Wednesday, August 31, 2005

Equus Mortuus 1

President Bush’s privatization scheme for Social Security is dead in the water, but Hyman comes in a day late and a dollar short with a series of commentaries that beat this dead horse for an entire week, revealing two “facts” about Social Security each day.

Hyman calls Social Security the “world’s largest Ponzi scheme.” I don’t know of any Ponzi scheme that’s lifted tens of millions of elderly out of poverty and kept millions more from falling into it. In fact, Social Security is perhaps the most successful governmental program in history. It is no more a Ponzi scheme than any insurance policy in which you pay a small amount in on a regular basis with the promise that you will have benefits if/when you need them.

Of course, this economics is based on an ethos of faith and shared responsibility. In both Social Security and insurance, those of us who don’t need benefits pay into the system to support those who do need benefits today. We do so with the understanding that when we need benefits ourselves, we will draw on the contributions of others. Both Social Security and insurance are based on promises made from one group of citizens to another.

But because Social Security is based on promises made to today’s seniors through the government, it is anathema to conservatives (as it was when it was first introduced). I’ll say more about the “every man for himself” philosophy that’s behind the conservative position later on in the week. For now, let’s just recognize that it’s a pessimistic, mean-spirited, selfish, un-American, and (dare I say) un-Christian approach to civic life.

So let’s look at the first two of Hyman’s “phacts” about Social Security, and then compare them with the real facts.

Hyman Phact #1:

Social Security is a pay as you go system. The FICA taxes collected from today's
workers are paid out to today's retirees. Sixteen workers used to pay in for
every retiree collecting benefits. In the next generation it will be two workers
paying in for every one retiree.

Real Fact: Not all FICA taxes collected today are used to pay for benefits because we have more workers than retirees. That’s why we have a Social Security surplus. Yes, the aging of the baby boomers will mean that we will have less workers per retiree in the future, but the fact that the boomers are paying into the system as workers today will mean that there will be a surplus from which to pay them benefits after they retire for a long, long time.

Moreover, an economic reality that Hyman and other privatization privateers ignore is the fact that worker productivity has steadily increased over time (roughly doubling every 36 years). As Doug Orr, a professor of economics who is an authority on Social Security, points out in an essay that appeared in the journal Dollars and Sense points out, this means that by 2040, it will take fewer workers to pay into the system to keep it operational, and that in fact both workers’ and retirees’ income will go up.

Hyman Phact #2:
Social Security is going broke. It begins deficit spending by 2018 and by 2042
it will no longer be able to meet its obligations.

Real Fact: Social Security is not going broke. The study Hyman cites simply says that the Social Security trust fund will run out by 2042. At that point, incoming revenue from taxes will be needed to pay benefits. But as we noted above, the increased productivity of workers will go a long way in offsetting the effects of the trust fund having been spent.

But the news is actually even better than that. The gloom and doom predictions about the trust fund going bust in 40 years are based on unrealistic expectations about the growth of the economy. Again, Orr points out that the bankruptcy prediction relied on by people like Hyman assumes a 1.8% growth in GDP for the next 75 years. The problem is that there has never been an extended period of time when we’ve had that stagnant of an economy (even including the Great Depression). If the economy grows at a more realistic (but still highly conservative) rate of 2.4%, the trust fund will not be depleted, and we’ll either have to raise benefits or cut taxes to reduce the surplus money that Social Security will be building up.

And those are the factual Counterpoints.

Hyman Index: 2.78


At 12:52 PM, Anonymous Anonymous said...

Mr. Hyman can't even come with his own words to insult Social Security. The "Ponzi Scheme" term was also in a Wisconsin GOP press release a few weeks ago (linked on talkingpointsmemo).

At 11:38 PM, Anonymous Anonymous said...

Ted, you and I both know that Hyman and the other Neo-Con pigs are never going to give up on the Social Security issue. Like the bear is drawn to the bee hive and the cat to the fish bowl, the prize for them is just too great to walk away from. They might turn their back on it for a short time, but you better keep a sharp eye on them or you'll soon have to pay big money for your honey and just wish for fish.

You have to ask why such determination in the face of overwhelming rejection by the people? You would think they would view this as political suicide. I believe that there are several reasons for this, the most important being that they see it as the only viable means for survival of their party by postponing the inevitable and fast-approaching stock market crash and the ensuing depression that they have set this country up for. They have so weakened our economic system through deficit spending, outsourcing, trade deficits, speculation, over-leveraging and just plain theft and corruption, that the markets must have a fresh transfusion of green blood (cash) to survive.

This situation is made even worse when you realize that the baby-boomer generation is now just beginning to pull their investments out of the market and put it into a more stable, less volatile environment for secure retirement income generation. The value of investments leaving the market is just a trickle right now, but it will soon become an open artery. Where will the money to replace it come from?

Real wages for workers are falling with no end in sight. The average savings rate for Americans today is zero percent of their income and foreign investors are starting to back away from the dollar in light of our lack of standing and credibility in the world. Diverting Social Security deductions into the stock market could pump trillions of dollars into the market to counteract the hemorrhage and keep it inflated, and it would bring about the destruction of the Social Security System, something they have wanted for a long, long time.

The only thing keeping this economy afloat is the housing industry, and it is being kept on life-support with artificially low interest rates, fraudulent appraisals, dubious loan practices including interest only and adjustable rate mortgages that will likely end in default. Without a change in the leadership and direction of this country very soon, we are on a path to something worse than the Great Depression (the last time these idiots were in control of everything.)

Is Hyman's attack on Social Security another case of telling the lie enough times for it to become the truth?

Will it continue to work for them?

Are the sheeple awake yet?

Thanks Ted, and keep on bustin' Hyman!
Mike B. in SC

At 12:23 PM, Blogger Ted Remington said...

I hope not, Mike. I think we have reason to be hopeful. The polls indicate that Americans are dubious about the privatization scheme Bush is putting forward. You're right that the repeated lie is a favored tactic, and it's one they are certainly using on Social Security. But I think this is a battle we will win if we keep the pressure on.

At 12:31 AM, Anonymous Anonymous said...

Ted, we have already won the battle over public opinion on privatization of Social Security, but we have also prevailed regarding public opinion on the war in Iraq, and over half the people now believe that Bush lied us into the war. Somehow, that hasn't made the Idiot-in-Chief back off on staying the course, he just changes the rationale for staying.

The wishes and welfare of the people haven't played a part in any of the legislation (patriot act, tax cuts, new nukes, tort restriction, bankruptcy, CAFTA, etc.)that these Neo-Cons have passed as far as I can tell.

The two dim-witted Senators here in SC, Lindsey Graham and Jim DeMint, are now pushing a new plan that pays for the cost of privatization by using - GET THIS - those worthless IOU's that they keep telling us about! Suddenly it's real money now that they want to use it!

I hope you're right Ted, but they have the votes if they all fall in line as they are prone to do, after all, these people can inflate a few fraudulent percentage points to a mandate.

Thanks Ted, and keep bustin' Hyman.
Mike B. in SC


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