Social Security crisis? If Bush gets his way

Social Security crisis? If Bush gets his way
Jenny Brown
May/June 2005

What's wrong with Social Security? If you listen to the Republicans (and some Democrats) you'll hear that there just won't be enough workers to support all those baby boom retirees. And now Bush has come out and said, yes, we'll have to cut benefits. But is any of it true?

In his stump speech to privatize Social Security, Bush says: "In 1950, there were 16 workers to support every one beneficiary of Social Security. Today, there are only 3.3 workers... by the time our youngest workers .... turn 65, there will only be 2 workers supporting each beneficiary ..."

He says that since there aren't enough workers to support the coming retirees and therefore when today's young workers retire, there "won't be any money left."

Sounds like a natural trend we can't do anything about, right? Wrong.

First, the ratio of workers to Social Security beneficiaries has actually been remarkably stable since 1965. This is partly because of more women entering the workforce. Even by Bush's predictions, the ratio will fall to 2:1 by 2045. Meanwhile--in this supposedly dire situation of 3:1 ratio--the program has been socking away billions to pay the retirement payments required by the baby boomers.

Second, productivity per worker has more than doubled in the last 50 years. That means that, if no-one is siphoning resources off for something else, each worker can support twice as many people as they could in the 50s. (Juliet Schor in The Overworked American noted in 1991 that productivity had doubled since 1948.)

Third, they are predicting dire shortages of workers at the same time the real unemployment rate--people who would be in the workforce if there were decent jobs--is hovering over 9%. The official rate is 5%, but according to Reuters, the adjusted jobless rate in the middle of last year was 9.7%, which counts those who have given up looking for work and those who have part-time work but would like full-time work. ("U.S. jobless rate misses "hidden" unemployed," June 14, 2004.)

In Europe, where they are famously a few years ahead of us in the "elderly crisis," unemployment is generally higher. There they don't have a desperate shortage of younger workers. Not only that, they have shorter work weeks, longer vacations, and earlier retirements. The crisis of a shrinking workforce hasn't led them to give up any of that. In a recent debate about raising the workweek in France from 35 hours, they're complaining that there's 10% unemployment. Retirement there is at age 60, and earlier in some professions.

Under Reagan the retirement age here was raised to 66 and then to 67 for those of us born after 1959, which amounts to a big cut in our benefits already. The argument was made that people are living longer. But in many other countries people are living longer than we are and the retirement ages are lower there.

Just for comparison some other retirement ages reported in other countries in the New York Times in 1998: France 60, Hungary 60 (55 for women), Russia 60 (55 for women and miners), Portugal 65 (62 for women), Australia 65 (60 for women), Greece 65 (60 for women), Austria 65 (60 for women), Canada 65 (60 for women), and in Japan, Finland, Spain, Germany, Sweden and Britain it's 65.

Fourth, it's true that we're supporting more old people, as a society, but we're also supporting fewer young people. Economist Marvin Mandell points out that "The number of children is decreasing even more rapidly than the number of elderly Americans is increasing. Thus, the dependency ratio will be lower in 2040 than it was in 1960, and the burden on workers will be less, not more." (Labor Party Press, May 1999.) "Dependency Ratio" means then number of workers to the number of dependents--retirees, children, and the disabled who can't work. (See graph above.)

When there are more elderly, the working population will pay one way or another--either by individually supporting our own parents or by doing it collectively through Social Security. But if we have fewer children (as a society), we can afford more elderly (as a society).

The combination of increased productivity per worker, and supporting fewer children means that there is not a crisis in the number of workers available to support the dependents in the society--children, retirees and those among the disabled who are unable to work.

So what is really going on? Why are they claiming there's going to be a labor shortage?

Well, there are two definitions of a labor shortage. One is what we naturally think of, which is that there aren't enough people in the society to do the work that needs to be done. But the employer's definition of a labor shortage is when there aren't enough unemployed workers to institute what they call "labor discipline" which is, roughly translated, that there are so many people out there looking for a job that we will do pretty much anything to hang onto ours, including taking wage cuts, benefit cuts, safety risks and even working off the clock as many retail workers have been forced to do in this recession. Employers want us to be grateful for whatever job we have, no matter how miserable. Our gratefulness increases when there are 'hundreds of people out there who want your job'.

For example, the employing class experienced 1996 as a labor shortage. Unemployment was low and wages went up, encouraging workers to demand more. (This is when Bill Clinton instituted the destruction of Welfare, which forced a lot of mothers into the paid labor force for sub-minimum wages and acted to depress wages of workers across the board.)

This kind of rise in the cost of our labor is what Bush and Federal Reserve Chair Alan Greenspan are worried about.

In an article called, "Coming Soon: The Vanishing Workforce" the New York Times reports: "As workers age, fewer new bodies are coming up the pipeline to replace them." ... In response, "Alan Greenspan, the Federal Reserve chairman, suggested to economists meeting in Jackson Hole, Wyoming, that Social Security and Medicare benefits should be curtailed to avoid fiscal disaster and keep workers on the job longer." (Eduardo Porter, August 29, 2004.)

So Greenspan wants us to work till we drop, using cuts in Social Security and Medicare to force us to work long into our anticipated retirement years.

And just what would be the fiscal disaster he worries about? Lower unemployment and higher wages. Good for workers, but bad for those who make money by paying us as little as they can get away with and still have us show up for work the next day.

Greenspan admits that a motivation for cutting benefits is that he wants to "keep workers on the job longer." This puts him in direct conflict with one goal of Social Security, a Depression-era program created partly to reduce unemployment. Social Security meant that older workers could afford to retire, allowing younger workers to replace them. As economic historian Dora Costa pointed out recently "with 25 percent unemployment and young men riding the rails seen as a potential tinderbox of social unrest ... Part of the motivation for Social Security was that it was seen as a good idea to get older people out of the workforce during the Depression" (New York Times, March 6, 2005). In other words, it was a jobs program. Indeed, when Social Security was instituted it had the effect of shoring up wages, according to Vermont historian Dawn Saunders. With lower benefits or a higher retirement age, the number of people seeking jobs will go up and our wages may sink further. At least, that's what Bush and Greenspan hope will happen.

We would not be experiencing the cuts in Social Security that we already have if our wages were rising to reflect our increased productivity--but our pay has been stagnant since 1970. The benefits of our increased productivity have not been passed onto the workers, they've been hoarded by the very rich, whose income is mostly not in wages and salaries and thus not taxed for Social Security. This has meant that "A smaller and smaller portion of our national income is taxed by the Social Security system" putting a larger burden on workers, writes Geoff Price at RationalRevolution.net. "Virtually all of the productivity gains from our economy since the early 1980s have been realized by the top 1%, and thus do not contribute to our ability to sustain retirees through the Social Security program," Price writes. Even the income the rich do receive in salaries is not taxed for Social Security after the first $90,000 of income.

A raise in the minimum wage would immediately help redistribute wealth downward, but this, of course, is something the Republicans have been chronically opposed to. Many of them would like to do away with the minimum wage altogether. The Labor Party advocates an immediate raise in the minimum wage to $12 an hour, indexed to inflation.

If historian Dora Costa is right, and it was the fear of 'social unrest' that led to Social Security's implementation, it may be time for a little more social unrest to protect it from the cutters and privatizers who want to hoard for themselves the benefits of not just our increased productivity, but even of our increased lifespans.

This article is adapted from remarks made by the author at the March 2005 meeting of the Alachua County Labor Party.

Health care is the real crisis
It's ludicrous for these privatizers to suddenly be worried about the long term--how will Social Security look in 30, 40, 70 years because if they were really concerned about the long term, the crisis would be obvious, and it's health care.

Just once I'd like them to explain how these 10 and 15% rises in healthcare costs can be sustained 30, 40, 70 years from now.

People ask how to be positive--as in, well, if you don't like what Bush is saying, what's your proposal, then? In addition to the Labor Party (www.thelaborparty.org) program of increasing the minimum wage and guaranteeing everyone the right to a job, we think the positive program should be national health care, a program the Labor Party calls Just Health Care (www.justhealthcare.org). Social Security wouldn't be nearly so hard to live on if we could rely on a universal health care system like they have in other countries. It would be like an immediate rise in Social Security benefits.

Social Security payments are increasingly not enough to survive on and the primary reason is the cost of medicine and increasing Medicare premiums. Increasing Medicare premiums amount to a CUT in Social Security benefits. And Medicare pays only half of retiree medical expenses. So no wonder people are desperate to figure out some other way. Bush is playing on that desperation to try to do away with this successful program.

We believe it's not enough to say there's not a problem with Social Security. We have to point to a positive direction to fix the problems people are facing--not of the Social Security system, but of a medical insurance system that is bankrupting us. This is how we'll make gains in retirement security.

Bankruptcy in the trust fund? More lies.
Social Security is a pay as you go system. The money that comes out of my paycheck goes to pay my mom's Social Security, but rather than us each individually supporting (or not) our retired parents, we all pay in and our parents and grandparents get paid.

But if it's a pay as you go system, what is this trust fund we keep hearing about? Well, it started accumulating large amounts of money in the late '80s when the Social Security tax was increased. The idea was that the baby boomers are in their big earning years and now they can pay into a fund that will pay them later when they retire.

Rather than sitting in a pile somewhere, the money is lent to the rest of the government in the form of low-interest bonds. Social Security holds these bonds and will cash them gradually to pay baby boomers Social Security checks.

After all the baby boomers have passed away, the system will have exhausted the trust fund, which was collected exactly for that purpose and is intended to be emptied out. Then we'll be back to a pay as you go system.

But Bush portrays this as "the system going bankrupt." It's doing no such thing. If you saved for college, then went to college, after you graduated you wouldn't say, oh, no, my college fund is bankrupt!

When people say the federal government has been raiding the trust fund, they mean that the government has been using an accounting trick to make it look like they're in better shape than they are, because they aren't counting the money they owe the Social Security system as debt.

But, as Dean Baker of the Center for Economic and Policy Research pointed out in a New York Times letter to the editor in March, "Social Security is a distinct program financed by its own tax. ...Every penny of social security benefits will be paid, regardless of how large the deficit is in the rest of the budget, unless Congress votes to default on the bonds held by the trust fund."

But then the government would have to argue that its debts to Social Security were less real than its debts to all its other bondholders. Full faith and credit of the U.S. government, indeed.