The new mythology of Social Security

Here are some myths about Social Security being promulgated by the current Administration in the hopes of getting their Welfare for Wall Street privatization forced through:

Myth: Social Security is bankrupt

Fact: Even without changes, you'll still receive approximately three-fourths of your scheduled benefit after the "bankruptcy" date of 2042 or 2052 (depending on whose figures you use). That sucks for those of us who will be in retirement by then, but it's hardly the "there won't be any money in Social Security!" that the privatizers would have you believe. As long as there are workers paying FICA taxes, the program will have money.

Social Security is not in perfect fiscal condition. Since the growth of retirees will outpace the growth of workers once the Baby Boom generation retires en masse, Social Security is not all fine and dandy, either. Something needs to be done, sooner rather than later. There is no painless solution: Taxes will have to be raised, benefits cut, or a mixture of the two. Which you prefer probably depends on your income, other retirement resources, and belief in the purpose of Social Security. If you see it as a safety net to prevent widows, orphans, and the elderly from living in poverty, you might argue that taxes should be raised and/or benefits cut for wealthier Americans. If, on the other hand, you see it as a way for individual Americans to supplement their retirement income irrespective of other resources, you might be inclined toward broader benefit cuts -- and perhaps the possibility for individuals to do better through private accounts.

Nothing whatsoever in the Bush proposals to create "private accounts" will do anything about the problem of more persons drawing benefits and fewer workers contributing payroll taxes. It's all a shell game. Watch the left hand as it flails about, while you never notice the right hand picking your pocket.

Any Democrat who does not believe in Social Security as a safety net to protect society's most vulnerable from living in poverty is no true Democrat.

Myth: Private accounts are the solution

Fact: The Welfare for Wall Street solution entails younger workers to be able to divert a portion of their Social Security taxes to private investment accounts, where they can choose from a few low-cost mutual funds. If they invest wisely, and the markets cooperate, and all their profits aren't eaten up by brokerage fees, these investors might have even more retirement income than they would have received from the current Social Security system. This sounds all peachy on its face - choice of how to invest your earnings, with the potential for very high returns.

But allowing private accounts does not solve Social Security's problems. It is more of an ideological goal than an economic solution. In fact, diverting money to private accounts leaves less money to pay current and near retirees, which the government would have to come up with elsewhere, probably by more borrowing. If the president and Congress had kept discretionary, non-defense spending in check over the past few years, perhaps this would be more palatable. But given our current deficits and skyrocketing Medicare spending (the real retirement crisis), it is doubtful the country can afford a plan that, by itself, doesn't solve the long-term problem.

Here's the crux mythology:

Myth: Investing in stocks will yield a high annual rate of return, 6.5 percent or 7 percent after inflation, for at least the next 75 years.

Fact: This is the core of the privatization mythos. Without that assumption, these schemes can't deliver on their promises. Yet a rate of return that high is mathematically impossible unless the economy grows much faster than anyone is now expecting.

Quoting from Paul Krugman on this topic:

To get a 6.5 percent rate of return, you need capital gains: If dividends yield 3 percent, stock prices have to rise 3.5 percent per year after inflation. That doesn't sound too unreasonable if you're thinking only a few years ahead. But privatizers need that high rate of return for 75 years or more. And the economic assumptions underlying most projections for Social Security make that impossible.

The Social Security projections that say the trust fund will be exhausted by 2042 assume that economic growth will slow as baby boomers leave the work force. The actuaries predict that economic growth, which averaged 3.4 percent per year over the past 75 years, will average only 1.9 percent over the next 75 years. In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade.

If the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come. Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.

It really is that stark: Any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.

For the whole article: http://seattlepi.nwsource.com/opinion/210409_krugman03.html?searchpagefrom=1&searchdiff=2

The whole thing is a shell game, trying to finally put the final nail in the coffin of the New Deal, as Grover Norquist and Newt Gingrinch swore they'd do almost 20 years ago. They want to kill Social Security dead. This is a combination of true voodoo economics and the most cynical use of fearmongering and hyperbole imaginable.

This is the line in the sand, folks. It's scorched earth from here on; if we yield on this, we are not Democrats.

DEMOCRATS STAND FOR ECONOMIC JUSTICE AND OPPORTUNITY.