Social Security: The Phony Crisis
by Dean Baker, Mark Weisbrot
The sky isn't falling on Social Security, say economists Dean Baker and Mark Weisbrot in this readable but sophisticated defense of America's popular government-run retirement program. The public suspects Social Security won't be solvent in the 21st century, they continue, because of "an avalanche of misinformation, disinformation, and powerful political and financial interests." The authors are both liberal economists, and they believe that the privatization of Social Security favored by many libertarians and younger Americans would involve great risk and possibly destroy a system of entitlements that has rescued millions of retirees from spending their golden years in poverty. Although they admit the stock market has averaged a 7 percent rate of return over the last 75 years--much higher than anything Social Security can claim--there is no way to predict what will happen in the future; mandatory private investment programs favored by many free-market reformers therefore offer false promises. Only Social Security, say Baker and Weisbrot, provides a guarantee of income for the elderly. Along the way, Social Security: The Phony Crisis discusses the history of Social Security and evaluates several of the reform proposals now on the table in Washington. A constant drumbeat in favor of the status quo will guarantee this book's popularity among liberals. --John J. Miller --This text refers to the Hardcover edition.
From Booklist
Baker and Weisbrot take issue with widespread dire predictions that the 64-year-old Social Security system will not be able to provide financial security for the aged and disabled in the future. Baker, a senior research fellow at the Century Foundation and the Preamble Center, and Weisbrot, a research director at the Preamble Center, project that Social Security will remain viable for at least 30 more years--longer if the U.S. economy continues to grow at its current pace. Concerns about a shortfall that will transform economic class warfare into "intergenerational conflict" are outright lies, according to the authors. Doomsayers have misinterpreted demographic trends and mistakenly lumped together Medicare and Social Security when estimating the financial burden on the government, the authors claim. Baker and Weisbrot offer an interesting viewpoint in the controversial debate about Social Security--one that is certainly more welcome than the typical predictions of a shortfall. Vanessa Bush --This text refers to the Hardcover edition.
Reviewer: Michael Brennan (Chicago, IL United States) - See all my reviews
This book is a very welcome antidote to claims that Social Security is fiscally unsound and would well be privatized. The authors, economists, cite relevant facts to support their cogent arguments. The usefulness of this book in making clear some major Social Security issues compares very well with books by Robert Eisner (Social Security, More Not Less, and The Great Deficit Scares: the Federal Budget, Trade and Social Security) and with Countdown to Reform, by Henry Aaron and Robert Reischauer. Baker and Weisbrot's book also has valuable information and arguments on health care and other important issues.
Reviewer: A reader
Social Security PRIVATEERS tell us that in 2029.or 2032...now 2050 (notice that the date has to be constantly readjusted BACK every year) it is "calculated" by a Government advisory commission that Social Security won't have enough income to cover more than 75 percent of the benefits it must pay to aging baby boomers.
But the authors point out, the specificity is illusory, all lever-pulling and smoke-blowing from the Wizard of Oz. The projections aren't economic but actuarial extrapolations based on assumptions that the all the actuaries know are fictitious at best. Tweak them ever so slightly--lift real wages by a quarter- or half-percent per annum, or immigration by a little--and the so-called "crisis" disappears entirely. But according to the apparat-niks at the CATO Institute and the attack dogs at the OUT-Fox-ed Network--you might think the numbers have come down from Moses. They haven't. Social Security isn't in trouble and the criticisms of it are not logical as the authors of "The Phony Crisis" point out.
First of all, Social Security is an INSURANCE System, not an "investment". When you factor in the cost of buying disability and survivor insurance and "invest the difference"...the performance "advantage" of equity markets gets razor-thin at best. It turns out that Social Security yields the same as nice safe government bonds, which any intelligent investor knows should form the basis of an investment portfolio.
Secondly, the so-called performance advantage of the markets has a whole lot of IFs that the PRIVATEERS conveniently fail to mention.
Forget hyper-collapse 1929-style for the moment. Since the Crash of October 1987, U.S. markets have been on a nonstop charge; but if you'd gone into the same markets in 1970, you were worse off by 1980--not to mention where you'd be today if you'd bet on Japan in the mid-eighties or Southeast Asia's "sure thing" markets a couple of years ago. Will you do all right in the long term, as brokers and economists insist? Well, probably yes--but then as Keynes observed..."in the long run, we're all dead."
Here's where the income and wealth distribution effects of privatization turn very ugly. For millions of Americans--who bet on Kaypro instead of Microsoft (oops), Pan Am instead of American (sorry) or cattle futures without the skill and connections of Hillary Clinton (smile, please)--life at 75 could mean not "golden years" but working for the folks at the golden arches, or even being out on the street. A FACT of life that the young people who invested in the dotcom bubble are learning the hard way.
How many of us realistically will beat the averages? If 120 million workers are turned loose to bet the markets---40 million of whom are marginally literate or numerate--as the privateers recommend---it turns out that most will lose. The mutual fund industry's dirty little secret is that three-fourths of funds under-perform market indexes. Yet such funds have millions of na�ve investors in them; in one recent survey, a majority of mutual fund investors couldn't even distinguish between a "load" and a "no-load" fund.
There is another issue, so far undiscussed in the debate. For the first time in nearly thirty years, the federal budget's in balance. But it's in balance because each year the Treasury borrows $80 billion from the Social Security Trust Fund surplus, and "covers" the deficit in the rest of the federal budget. If a big piece of Social Security contributions go into private accounts, the trust fund surplus will disappear and the federal budget will plunge back into deficit. Which federal programs are we supposed to cut to make up for it?
If you count the cost of the so-called "free market reforms" over the past twenty years--to a once-viable savings-and-loan system, to Mexican workers and peasants (who've paid for bailouts not once but twice), to the world's poor as they've worked off the global debt crisis. Think about the lives of Indonesian peasants, or Korean and Thai workers today--all set to pay for the "can't miss" marketization of Southeast Asia, just as Americans have so wonderfully benefited from downsizing, capital-gains reduction and globalization.
The folks that brought you ALL these disasters are the ones telling us that now it's Social Security's turn to face the "free market reform" just because it doesn't meet the ideological test of a handful of right-wing zealots.
Social Security is not a disaster. Benefits are moderately progressive, meaning that the bottom 60 percent of retirees get more back than they paid in. More than 90 percent of us pay into it during our working lives and more than 90 percent of us can count on its benefits when we retire. The minor adjustments that are outlined by the authors are all that is necessary to save Social Security.
