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Debunking The Conservative Attack On Social Security

Conservatives have been attacking Social Security since 1936. They've grown more sophisticated since Republican presidential candidate Alf Landon. called it a "cruel hoax...unjust, unworkable,...and wastefully financed," but they haven't grown more honest. A quick guide to some major lies, written several years ago, with only the links updated.

R eason   A nd   D emocracy  
   Reason And Democracy Home    
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  The Conservative Attack  
On Social Security

    Social Security is a "cruel hoax...unjust, unworkable,...and wastefully financed." -- 1936 Republican presidential candidate Alf Landon.

    "Social Security is going to be in pretty good shape until the year 2029, so that is a pretty good fix." -- 1996 Republican presidential candidate Bob Dole, on retiring from the Senate in June, 1996.

Social Security Works...Very Efficiently
The Social Security Fund Is Sound
Crises Predictions Are Based On Incredibly Bleak Assumptions
But What About The Baby Boomers Retirement???
Even If The Sky Did Fall, It Would Be Easy To Duck

Cleaning Up A Few Hysterical Details

    Social Security is a "cruel hoax...unjust, unworkable,...and wastefully financed." -- 1936 Republican presidential candidate Alf Landon.

    "Social Security is going to be in pretty good shape until the year 2029, so that is a pretty good fix." -- 1996 Republican presidential candidate Bob Dole, on retiring from the Senate in June, 1996.

America has always combined strong elements of individualism and communitarianism. For over 60 years, Social Security has been the single broadest, most important expression of our communitarian side-- lifting millions of seniors out of poverty, allowing them a dignified, independent retirement, and freeing their middle-aged children from the direct burden of their support, allowing them in turn to invest in the education of *their* children.

This pattern of shared responsibility--with benefits widely distributed beyond the range of normal discussion of Social Security--has been an integral part of the most prosperous period of American history, enabling tens of millions of working class people to enter the middle class, freed from the crushing burden of directly supporting their parents in old age.

The current attacks on Social Security--styled as "reform," "restructuring," or what-have-you--are politically- and economically- motivated attempts to dismantle a system which, above and beyond all the countless millions of lives it has benefited, stands as a testiment to what Americans can do when they think of themselves as one people--as well as individuals and family memebers.

These attacks seek to take us back to the bottomless insecurity that faced an entire nation during the Great Depression--a period so remote to our last-week-is-ancient-history culture of the selfish now precisely *BECAUSE* Social Security and Keynsian, Big Government spending has prevented anything remotely like it from happening since then.

Stepping back a bit to put things in world-historical perspective, Doug Henwood, editor of the Left Business Observer, reminds us:

    "In pre-industrial societies, where life is short, people tend to work until they can no longer, and then their families take over. With industrialization, despite all the wishes of Newt Gingrich and Phyllis Schlafly, families break apart, and such informal arrangements can no longer be relied on."

Of course, just because a need exists, doesn't mean it will be met. The need must be accompanied by power. Henwood later explains:

    "As the World Bank report puts it, 'In 1889 German chancellor Otto von Bismarck seized a political opportunity to mollify industrial workers and lure them away from the socialists by creating the first national contributory old age insurance system, giving workers a stake in the central government.' It not surprising that when the socialist threat collapsed, the ruling orders felt liberated to launch an attack on pensions."

    --- Doug Henwood, Left Business Observer #67, December 1994. "Is Social Security going bust?"

Thus, the attack on Social Security is very much a product of the end of the Cold War. Without the credible threat of a political alternative, there's just no reason for capitalism to care for the elderly. Whether democracy will prove itself more humane than capitalism remains to be seen... Or to put it another way, whether democracy will prove itself stronger than plutocracy--on this most vital issue-- remains to be seen.

Social Security is a living, breathing example that there's more to life than the narrow, selfish woldview inhabited by conservatives. No wonder they want to destroy it.

Here, then, is an outline of highpoints useful in combatting the massive disinformation campaign being mounted to destroy Social Security.

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"Social Security provides retirement income to over 35 million people. It also provides disability insurance to virtually the entire working population, as well as survivor insurance for families in the event of the death of a parent or spouse..."


"The system is also efficient: the cost of administering Social Security is less than 0.7% of annual benefits, compared to administrative costs at private insurance companies that are on average more than 40 times as high."

    -- Dean Baker, EPI Issue Brief #112, April 29, 1996, "Privatizing Social Security: The Wall Street Fix" (PDF)

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It's sound right now through 2030...

"Social Security is not in danger of bankruptcy. According to the intermediate projection of the Trustees of the Social Security fund (the standard basis for policy projections), the fund will be able to meet all of its benefit payments to the year 2030, with no increase in taxes whatsoever. Even this projection is based on pessimistic assumptions."

    -- Dean Baker, EPI Issue Brief #112, April 29, 1996, "Privatizing Social Security: The Wall Street Fix (PDF)"

And after that...

"Social Security will still be able to pay out 75% of projected benefits, even with no change whatsoever in the tax and benefit structure."

    -- EPI [Reading Between The Lines Dec 7 - 13, 1996]

Based on extremely bleak assumptions....

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How pessimistic?

"For example, it assumes that economic growth over the next 35 years will be far lower than during any 35-year period in U.S. history."

"It also assumes that wage growth will not increase, even though the trustees forecast a labor shortage created by the retirement of the baby boom generation."

"History and economic theory suggest that the economy will perform better than indicated by this gloomy scenario, and therefore the Social Security fund should be able to pay out all its benefits even further into the future, with no change in policy."

    -- Dean Baker, EPI Issue Brief #112, April 29, 1996, "Privatizing Social Security: The Wall Street Fix (PDF)"

"The bankruptcy scenario is based on an assumption that GDP will grow at a rate seen only in depression decades."

"As is common in the work of official seers, the trustees present three sets of forecasts, an official guess, an optimistic one, and a pessimistic one."

"The official scenario assumes the economy will grow an average of 1.5% a year over the next 75 years half the rate seen in the last 75 (2.9%), and a rate matched only in one decade of the last century, 1910-20's 1.4% rate. The economy grew more quickly even during the 1930s, 1.9% (1930-40)."

"The growth rate for the trustees' optimistic vision, 2.2%, is only slightly bouncier than the 1930s rate."

"The pessimistic guess is 0.7%, slower than population growth, and a rate so torpid as to guarantee a war of each against all...."

"[T]he system will go bust only if you assume decades of stagnation. If the economy grows in line with the 1973-94 average of 2.4%, still slower than the 75-year average of 2.9%, it will run a big surplus."

    --- Doug Henwood, Left Business Observer #67, December 1994. "Is Social Security going bust?"

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Claim: We'll be swamped with seniors. For example "In 1950, we had only 15 seniors for every 100 working-age adults; by 2040, there will be 37." -- Clay Chandler, Washington Post, November 17, 1996.

Truth: It's not the senior-to-worker ratio that matters, but the dependent-to-worker ratio--and that ratio will rise only slightly over the next 3 decades...and never come CLOSE to the ratio's peak during the 1960s.

EPI [Reading Between The Lines, Nov 16 - 22, 1996]: "First, the ratio of seniors to working-age people does not provide a useful gauge of the burden of care placed on working people. A more meaningful indicator is the dependency ratio--the number of people over 65 plus the number of children under 20, divided by the working-age populationώwhich is projected to rise only slightly from its current levels, from 0.71 in 1995 to 0.79 in 2030. It never approaches the 0.95 level it hit in 1965, suggesting that much if not all of the additional needs of the retired population can be met from the reduced demands of a smaller school-age population."

How's that again? The 1960s had a higher level of dependents to workers than the 2030s will? Yup! It's true.

"In the future, it's asserted, there will be too few workers to produce enough to support the social safety net. But when they were kids, the baby boomers posed a challenge that may have been even greater. There were even more of them then, and for 15 or 20 years they produced little. They made complicated demands on the real economy, and society had to respond out of the much smaller economic pie that existed at that time...."

"Odd, isn't it, that no one, including the boomers' parents, recalls the 1960s as an era of economic deprivation?"

"As kids, boomers comprised over 40 percent of the population; today, they are less than 30 percent; in retirement they'll drop below 25 percent."

"The cost of raising the boomers was high; conservative estimates of the average cost of raising a child are about $300,000, in current dollars. (Coincidentally, this number is almost identical to the "insurance value" to a family of Social Security coverage.) But there was no free lunch: Boomers as children consumed goods and services from the real economy, just as they will as seniors."

    -- Richard C. Leone, "Why Boomers Don't Spell Bust," The American Prospect no. 30 (January-February 1997): 68-72.

If the ratio of dependents to workers was so much higher in the 1960s, why didn't peole complain then?

It's simple:

  • the rightwing capitalist propaganda machine was much weaker,
  • other voices were much stronger,
  • and the threat of a credible socialist alternative was still quite real.
What's more, people still vividly remembered the difference that large-scale government social investment had made.

As Leone explains:

"From the beginning, the Americans who had lived through the Great Depression and World War II expected the public sector to play a pivotal role in the adjustments caused by the arrival of 80 million boomer children. The government did produce vast programs to build schools, train teachers, and, later, to provide college loans and grants."

"Between 1952 and 1970, elementary and secondary school expenditures increased more than 275 percent in inflation-adjusted dollars."

"Between 1964 and 1980, the number of college and university students increased more than 125 percent, and the number of college instructors more than doubled."

"The boomers' parents, through their taxes, built these schools and colleges for their own and other people's children. Americans also provided support for the nearly 30 percent of boomers who lived some part of their childhood in poverty...."

"At the time, we also had a higher national savings rate—in other words, more foregone consumption by workers. Theda Skocpol emphasizes that the burden was easier to bear because the nation invested much in 'upgrading' the boomers' parents, especially through the GI Bill [see "Delivering for Young Families: The Resonance of the GI Bill," September-October 1996]."

"Eight million veterans sought higher education, more than doubling the percentage of Americans who went to college. The cost was about $100 billion, in 1996 dollars. But the real purchasing power was even greater: veterans went to Princeton on the GI Bill's $500 stipend. Veterans Administration housing subsidized about a quarter of all the new residences in the nation. In fact, public investment in both people and infrastructure was very high during the entire postwar period."

    -- Richard C. Leone, "Why Boomers Don't Spell Bust," The American Prospect no. 30 (January-February 1997): 68-72.

And GDP growth was much higher during this period as well.

"Between 1950 and 1973, the American economy grew at an annual rate of 3.6 percent, compared to 2.6 between 1973 and 1988, and the even more disappointing 2.1 percent of the post-cold war years."

    -- William Wolman, Anne Colamosca, "The Judas Economy: The Triumph of Captial and the Betrayal of Work"

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Suppose, for the sake of argument, that the extremely gloomy forecasts came true, and GDP growth fell even further, to 1.5 % over the next 75 years (gradually declining from current rates). Remember, this highly unrealistic assumption is the BASELINE assumption that all the "normal" debate in the corporate media revolves around--without even knowing it.

Even with GDP growth of 1.5% in the long run, only MINOR adjustments would be needed.

EPI [Reading Between The Lines, July 27 - Aug 2, 1996]:

"According to the intermediate projections of the Social Security Trustees (the standard basis for policy projections), it will be possible to pay every cent of Social Security's obligations with relatively small tax increases in the next century."

"If the payroll tax were raised at the rate of 0.1% a year for 36 years beginning in 2010 (for a total increase of 3.6 percentage points by 2046), the fund would be balanced throughout the 75-year planning horizon."

"This tax increase is approximately the same size as the tax increases that were put in place over the 10 years from 1980 to 1990." [Which totalled 4%]

TAX INCREASES! Oh lordy, the right wing will scream bloody murder about this! Well, of course, what else is new? They're a bunch of hysterical, selfish crybabies. Sober policy analysis realizes that there are ALWAYS costs as well as benefits. The real question is how the two compare. EPI's Between The Lines continues:

"Real wages net of Social Security taxes should still grow at the rate of 0.9% annually,. so that by the year 2046 they will be nearly 60% higher than they are at present. This arithmetic shows that problems with Social Security are small and manageable."

Thus, even as individual job security has plummeted, only a minor tax increase, WELL BELOW the increase in wage levels, will keep Social Security solvent, even under this gloomy scenario.

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Claim: Social Security is a liberal bureaucratic waste. We'd make much more money investing it in the stock market.

Truth: It was CONSERVATIVES who originally prevented Social Security funds from being invested in the stock market. This was part of their long-term efforts to undermine Social Security.

"Social Security has been a fixture for so long -- since 1935 -- that we take it for granted. But until the 1950s, it was hotly contested. In its early years, conservatives pursued two strategies to undermine it: They tried to limit who could benefit from it, and they opposed the accumulation of a vast government-managed pool of investment funds for Social Security."

"These early critics of Social Security claimed that aiding the least privileged of society was their top priority. They advocated minimal 'flat-rate' pensions for anyone in extreme need, while arguing that the nation could not 'afford' to pay for pensions calibrated to middle-class incomes. Why would conservatives want to help the poor first? Because it made political sense. The last thing Republicans and business leaders wanted was for middle-income Americans to gain a stake in a large, popular federal government program. Conservatives, then and now, know it's far easier to minimize -- or eliminate -- programs that benefit only the poor."

"Critics also campaigned hard against the government investing accumulated payroll taxes in interest-generating securities -- even though that would have been the most fiscally sound plan for the long run. Again, their political logic was paramount: They wanted to minimize government's role as much as possible."

"Conservatives largely prevailed on the matter of investments, but over the decades they lost the struggle to keep the middle class out of Social Security. By the late 1970s, most American families had a big stake in Social Security."

    Theda Skocpol, "Dιjΰ views: Attacks on Social Security are as old as the program Itself." Mother Jones, Nov-Dec 1996

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Claim: Privatization is *THE* Answer!

Truth: As already demonstrated, there actually is no problem for privatization to answer. But there are 4 main problems with privatization.

Robert Dreyfuss in "The end of Social Security as we know it?" -- Mother Jones, Nov - Dec, 1996 cites the following 4 problems with privatization

(1) Unprotected Risks: "First, workers would assume all the risks of investing in markets that go down as well as up. While some workers might reap large returns on their investments, others could lose, and have little to fall back on without the guaranteed safety net currently provided by Social Security."

(2) Massive administrative costs: "In addition, the administrative costs of maintaining small, private accounts for more than 100 million wage earners would dwarf Social Security's administrative overhead, which currently amounts to less than 1 percent. This burden would fall heavily on the small investor. 'Brokerages managing these funds will charge much more for smaller funds,' says Dean Baker of the Economic Policy Institute. 'For someone with $200,000 invested, the brokerage will charge only 1 percent, but someone with only $500 invested may spend about $30 a year on maintenance charges.'"

(3) Creating a fiscal crisis: "More importantly, privatization would also create an immediate fiscal crisis. Money diverted into private accounts would no longer be available to the Social Security system to pay current beneficiaries. Those retirees would still draw funds from Social Security, but the system would have to raise additional money to pay them. That means higher taxes, cuts in benefits, or both. In effect, workers in their 20s, 30s, and 40s would be asked to save for their own retirement, plus pay additional taxes to support current Social Security recipients. Often dismissed by proponents of privatization simply as "transition costs," this enormous shortfall -- as much as $7 trillion over the next 75 years according to the pro-privatization Cato Institute -- would weaken the system, if not collapse it altogether."

(4) Destroying the communal vision that is Social Security's foundation--a vision hard-won from the suffering of the Great Depression: "Finally, privatization would destroy the communal vision that is the strength of the Social Security system. Even under moderate variations, Social Security would evolve from a universal retirement system to a welfare program for poor and low-income workers. Political support for the system would evaporate among middle-class and upper-income workers -- a longtime conservative goal. Wealthier workers with rich private retirement accounts would seek to opt out of Social Security to a greater and greater degree, and the money to pay benefits to those still in the system would gradually dry up."

In fact, Dreyfuss is understating the risks involved. Dean Baker explains:

"Keep in mind that we are talking here about average returns. In any given year, some stocks will do better, some worse. And some individuals will retire at a point where the market has just taken a sharp downturn."

"From 1968 to 1978, the stock market fell by 44.9 percent in real terms. People who retired in the late 1970s and financed retirement from stock sales had a return well below the historic market average. Moreover, some individuals, with bad judgment or bad luck, will end up with stocks that significantly underperform the market. "

    -- Dean Baker, "The Privateers' Free Lunch," The American Prospect no. 32 (May-June 1997): 81-84.

And others estimate even higher costs:

"[A]dministrative costs for individuals will be enormously greater than under the current system The cost of administering the whole Social Security program (which includes disability, survivor's insurance, and Supplemental Security Assistance) is only 0.7% of the benefits paid out. By contrast, according to the American Council of Life Insurance, the operating costs of the life insurance industry exceed 40% of annual benefits. This means that individuals, on average, will have much less money for their retirement if they invest their Social Security money themselves instead of leaving it in a common pool."

    -- EPI [Reading Between The Lines, April 6 - April 12, 1996]

Another look at transition costs comes from the Social Security Advisory Council:

"The Social Security Advisory Council, by the way, 'did the math' on a transition to a fully funded retirement system. It would require an extra 52 percent payroll tax, imposed over 72 years, beginning in 1998, plus about one trillion dollars in borrowing over the next 40 years. That is the new revenue needed. There is literally no way around a large tax increase to pay for the transition (even when one reduces benefits, as one of the council's options does, by a 47 percent cut in what an average earner would get today).

    —Theodore R. Marmor and Jerry L. Mashaw "Is There A Social Security Crisis? Sam Beard Debates Theodore R. Marmor & Jerry L. Mashaw," The American Prospect no. 30 (Jan-Feb, 1997): 16-19.

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Claim: There's nothing (or nothing but "paper IOUs") in the Social Security trust fund.

Truth: If those "paper IOUs" are worthless, our economic system is already kaput.

In their reply to Sam Beard, Theodore R. Marmor and Jerry L. Mashaw addressed this point as follows:

"3.Treasury promises are 'paper IOUs' and, therefore . . . worthless? If Treasury securities in the Social Security trust funds are worthless, so are all other Treasury instruments. In short, if Beard is right the American economy has already melted down. Buy gold."

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False Promise: The government should cut taxes to encourage more personal savings.

Truth: This rationale was used in 1981 in arguing for the Reagan tax cuts. The rates were cut--and savings actually *declined*.

Our highest rates of growth and capital formation took place in the 50s & 60s when top tax rates were 88% and 70%.

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False Promise: Congress and the President should raise the retirement age.

Truth: Sounds good if...

(1) You work at a desk like a politician, a lobbyist or a policy wonk. Real people with real jobs shouldn't be forced to work till they're 70...

(2) You're not Black. African Americans have a significantly shorter life-expectancy than White Americans. Increasing the retirement age will discriminate sharply against Blacks.

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Claim: Young people have no faith Social Security will be around when they retire.

Response: So? If true, this simply indicates the success of a propaganda campaign.

But is it true? As EPI observes [Reading Between The Lines, Oct 5 - 11, 1996]: "It is worth noting that people in their twenties do not behave as though they believe these programs are going to disappear. If they believe they will have to pay for their own health care and have no Social Security income in retirement, then they should be saving at a high rate. Yet studies of saving behavior show very low rates of saving among young people."

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Claim: Social Security is a Ponzi scheme that would be illegal if anyone other than the government did it.

Truth: A Ponzi scheme is

  • (a) a fradulent "investment" scheme which
  • (b) takes people's money under the pretence of investing it and
  • (c) uses other people's "investment" money to pay "interest"
  • (d) that keeps people hooked and encourages them to "invest" more.
  • (e) and never delivers what it promises.
NONE of this is true of Social Security.
It's a striaght-forward INSURANCE system, not a fraudulent investment scheme. And it works spectacularly--it's vastly reduced poverty among the elderly.

Truth: Printing money would be illegal if anybody except the government did it. Locking people up in jail would be illegal if anybody except the government did it. Issuing passports would be illegal if anybody except the government did it. Only brain dead libertarians would overlook something this obvious.

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Author: Reason And Democracy
Posted: Tuesday December 11, 2001 01:52 AM
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Just Say No to Social Security Privatization Tim DeLaney Saturday April 03, 2004 at 11:30 AM
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