually collapsing. In our system, we have huge administrative costs - which are mostly driven by insurance companies spending huge amounts of money trying to avoid covering people. Our healthcare costs are eighty percent higher than those in other advanced countries. The best way to contain those costs is to go to a single-payer system, one in which the government insures everyone. That would probably cut the cost of health care by at least twenty-five percent. However, Bush actually wants to do the opposite. If he manages to privatize Social Security, he'll try to privatize Medicare next. The right says that what we need is more choice, more competition. But every piece of evidence suggests that health care is an area in which privatization actually raises costs. If they succeed, then we're pretty much back, on domestic policy, to the days of Warren Harding - which is exactly where they want to go.

Source: Excerpts from the 1/27/05 issue of Rolling Stone

Related Topics:  Social Security

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