Mark Twain said "A lie can travel half-way around the world while the
truth is still putting its shoes on." And the prophets of doom for
Social Security have a few years' head start.
Stop Social Security Lies
To hear the alarmists tell it, Social Security will run out of money when
the Boomers cash in during the 2020s, leaving nothing for those workers
who are now under 40. This Social Security scare at best is misleading;
we don't think it is stretching to call it a lie.
According to the projections of doom, Social Security revenues will be flush
through the year 2018. Then, as the Boomers start to retire, the fund will
start drawing itself down until 2029, when, according to the doomsayers,
the fund will be unable to pay its obligations.
These pessimistic projections have been uncritically embraced by most of
the nation's corporate press. They are responsible for the widespread belief
by younger workers that they will never collect on Social Security. Wall
Street sees the opportunities in the Social Security Scare. It is stampeding
the policymakers in Washington toward some sort of privatization scheme
that would replace the Social Security annuity with private investment plans
that would mainly enrich stockbrokers and investment bankers who would skim
billions from the cash flow into the stock market.
Republicans have been pressing to dismantle Social Security ever since it
was implemented in the 1930s. Now with the widespread disinformation about
Social Security's fiscal prospects they have gained support from centrist
Democrats such as Senator Daniel P. Moynihan of New York, who recently proposed
to cut the Social Security payroll tax, significantly reduce benefits and
embrace the private investment plans.
However, while President Clinton has set up a series of town meetings to
discuss what should be done to "save" Social Security, Robert
Reich, the former Labor Secretary who is a former trustee of the Social
Security trust fund, wrote in the May/June issue of The American Prospect
that Social Security is not endangered. "I can tell you that the actuary's
projection ... is based on the wildly pessimistic assumption that the economy
will grow only 1.8 percent annually over the next three decades," Reich
wrote. "Crank the economy up just a bit, to a more realistic 2.4 percent
a year ... and the fund is flush for the next 75 years. Even if we have
several recessions along the way, it's highly doubtful that the economy
will grow any slower, on average."
Doug Henwood, editor of Left Business Observer and author of Wall
Street (Verso) pointed this out in 1995: "Almost no one bothers
to investigate the claim of Social Security's coming insolvency ... I did
... and discovered that the projections assume the economy will grow an
average of 1.5 percent a year (after inflation) for the next 75 years --
half the rate of the previous 75, and matched in only one decade this century,
from 1910-20. Even the 1930s, the decade of the Great Depression, saw a
faster growth rate."
The Twentieth Century Fund, in a recent report, "Social Security: The
Real Deal," also noted the low-ball projections but added, "Even
without any adjustments to the system and slower economic growth in the
future, Social Security would be able to pay 75 percent of projected benefits
to retirees. What we are facing is a projected shortfall in thirty years,
not an imminent crisis."
Economist James K. Galbraith of the LBJ School of Public Affairs at the
University of Texas agrees that Social Security is not "underfunded,"
but he noted that the current level of funding really is not all that relevant
to the condition of the retirement fund in the 2020s. "Tomorrow's Social
Security will be paid by tomorrow's workers, out of tomorrow's national
product, according to benefit schedules set by law at that time," he
wrote. "Those trust funds are just an accounting device, wipe them
out and nothing would happen; today's surpluses are just as irrelevant,
in economic terms, as tomorrow's deficits. Regressive payroll taxes today
buy jet fighters and aircraft carriers. It would not be a bad thing if,
twenty years from now, some progressive income taxes were used to pay for
Privatizing Social Security might look appealing when the value of American
stocks have increased 30 percent in the past year. However, the privatization
advocates are either dishonest or sloppy in their claims that stock market
investments will yield an average return of 7 percent over the next 75 years,
the same period when the Social Security Trustees are projecting economic
growth to average only 1.5 percent.
"Privatization advocates cannot have it both ways," the Twentieth
Century Fund reported in "Social Security: The Real Deal" (on
the Internet at www.tcf.org/realdeal.html). "If the market continues
to yield 7 percent returns for the next 75 years, the economy will have
grown much faster than 1.5 percent annually, and Social Security will be
so flush with increased FICA contributions that there will be no need to
fix a system that isn't broken. And if economic growth does indeed turn
out to be anemic, market returns will be, too."
In fact Dean Baker, an economist at the Economic Policy Institute, in 1997
calculated that if the Trustees' low-growth projection is correct, the average
rate of return on equity investments would be in the neighborhood of 4.4
percent, so retirees who were counting on mutual funds to pay for their
golden years would still face a shortfall. "In the final analysis,
stock market advocates are hoist on the petard of their own economic projections,"
the Twentieth Century Fund concluded.
Republican congressional leaders have talked about financing personal investment
accounts with the budget surplus. However, these are the same crocodiles
who promised a vote on campaign finance reform.
Call your senators and congressional representative at 202-224-3121 or toll-free
at 1-800-504-0031 and tell them to oppose any bill that would undermine
Social Security, increase the payroll tax, cut benefits or extend the retirement
age. If they want to "fix" Social Security, tell them to extend
the tax to those people who earn more than $68,400 a year.
Don't Deregulate Banks
First Citicorp and Travelers Group announced plans to merge in defiance
of the federal law that prevents banks, securities firms and insurance companies
from owning each other. Then NationsBank announced a merger with Bank of
America to form the country's largest chain of banks. Banc One also announced
plans to merge with First Chicago.
Regulators at least should examine the bank mergers closely to ensure that
these giant banks serve their communities and particularly poor neighborhoods.
The federal government should take steps to ensure the viability of smaller,
community-oriented banks and credit unions.
Congress should stand up to the newly formed financial behemoth Citigroup
and reject HR 10, the financial deregulation bill that would effectively
remove barriers between banks and investment services. The bill is expected
to come to the House floor in May and congressional leaders are beginning
to talk as if the "Citigroup" deal makes it inevitable.
If approved, the bill would set the stage for further consolidation of the
banking and financial services industry. That not only could wipe out independent
competition but it could set up the taxpayer-funded deposit insurance system
to bail out banks that are threatened by the insolvency of their insurance
affiliates, as the International Monetary Fund has been used to bail out
bad investments in Mexico and Asia.
Deregulation was disastrous for savings and loans in the 1980s and it has
resulted in consolidation of TV and radio stations as well as higher cable
TV rates in the 1990s.
Call or write Congress and urge them to vote no on HR 10, the Banking Deregulation
-- Jim Cullen
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