SOCIAL SECURITY
Debate rages as this is written (March-April 2005) concerning the Bush Administration's second-term attack on Social Security. (Does anyone still doubt that the President's proposals are an attempt to destroy Social Security, not to fix it?) Readers
will be weary of this topic by now, but the attack will not go away. In what follows
I will assume knowledge of the basics, and move as quickly as possible to some
more fundamental questions not usually raised in the public discussion.
The attack against Social Security takes two main forms: 1) relentless propaganda about the coming "crisis" of the Trust Fund; and 2) the drive to "privatize,"
in the form of the Personal Savings Accounts (PSAs) that would be made available
to younger workers. The Trust Fund was created in 1983, by planning for
surpluses of receipts over expenditures, to smooth out discrepancies due to
demographic swings, the business cycle, etc. In particular, as the ratio of retirees
to active workers shifts, the Fund balance rises or falls; that is its purpose. The
Reagan increase in the (highly regressive) payroll tax has meant steady growth in
the Trust Fund. The "crisis" amounts to a projection that this trend will reverse
itself, as the baby-boom generation retires and payments from the Fund outstrip
tax receipts and interest flowing into it. The Congressional Budget Office's estimate
of the date on which the Fund will run out of money has receded; from 2029 ten
years ago to 2052 today.1
In the PSA proposal, benefits from the Trust Fund, to workers who elect to
hold these accounts, would be reduced. The accounts, however, would be invested
in the stock market, and the high return earned there would — we are told — more
than compensate for that reduction.
The proposal would also change the formula for benefits payouts from the
Trust Fund. Minus the details, I simply note that the proposed shift from so-called
wage indexing to price indexing would drastically reduce benefits: by about one-quarter, for a worker retiring in 2042, to one-half, for a worker retiring in 2075. A
gutting of this sort is, of course, not a solution to the crisis; it is the crisis — admittedly, a matter of one's class point of view. It should be noted, however, that from
the standpoint of the solvency of the Trust Fund this benefit reduction alone would
more than correct the "problem" — would in fact create a huge surplus under more
realistic assumptions — even if not a single worker opted to open a PSA.
The PSA panacea is also riddled with dangers and supported by questionable
logic. If the Trust Fund were indeed in trouble, shifting to private accounts would
not help: tax receipts would be reduced along with benefit payouts. It would, in
fact, make matters worse: the transition funding, as even Alan Greenspan knows,
would require borrowing in the trillions of dollars. The 7% annual rate of return
assumed by proponents of this scheme is unrealistically high, and the turnover of
this huge sum to Wall Street managers would generate a feeding frenzy, as the fees
collected for managing workers' PSAs chip away at their income. Many people are
not aware of the "clawback": workers holding PSAs would likely be required to
reimburse the Trust Fund for interest lost on their holdings, making it even less
likely that holders of PSAs could do better than the 3% earned for them by the Trust
Fund.
All of this suggests that the real motivation behind the PSA idea lies elsewhere. Getting closer to the heart of the matter, the concept of "free choice" of
venue for retirement accounts necessarily raises the spectre of "free choice" regarding the size, or very existence, of those accounts. While Bush has not gone so far as
to propose allowing people to cash in their PSAs before retirement age — that
would be such a blatant attack against Social Security that even its enemies shy
away from it, at least for the present — the idea of voluntary choice of stock market
options pushes in that direction. (After all, one can sell all of one's other stock at
will; so why not PSA stock?) If this final devolution of Social Security came to pass,
then in moments of personal crisis, such as occur with regularity in the cyclical and
unstable capitalist process, workers would be forced — by their own free choice! —
to cash in their accounts, thus undermining the mandatory and therefore secure
saving-for-retirement feature that is the basis of the Social Security system as originally conceived. The wealthy, of course, don't face these tradeoffs; they can "save"
for retirement without "reducing their consumption," i.e., without knowing what it
feels like to put one's children to bed hungry, or postpone needed medical care.
The attack on Social Security is aimed at all workers, of course, but its impact
is greatest on those who rely most heavily on their OASI benefits in retirement.
Black Americans, Hispanic Americans and other non-whites are disproportionately
represented in the lower-income strata, and are therefore especially vulnerable to
cuts in benefits. As always, attacks against the social position of workers have a
racist edge. Women also stand to lose relatively more than men, and for the same
reason. To the extent women and non-whites work in the informal economy and
are not in the system, cuts in Social Security benefits do not affect them directly;
their position, however, is made even more precarious by attacks against the retirement position of workers in general, and in this sense as well the attacks are directed disproportionately against the weakest and most over-exploited workers.
The blatant hypocrisy of the Bush attack shows up in many ways. Disproportionate attention is paid to Social Security, as compared with other programs and
revenue drains (the 2001 tax cuts for the rich alone cost almost three times what
would be needed to make up the claimed Trust Fund shortfall over 75 years). Long-term projections — meaningless, since we can't commit future generations and
political leaderships to act on supposed tradeoffs between our welfare and theirs —
are used to make the "crisis" look larger than life. The CBO projections (not to
speak of the fantasies emerging from the rightwing think tanks) are based on pessimistic, and unrealistic, assumptions concerning the growth rates of key economic
variables. Other solutions — such as a dedicated estate tax on the wealthiest individuals, which would cut the shortfall by anywhere from 26% to almost one-half,
according to different estimates — are ignored. In this category one notes that
simply removing the cap on taxed income, currently set at $90,000, would go a
long way toward "fixing" the system, and in an equitable fashion (provided, of
course, that the cap is retained on benefits).
Is the crisis, then, simply illusory? While the rightwing attack is essentially
smoke-and-mirrors, we should not conclude that there can never be systemic forces
that push in the direction of Trust Fund depletion, as the Fund is currently
constituted. The key idea I want to develop here is that, to the extent the Social
Security system is challenged by aspects of the evolution of labor and retirement,
that challenge should be seen as an opportunity to strengthen, not weaken, society's
provision for security and dignity in old age. (I am, for the present, ignoring the
other aspects of the Social Security system — its survivor, disability and medical
programs.)
The "baby boom" phenomenon — the bulge in population resulting from the
surge in births at the end of the Second World War — will put special pressure on
the Trust Fund in the coming two decades. The crisis claim, widely accepted by
Republicans and Democrats alike, essentially projects this pressure forward in a
linear fashion. But the baby-boom is inherently self-correcting. When this generation passes from the scene, the ratio of retirees to active workers will fall back to
normal levels, allowing the Trust Fund to regenerate — until the retirement, around
2040, of the much smaller baby boom echo, etc. Demographic pressures are inherently limited — cycles, not trends. The President voices fears about "people living
longer" (a revealing attitude, indeed!). Life expectancy, however, may well stabilize
in the years to come, especially given the deepening crisis of health care availability,
lengthening hours of work, and decline in quantity and quality of social services.
The retirement age is also rising slowly. The underlying demographics thus do not
contain any adverse trends. The only real danger to the solvency of Social Security
is the desire of the ruling class and its political representatives to kill it.2
The conflictual pressure that builds up around Social Security can in fact be
identified at a more fundamental level: it is not any particular condition of the Social Security Trust Fund that is problematic, or crisis-inducing. Rather, from the
standpoint of capitalism, it is the existence of Social Security itself.
The Social Security Act was passed in 1936, at a time when the political climate had the ruling class in a temporarily defensive position (see John Manley,
"Marx in America: The New Deal," S&S, Spring 2003). The attack against the principle of mandatory and universal retirement insurance has been constant and unrelenting ever since. The particular aggressiveness of the Bush-Republican offensive
at present should be seen in this context, and not as the product of a particular
adverse state of mind or ideological singularity.
A window on this is provided by one Bush Commission argument: privatization of Social Security, they say, will increase the rate of economic growth, since the
reduction of benefits will scare workers into consuming less and saving more.3
Mainstream critics of the Bush position tend to accept this logic, arguing only that
the effect is small, and uncertain. The consumption-growth tradeoff, however, is
often used as a proxy for what the ruling class is really interested in: the wage-profit
tradeoff. Undermining social security weakens the social position of workers, resulting in further increases in exploitation and profits. Productivity and saving are
premised on social insecurity, since they emerge from antagonistic social relations.
Take away the fear of destitution in old age, and capitalist discipline in the workplace (and in society at large) is called into question. (Of course this applies also to
the survivor and disability provisions, and to other forms of the "social wage.")
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1. I am relying on several sources for data: Paul Krugman, "Confusions about Social Security," The Economists' Voice, 2:1, 2005; and papers by Robert Greenstein for the Center on Budget and Policy Priorities. A good summary of the issues will be found in Left Business Observer, No. 110 (March 2, 2005). Data can be found at ssa.gov/act. Other online references will be supplied on request. I am also indebted to Rachel Boaz of the CUNY Graduate School for assistance.
2. The Trust Fund may be limited, but the hypocrisy of its enemies is boundless. "The tax has been raised 15 times." These increases were mostly pro forma, while the system was young and the ratio of retirees to active workers extremely low; they were stages in implementation of the steady-state contributions and benefits, as the system came on line. "From eight workers supporting one retiree, the ratio has fallen to two." Precisely — and exactly as one would expect if an average worker works 40 years, and retires for 20.
3. Notice how the problem of demand is once again ignored in these arguments. Oblivious to the worldwide buildup of production capacity and unprecedented debt ratios, the forecasters blithely assume that private capitalists will transform any new savings that can be squeezed out of workers into capital formation.
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