A Phony Crisis Met By Deception

By Dean Baker and Mark Weisbrot

May 4, 2003, Boston Globe

We now know that a good part of President Bush's public support for the Iraq war has been based on false or highly misleading information. While polls have shown that 53 percent of the public believe that Saddam Hussein was "personally involved" in the massacre of Sept. 11, no evidence of this connection has ever been produced.

The war against Social Security has been fueled by similar, wide-ranging deceptions. Mention Social Security to anyone under 50 and the most likely response will be something like "I'm never going to see any of that money."

Yet there is no evidence to support this belief. According to the Social Security trustees' projections, the program is able to pay all promised benefits for the next 40 years. Even those who campaign against Social Security accept that this is true.

That should be the end of the story - 40 years is a long time for any program to be able to pay for itself. But since the trustees make projections for 75 years, opponents of Social Security have seized on a projected shortfall after 2043 to claim that the system is in trouble. And that we must act now to "reform" it.

In reality, the projected shortfall over the whole 75-year period is relatively small. As a share of our national income, it is about three-quarters of one percent. The tax increases that might be needed to close this gap are less than those implemented in the 1940s, '50s, '60s, '70s, or '80s. And we have to remember that the average real (inflation-adjusted) wage 40 years from now will be about 45 percent more than it is today. So if people have to pay a bit more to support a system that keeps most of our senior citizens above the poverty line, they probably won't complain. Their after-tax income will still make them a lot better off than the average employee today.

In short, the whole idea that Social Security needs "reform" is nothing but hype, the product of military-style disinformation. The "coalition of the willing" in the war on Social Security is led by the financial industry, which stands to earn hundreds of billions of dollars in fees and commissions if it can hold Social Security funds in individual accounts. They are joined by wealthy taxpayers who view any government dollar that is not paid out in corporate subsidies as a potential tax break in their pockets.

The reality is that Social Security has never been needed more. As a result of nearly 30 years of wage stagnation for the typical employee, most Americans have found it very difficult to save for retirement. Many who did succeed in saving have now seen much of their retirement funds disappear in the recent stock market crash. And these savings will be further eroded when housing prices decline, which is inevitable given the unprecedented runup in housing values over the last seven years.

But we have not finished with the "sky is falling" predictions, and we will surely hear more as President Bush and the Republican Congress turn their sights toward domestic policy. They will be aided by a group of academic economists who have joined the war effort, lending it legitimacy. These thinkers have devoted endless tracts to Social Security's relatively minor long-term problems, while ignoring such serious crises as an $8 trillion stock market bubble, a collapsing health care system, and decades of stagnating wages for the bulk of the work force.

Social Security's detractors have deployed a series of verbal and accounting tricks to create a false impression of its finances. For example, they point out that while there are now three workers for every person drawing benefits, in 2035 there will be only two. This is technically a true statement, but it is like reporting one-half of a baseball score. The other side of the story is that productivity and income grow year after year, and this growth compensates for the demographic changes.

Another trick is to pretend that the bonds held by the Social Security Trust Fund, now amounting to $1.5 trillion and growing by $200 billion a year, are somehow less "real" than other US Treasury securities. They are often disparaged as "IOUs" - even by financial reporters who should know better - and it is claimed that the government has "raided" the trust fund and "spent all that money." But all bonds are "IOUs," and all Treasury bonds are sold so the government can spend the money. The bonds held by the Social Security Trust Fund are backed by the full faith and credit of the US government, and it is a bit ridiculous to suggest that our government would default on them.

With little wealth accumulated for retirement and traditional pensions rapidly disappearing, tens of millions of baby boomers will be relying on Social Security to provide the vast majority of their retirement income. Fortunately, the system is financially solvent and will remain so - unless its detractors can succeed in deceiving the public enough to carry out their "reforms."