Buying Into Failure: The Abolition of Social Security
As we
hear more and more pundits and politicians on television tell us the
enormous wealth that we will accumulate by eliminating Social Security,
there is a large piece of information missing: government-sponsored private investments simply don't work.
Paul Krugman notes the failure of such proposals today.
Yet,
aside from giving the Cato Institute and other organizations promoting
Social Security privatization the space to present upbeat tales from
Chile, the U.S. news media have provided their readers and viewers with
little information about international experience. In particular, the
public hasn't been let in on two open secrets:
Privatization dissipates a large fraction of workers' contributions on fees to investment companies.
It leaves many retirees in poverty.
Decades
of conservative marketing have convinced Americans that government
programs always create bloated bureaucracies, while the private sector
is always lean and efficient. But when it comes to retirement security,
the opposite is true. More than 99 percent of Social Security's
revenues go toward benefits, and less than 1 percent for overhead. In
Chile's system, management fees are around 20 times as high. And that's
a typical number for privatized systems.
…
Privatizers
who laud the Chilean system never mention that it has yet to deliver on
its promise to reduce government spending. More than 20 years after the
system was created, the government is still pouring in money. Why?
Because, as a Federal Reserve study puts it, the Chilean government
must “provide subsidies for workers failing to accumulate enough
capital to provide a minimum pension.” In other words, privatization
would have condemned many retirees to dire poverty, and the government
stepped back in to save them.
The
same thing is happening in Britain. Its Pensions Commission warns that
those who think Mrs. Thatcher's privatization solved the pension
problem are living in a “fool's paradise.” A lot of additional
government spending will be required to avoid the return of widespread
poverty among the elderly – a problem that Britain, like the U.S.,
thought it had solved.
Britain's
experience is directly relevant to the Bush administration's plans. If
current hints are an indication, the final plan will probably claim to
save money in the future by reducing guaranteed Social Security
benefits. These savings will be an illusion: 20 years from now, an
American version of Britain's commission will warn that big additional
government spending is needed to avert a looming surge in poverty among
retirees.
So
the Bush administration wants to scrap a retirement system that works,
and can be made financially sound for generations to come with modest
reforms. Instead, it wants to buy into failure, emulating systems that,
when tried elsewhere, have neither saved money nor protected the
elderly from poverty.
The problem of elderly poverty in the United States – for the most part – has been solved in 2004 America.
Something
else of note: despite the supposed windfall that will be produced from
the pockets of Wall Street financiers – the phrase “benefit reduction”
is still in play.
Krugman was nice about it – the comission the current administration set up to study the so-called crisis in 2001 plainly called it a “cut”:
Although
Bush's Social Security commission gave him three main recommendations
in 2001 on how to fix the system, Bush has not said which alternative,
if any, he would support. The main plan put forward by that commission
would cut future promised benefits for younger workers in exchange for
allowing private investment accounts.
McClellan
suggested Bush would follow the commission's direction without
explicitly endorsing one of its proposals. “That bipartisan commission
put forward some innovative ideas to solve this problem,” McClellan
said. “The president said that should be a guide for us moving forward.”
Folks –
it doesn't get any clearer than this. This is a false crisis,
generated by those that want to pick the pockets of the American public
for personal profit.
Josh Marshall is putting together a list of
where congressional delegations stand on this issue. For the
Rapid Response folks: we need to contact the Iowa delegation and
find out where they stand on this.
If
anyone finds out, we'll post it here – and send any interesting
comments to whomever wants to print them – and keep them around for
2006.
One last item on this today: the Social Security Abolition
movement is being promoted by bringing “regular Iowans” to Washington –
so they can lie to the American people.
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