Say it loud. Social Security is rock-solid. Contrast that with the financial instability of the housing and stock markets exposing lenders and borrowers near and far to bankruptcy. No small number of creditors and debtors are caught in this financial mess stateside and globally. Some of the bigger fish are getting bailed out with cash from central banks. Social Security has no such need now or in the foreseeable future for that or for the U.S. central bank, the Fed, to cut interest rates. The program has adequate money to pay full benefits through 2046 without such monetary policy changes, according to the Congressional Budget Office.
Social Security is the crown jewel of the U.S. welfare state, which protects working people, active and retired, able and disabled, older and younger, from the harsh marketplace. Thus Social Security has been under attack since its birth in 1935 by the nation?s ruling circles and the voices they bankroll. A current voice of discontent with the program is the Cato Institute. Writers there routinely get their views in the corporate media such as USA Today, arguing that Social Security is a leaky ship fixable with private savings accounts that individuals own.
Meanwhile, tens of millions of the American people get their monthly Social Security checks for the full amount. Just ask a Social Security recipient, young or not so young. S/he will tell you of the absence of risk involved in the program.
Exposure to risk defines housing and stock markets. The current meltdowns are a case in point. This trend is hard to see when prices skyrocket during speculative bubbles.
Now let?s take a step back for a brief look at the mist-enveloped past of American history. Not too far?2005 is about right. Recall that younger workers were the target audience for President George W. Bush?s vision to remove risk from Social Security. He assumed the program faced a shortage of funds in the future, which required policy changes. So the president took to the road to sell this policy vision to the U.S. populace. His solution to the problem of younger workers? retirements was the creation of private savings accounts for Social Security.
In a nutshell, the president sought a major change to the current funding system of Social Security from payroll taxes paid by employees, 6.2 percent of their wages. Employers match that amount. Currently, there is a surplus of this tax collected and not paid to current recipients. The surplus goes into the Social Security Trust Fund, as the Greenspan Commission designed in 1983. I know, this is ancient history.
Ironically, perhaps, Greenspan?s cheap-credit policy as head of the Federal Reserve Bank nourished the lending and spending practices that fueled the stock market and housing booms of the 1990s and this decade, respectively.
Cut to this millennium. Borrowers late to the housing market are most at-risk, generally speaking. Besides falling home prices and sales, some of these buyers by hook or by crook signed mortgage agreements without the long-term means to make regular payments. U.S. home foreclosure filings spike, up 93 percent in July 2007 from July 2006.
Crucially, the Social Security Trust Fund has steered clear of such risky investment. Yes, the federal government does borrow from the trust fund. Then Uncle Sam pays it back in full.
What if Social Security invested in private accounts? What if these funds were invested in the stock shares of home building and home lending firms, banks included, that are losing money now? Uh oh. Good-bye financial stability for Social Security. Hello risk where none now exists.
And one other thing about private savings accounts for Social Security invested on Wall Street. Such investments would require administrative costs. Firms Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley don?t work for free. That?s how they get paid, with those at the top of the company pyramids getting a bonanza.
?In 2006 the[se] five leading Wall Street firms awarded an estimated $36 billion to $44 billion worth of bonuses to their 173,000 employees,? writes author and CSU Chico professor of economics Michael Perelman in The Confiscation of American Prosperity (Palgrave Macmillan, 2007). ?The bulk will go to the top 1,000 people. Two executives alone account for almost $100 million.?
Speaking of being free, we might agree that the Washington press corps has a bit of freedom. My suggestion for them is to use it well. How? Ask the president about private savings accounts for Social Security in light of his recent comments on the strong fundamentals of the U.S. economy as housing and stock markets wobble across America and around the world. What do you wager are the odds of that happening?
Seth Sandronsky lives and writes in Sacramento. He can be reached at: [email protected]