Social security cuts: Work until you drop

A social movement to preserve Social Security has never been as urgent as it is today. Tempting as it might be to send a dictionary to the White House explaining the difference between “compromise” and “capitulation,” we should not be overly generous — Barack Obama’s intention to gut Social Security is not so much a pre-emptive capitulation as it is yet another demonstration of his adherence to neoliberal ideology.

By now, such a demonstration should not be necessary. Remember that one of the president’s first appointments was Lawrence Summers, who once wrote a memo while chief economist at the World Bank advocating industries creating toxic waste be transferred to Africa because the continent is “vastly UNDER-polluted” (emphasis in original). Professor Summers’ appointment in 2008 as President Obama’s leading economic adviser after his career of promoting Reaganite, neoliberal policies, including leading the Clinton administration’s deregulation of banking and scrapping of regulations for derivative contracts, set the tone for what was to come.

Let us not fall out of our chairs — neoliberal austerity is a bipartisan policy. Voters alternate between their dominant parties in North America, Europe and the Asia-Pacific region, yet the train stays in motion. Fans of the movie Avatar likely remember an early scene in which Sigourney Weaver’s character mocks the macho, militaristic approach of the Marines who intend to unilaterally take the mineral “unobtainium” from the Pandora natives by bulldozing their homes and forest. Her intention was to negotiate with the natives and have them agree to give up their homes and forest.

Note that there was no difference in the goal of the Marines, exemplar of the conservative approach, and that of the would-be negotiator, representative of the supposedly more enlightened approach. I remember thinking to myself while watching Avatar that Ms. Weaver’s character represented the Democratic Party wing of neoliberalism. Indeed, Democrats and their “left-of-center” counterparts among the world’s advanced capitalist countries — even parties in Europe that call themselves “socialist” — routinely implement ever more harsh policies that punish working people to further enrich the wealthy.

So we have something here bigger than Barack Obama and whatever character flaws he might be perceived as possessing. Republicans want to privatize Social Security — the ultimate dream of Wall Street and good for industrialists, too, as retirements become a quaint relic of the past. More people are forced to remain in the job market longer; more competition for jobs means lower wages and more profits. President Obama simply wants to phase this in more slowly.

Photo by A. Blackman, England

Photo by A. Blackman, England

Specifically, President Obama is unilaterally offering Republicans the first step in the gutting of Social Security — reducing benefits. His method to do this is to change the formula for calculating cost-of-living increases from the standard Consumer Price Index to a different methodology known as the “Chained Consumer Price Index,” under which the rate of inflation is lower.

In the standard CPI, the basket of goods used to calculate inflation does not change. In the “Chained CPI,” items that rise in price are substituted with a cheaper product under the theory that consumers will switch to lower-priced alternatives. That may sometimes be so, but such actions do not alter the fact that the desired product is more expensive and thus represents the true extent of inflation. Nor does it account for the fact that many high-cost expenses, such as rent and electricity, don’t have readily available alternatives.

If they want inflation to be less, they shall make it so

This substitution of the standard CPI for the “Chained CPI” is a long-standing demand of Right-wing ideologues, and President Obama has offered it to them on a silver platter. The New York Times, the first to report of the proposed Social Security cuts (and which, uncharacteristically, called the cuts cuts instead of using a euphemism), anonymously quoted Obama administration officials who intimated that this was part of an elaborate plan to force Republicans in Congress to agree to modest tax increases. The Times quoted an official as claiming:

“That means … that the things like [Chained] C.P.I. that Republican leaders have pushed hard for will only be accepted if Congressional Republicans are willing to do more on revenues.”

But the president’s offer contains far more cuts for working people and retirees than attempts to make corporations and the wealth pay taxes at a slightly more reasonable level. The Times reported:

“He will propose more than $600 billion in new revenues — his last offer had called for $1.2 trillion in taxes — mostly by limiting to 28 percent the deductions that individuals in higher tax brackets can claim. Congress has ignored that idea in past years. Deficits would be reduced another $930 billion through 2023 as a result of spending cuts and other cost-saving changes to domestic programs. … Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.”

That sounds like a whole lot of new austerity. Austerity hasn’t been working out so well in Europe, where, for instance, eurozone unemployment is at 12 percent and rising. That, sadly, is not the point. The ongoing economic crisis is an opportunity for corporate executives and financiers to push through what they’ve always wanted anyway. An oft-quoted summation of this thinking was offered several years ago by Stephen Moore of the far right Club for Growth and the Cato Institute: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.”

Both groups are dedicated to cutting taxes for corporations and putting an end to any social safety net. The Club for Growth founder is connected to groups like the Heritage Foundation and to Tea Party impresario Dick Armey, while the Cato Institute recently experienced a power struggle in which the billionaire Koch brothers, David and Charles, ousted the leadership for being insufficiently severe. Cato sent six alumni to the Bush II/Cheney administration, four of whom served on the latter’s Orwellian named “Commission to Strengthen Social Security.”

A better slogan than ‘work until you drop’

Because “work until you drop” is not an effective slogan to rally people to your side, Wall Street financiers and those opposed to social safety nets float scare stories that Social Security will soon run out of money, and you’d do better putting all your money in the stock market. Neither is true. Let’s start with the second of these two mythologies. In 2005, I researched the historical performance of the U.S. stock market for an article published in Z Magazine and found that the gains are small, when adjusted for inflation, and the gains only materialize when bubbles are near their peak.

As bubbles peak about once every 35 years, it is difficult to time these just right. When adjusted for inflation, the Dow Jones Industrial Average — the ultimate index of stock-market health and which has its components continually adjusted so as to replace low-performing stocks with high-performing ones — was below its 1929 peak as late as 1991. Here are some long-term results:

  • The Dow peaked at 995 in February 1965. Adjusted for inflation, that was 42 percent more than it was worth at its previous bubble peak in 1929, not so impressive when it took 36 years to get there.
  • The ensuring crash bottomed out in December 1974. At this point, the Dow, adjusted for inflation, was worth only half of what it was worth in 1929 and little more than one-third of its 1965 peak.
  • The most recent crash bottomed out in March 2009, at which point the Dow was three percent below its 1965 peak, adjusted for inflation.
  • Yesterday’s Dow closing of 14,673, when adjusted for inflation, is almost precisely double that of its 1965 peak, but a 100 percent gain over 48 years isn’t terribly dazzling.

And with the price/earnings, or P/E, ratio, of the S&P 500 Index now at 18.35, stocks are again over-valued when measured historically. The ratio’s average, calculated back to 1872, is 14. Five times in history this ratio, which is a company’s yearly profit divided by one share, has surpassed 20; each time was followed by a crash.

The biggest canard, however, is how financial chicken littles frame their case. The claim that Social Security will run out of money in perhaps three decades is based on predicting a low rate of future stock-market gains while the claim that privatizing Social Security will produce more money is based on predicting a rate of future stock-market gains double that of the former rate.

There are examples of privatizing social security systems, and the results have been a bonanza for financiers and disastrous for retirees. In Chile, where the privatization was done at the end of a gun barrel during the Pinochet dictatorship, a worker who retired in 2005 received less than half of what he or she would have received had he or she been able to stay in the old system. The six companies that administer the private plans, not coincidentally, constitute one of Chile’s most profitable industries.

It took tens of thousands of deaths, and hundreds of thousands of arrests, torture sessions, “disappearances” and exiles to implement Milton Friedman’s Chicago School shock therapy in Chile. Nowadays, such levels of violence are not necessary as elected governments implement neoliberalism in a series of measured doses, and four decades of incessant propaganda has acculturated the peoples of the world to the ahistorical idea that “there is no alternative.” Violence nonetheless remains the system’s handmaiden, as the coordinated crushing of the Occupy Wall Street movement and the tolerated rise of fascist groups like Golden Dawn in Greece demonstrate.

There is an alternative — ceasing to placing your hopes in parties that disagree only over the best method to implement neoliberalism, whether the one’s candidate sneers at “government-dependent” voters or the other’s candidate makes speeches vowing to tackle inequality while acting to make it worse. Change comes social movements, not from elections.

11 comments on “Social security cuts: Work until you drop

  1. Alcuin says:

    What the State gives, the State can take away. The only true social security lies in connections in community – the very connections that capitalism so efficiently destroys.

    • Certainly true. Nonetheless, people paid into Social Security all their working lives, and reasonably expect something back. For most people, the state isn’t giving them Social Security, it’s paying back what was paid into it, even if it should be a supplement to community support.

      • Alcuin says:

        Some statistics from the Urban Institute ….

        • The Urban Institute says: “But generally, we receive far more in benefits than we pay into the system.

          Forgive me for feeling skeptical. The report didn’t give provide serious statistical analysis, but primarily repeated right-wing talking points, which are designed to scare people into accepting Social Security privatization. If Social Security has begun to pay out more than it takes in (from what I have seen, that is a very recent change) then we can simply raise the cutoff limit at which Social Security taxes are no longer collected. Moreover, the retirement age has risen to 67, and likely will go up more, so future retirees will be collecting for a shorter period of time.

          • Alcuin says:

            Good catch! I looked the Urban Institute up on Source Watch and there are, indeed, quite a number of right-wing stars involved. Your point about future retirees collecting for a shorter period of time is something that most people haven’t given a lot of consideration to, also.

            I’ll see if I can find a more balanced analysis of the issue.

  2. Alcuin says:

    As promised, a more balanced look, though I do have my doubts about Mr. Agresti, the founder of JustFacts, a self-professed Christian who was formerly an atheist and who wrote a book called Rational Conclusions. Still, he does cite a Congressional Research Service report (note 57) that states:

    “For example, for workers who earned average wages and retired in 1980 at the age of 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at the age of 65 in 2003, it will take 17.4 years. For those retiring in 2020, it will take 21.6 years.”

    So that supports the premise of your post. Another point that you didn’t make (and I didn’t think of) is that, starting in 1980, the tax rate for self-employed individuals soared from 7.05% to 12.4% in 1990. This fact was also cited by JustFacts. From an anarchist perspective, this is exactly what should not happen, but from a corporate-capitalist perspective, it sure eliminates a lot of competition, doesn’t it?

    Interesting, very interesting …

    • Yes, when one is self-employed (which I was for a period of a few years more than a decade ago), you have to pay the employee half of Social Security taxes and the employer half, so you paying double. It is possible to see this as another incentive to work for somebody else, which it may be, but, on the other hand, you’re still a worker giving surplus value to an employer.

      • Alcuin says:

        Yes, well, I knew about the “paying double” part, but if you will look at the link I provided, the rate for an employee in 1975 was 5.85 and the rate for a self-employed worker was 7.90. By 1990, that had changed to 7.65 and 15.30. In 1975, self-employed workers only paid 2.05 points more than employees. In 1990, that had changed to where self-employed workers paid exactly double what employees paid. I don’t see it as an incentive to work for someone else – I see it as tightening the corporate noose and stifling individual initiative. Why should I pay twice what an employee pays if I elect to be self-employed?

        The other point made by JustFacts is that by 2020, if you retire at 67 (I think the retirement age will be raised to that age by then), you will have to live to be a bit more than 88 and one-half just to recoup what you paid into Social Security! That, my friend, is just another form of taxation. Granted, SS is an annuity, but the balance is being tilted ever-more in the direction of the “insurer”.

        • Good work on bringing up these points. I hadn’t realized that the double-taxation self-employment penalty was a relatively recent development. For most people, the retirement age to collect full Social Security benefits already is 67 — my guess is that it will creep up closer to 70 for today’s youngest workers.

          That a retiree at 67 will have to live to 89 to come out ahead truly demonstrates that Social Security is not in jeopardy of running out of money any time soon — we may be living longer, but 89 will be beyond the reach of most of us, alas.

      • Alcuin says:

        Yes, and thank you for pointing out that my initial response was filled with right-wing talking points. I learn something from every one of your posts! I formerly had respect for the work of the Urban Institute …

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s