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Four years ago Dean Baker and I wrote a book entitled "Social Security: The Phony Crisis" (University of Chicago Press, 2000). We showed that there was no financial, economic, actuarial, or other reason to be worried about the future of Social Security. The whole idea that Social Security would run into trouble when the baby boomers retire was an urban legend -- and still is.
Among others, The Economist -- a conservative British magazine -- reviewed the book and agreed. In fact no one dared challenge what we wrote. How could they? The numbers we used were the same that everyone -- including the current campaign of President George W. Bush -- uses. They are straight from the Social Security Trustees' annual report.
We hoped that our book would put an end to all the nonsense about how to "fix" Social Security. And indeed there has been some progress over the last four years. Last March, the New York Times editorial board stated, for the first time, that "those worried that Social Security will not be there for them when they retire are simply mistaken."
Four years ago, the idea of partially privatizing Social Security had majority support in some polls. This was a partly a result of aggressive advocacy on the part of right-wing think tanks and politicians, backed by Wall Street firms that stand to gain tens of billions of dollars from privatization. These people had not only convinced most of the public that they would never see their Social Security benefits, but that they could get more for their money in the stock market.
In our book we showed that the latter claim was also wrong. We demonstrated arithmetically, as no one else had done, that the bubble-inflated stock prices at the time were incompatible with any plausible projected rates of growth for profits and the economy. As we predicted, the stock market bubble burst, and with it went a lot of the support for privatizing Social Security.
But the Bush team is still promoting such privatization. Their proposal has a number of pitfalls: it would add to our federal budget deficit, which is already at a near-record (as a percent of the economy) level. It would increase the administrative costs of Social Security enormously, which would subtract from future benefits. It would expose future retirees to the risks of a volatile stock market that is still, by historical measures of price relative to earnings, overvalued.
And it would undermine the political support for America's largest anti-poverty program by splitting future retirees into two camps: the wealthier ones would get a large share of their Social Security income from the privatized accounts, while most others would not.
This is perhaps the privatizers' main purpose: Social Security is not a retirement account but a system of social insurance. It is a commitment by society from one generation to another; we all pay in, and we all draw out, because we never know how we will fare in our old age. The program also provides disability and survivors' insurance. The idea that "we are all in this together," on which Social Security is based, has always been unpalatable for those who believe in "every man for himself" and the law of the jungle.
Social Security is currently more financially sound than it has been throughout most of its entire history. To cover any shortfalls that may occur over the next 75 years would require less than we came up with in each of the decades of the 1950s, 60s, 70s, or 80s. All we have to do to save Social Security is to keep the privatizers' hands off of it.