Redefining Chutzpah: Wall Street Goes After Social Security, Again

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Dean Baker
The Guardian Unlimited, January 12, 2009

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The classic definition of “chutzpah” is the kid who kills both of his parents and then begs for mercy because he is an orphan. The Wall Street crew are out to top this. After wrecking the economy with their convoluted finances, and tapping the Treasury for trillions in bailout bucks, they now want to cut Social Security and Medicare because we don’t have the money.

If there is any effort in Congress to follow-up on this talk about taking away people’s Social Security and Medicare, then there will have to be some very serious pain inflicted on the politicians in Washington. Let’s start with some facts.

Unlike Robert Rubin’s Citigroup, Social Security is solidly funded long into the future. According to the latest report from the Congressional Budget Office, it can pay all promised benefits through the year 2049, with no changes whatsoever. Even after that date it will always be able to pay benefits that are far higher than what current retirees receive.

So, the claim that Social Security is going broke is inaccurate, or in less polite circles, a lie. Workers in their 40s, 50s, and 60s have already paid for their Social Security benefits.

Many people, most notably investment banker and Concord Coalition founder Peter Peterson, have questioned the solvency of Social Security based on the fact that its trust fund is held in U.S. government bonds. Peterson and others derisively refer to these bonds as “IOUs.”

Of course all bonds can be called IOUs, but U.S. government bonds are considered the safest asset in the world. Mr. Peterson and his followers apparently want the government to default on the bonds held by the Social Security trust fund.

There is no reason that these bonds cannot be paid back, but if there is a serious push to default on the bonds held by the trust fund, then we should insist that Peter Peterson and other wealthy people who hold government bonds also share in the pain from default. Instead of having a full default on the trust fund bonds and full payment on the bonds held by Mr. Peterson, maybe we should make everyone take a 15 percent haircut, getting back 85 percent of the value of their bonds.

There would be substantial consequences in financial markets from such a default on U.S. government debt. But the tens of millions of retirees who lose benefits from a default on the bonds held by Social Security can act to ensure that the financial markets feel consequences as well.

Although Social Security is paid for long into the future, Medicare does face problems due to the explosion of private sector health care costs. The way to address Medicare’s shortfall is to fix the private health care system, as President Obama has pledged to do. If health care costs are contained, so that they only grow due to the aging of the population, and otherwise move in line with per capita income, then Medicare will be an affordable program. The problem is not the aging of the population, the problem is a broken health care system.

Every other wealthy country in the world has managed to contain its health care costs and provide care to its population that is as good or better than what people in the United States receive. If it were not for the political power of the pharmaceutical, insurance, and doctors’ lobbies, we would have fixed health care long ago. If Congress cannot stand up to these special interest groups, then why not just let retirees take advantage of the health care systems in countries with less corrupt political systems?

The latest round of attacks on Social Security and Medicare are especially pernicious because they come at a time when the baby boom cohorts have just seen much of their wealth disappear due to the collapse of the housing bubble and the stock market plunge. Tens of millions of baby boomers who thought they were well-prepared for retirement two years ago now find themselves with little or no home equity and very little left in their retirement funds. As a result, they will be almost totally dependent on Social Security and Medicare.

The attacks are made even worse by the fact that the attackers, people like Robert Rubin and Peter Peterson, promoted policies that led to this collapse, and personally profited to the tune of tens, or even hundreds, of millions of dollars. In other words, after pushing the economy into a severe recession and destroying the life’s savings of tens of millions of working families, the Wall Street crew now wants to take away their Social Security and Medicare. This can almost make killing your parents look like a petty offense.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.