Sarasota Democrats

14 May 2004

Many of you may recall the passage in Genesis where Jacob dressed in the goatskin clothing of his twin brother, Esau, goes to receive the blessing of his father, Isaac, and Isaac says the hand is the hand of Esau, but the voice is the voice of Jacob.

Well this is a Jacob-Esau performance, with different names. The text is the text of Waldo, but the voice is the voice of Richard. Waldo is responsible for any errors of fact, Richard is responsible for clear and convincing enunciation.

This comes to pass because I, Waldo, went to Sarasota Memorial Wednesday for the emergency installation of a Pacemaker. I thought until the last minute that I would be able to be with you today, but my doctor said no.

So here is Dick and I assure you (I think) that his words are my words.

My purpose here is to tell you how to save Social Security.

The way to do it is short and simple: Do Nothing.

Actually, that admonition applies to Congress. You and I should do all we can to persuade our Senators and Representatives to do nothing.

Why?

Because the ancient adage is right: If it ain't broke, don't fix it. And it is particularly apt advice in 2005 because this is the year President George Bush is making his big push to "fix" Social Security.

He has already started shoveling out propaganda, beginning by telling us that Social Security is facing a big and imminent crisis.

That is a monumental misstatement of fact, as was the scare story about the imminent danger of attack from Iraq and its weapons of mass destruction.

There is, however, a significant difference between the Iraq fabrication and the Social Security fabrication. In the case of Iraq's weapons of mass destruction, there was no one with access to the facts who was willing to challenge the President and who carried enough weight to get the attention of public and press.

In the case of Social Security, the overwhelming majority of credible economic experts deny there is an imminent crisis---and are speaking up---and there is increasing evidence that many Republicans in Congress agree with them.

The centerpiece of the Bush argument for imminent crisis is the statement that the Social Security Trust fund is headed for bankruptcy.

That's the itsy bitsy kernel of truth used to prop up the big lie.

According to the Congressional Budget Office, probably the best source of economic data in Washington, the trust fund will be depleted----but not before 2052, even if nothing is done.

There are a couple of significant facts of which you are probably aware. But, I will restate them anyway.

One is that advocates of privatization talk about the impact on Social Security of the Baby Boom generation. The Baby Boom generation has had an impact on every aspect of American life. It produced a big bonanza first for makers of diapers and baby formula, and an increase in the numbers of obstetricians and pediatricians the nation needed, and later a boom in the housing market and all classes of consumer goods sold to young and then to middle aged families.

It is going to produce a huge increase in Social Security payments, the business of urologists and oncologists and nursing homes and funeral parlors. The Baby Boom generation has been and is moving through the demographic profile of this country like a pig through a python.

The Baby Boom generation is generally defined as being composed of people born between 1946 and 1964. Now add 65 years to 1964 and you get 2029, the year the last members of the Baby Boom generation will begin receiving Social Security. Give them a life expectancy of 20 years after they retire, and you come to 2049.

So, rejoice. By 2049 the nation will have lived through the impact on Social Security of the Baby Boom generation, and the CBO numbers tell us Social Security is good to go until 2052. The Baby Boomers will not bankrupt Security.

Indeed, Social Security in its present form cannot go bankrupt.

Even if the trust fund balance should sink to zero, Social Security payments could continue indefinitely at 75 to 80 percent of what they should be----financed by the FICA deductions paid by employees and employer.

The trust fund is a relatively minor source of Social Security funding.

Social Security is not an insurance policy. It is not even a savings account. It is a transfer of wealth from one generation to another---from the younger to the older. It was never intended to allow recipients to live in luxury. It is a security net to keep them from falling into dire poverty.

The trust fund came along late in the life of Social Security, on the advice of Alan Greenspan, to increase the rate of paycheck deductions enough to establish a reserve which would tide us over rough spots in the economy.

It has been a fantastically successful plan, with Social Security income presently exceeding outgo by many billions a year and creating a surplus, which the federal government has been tapping to make its huge deficit appear smaller.

Nevertheless, President Bush has made it one of the top items on his agenda this year to persuade us that Social Security is in crisis and that it must be saved by "privatization"----using all or part of payroll deductions for private investment.

Trying to fix something which "ain't broke" is bad enough, but even worse is trying to fix it in a way which will do less and cost more.

Our Social Security program is very efficient. It's administrative costs are about a half of one percent----considerably less than what the average mutual fund charges.

And, so far there has not been much public discussion about how privatization would affect the survivors and disability benefits paid by Social Security. Who would pay them and who would perform the investigations necessary to verify claims? Somebody would. At taxpayers expense.

Now let me turn to another aspect of privatization about which there has not been much discussion, and I begin with the following quote:

A conservative government sweeps to power for a second term. It views its victory as a mandate to slash the role of the state. In the first term this policy objective was met by cutting taxes for the wealthy. Its top priority for its second term is tackling what it views as an enduring vestige of socialism: its system of social insurance for the elderly. Declaring the current program unaffordable in 50 years’ time, the administration proposes the privatization of a portion of old-age benefits.

In exchange for giving up some future benefits, workers would get a tax rebate to put into an investment account to save for their own retirement.

George W. Bush’s America in 2005? Think again. The year was 1984, the nation was Britain, the government was that of Margaret Thatcher---and the results have been a disaster that America is about to emulate.

Thus begins an article in the American Prospect Online edition of January 11. The title is “A Bloody Mess” and the author is Norma Cohen, a senior corporate reporter for the Financial Times, responsible for the coverage of pension issues.

Now, why, I ask somewhat rhetorically, do I have to learn about this bit of history so pertinent to our current public dialogue from a reporter for a London-based newspaper writing for the online edition of an excellent, but little-read liberal magazine? Where has the mainstream press been hiding?

Regular readers of the New York Times know that the columnist Paul Krugman mentioned Ms. Cohen’s admirable article about a month ago. But, he got his information from the same source I did and neither he nor I can do full justice to the original article.

You need to read it yourself, which you can do at The American Prospect Online. (Look it up on Google and they will steer you to it without a lot of orgs and dots and stuff.)

Once on the web, you can find oodles of articles on the British experiments with systems to try to help its elderly population enjoy a decent life.

You will discover that the British system is extremely complicated, part public, part private, both in big trouble, both beset by scandal.

You will find several sites on the internet explaining that the major backers of Lady Thatcher’s privatization schemes were bankers, brokers and insurance companies, and other sources explaining that the same groups are the major backers of President Bush’s effort.

For instance a year 2000 citation reports the American International Group, an insurance company, the State Street Boston Corp., American Express and the Quick & Reilly Group, Inc., gave $2 million to the Cato Institute for its efforts to promote privatization, while Dupont Co., Morgan Stanley and other brokers gave almost a million to Economic Security 2000 to develop grass roots support for privatization.

Every year, companies associated with banking, investment, insurance or other aspects of finance give millions to support the campaigns of Bush, friendly Senators and members of Congress, inauguration festivities, and all sorts of efforts to whoop up support for privatization.

Americans, comparing our situation to that of the British, will be interested in the fact that British commentators blame the failure of Lady Thatcher’s adventure on the high costs of running private accounts.

One investigation found that administrative costs reduced the value of a typical retirement account by 43 percent.

Fraud has also been a factor in draining British retirement accounts, just as it has been a factor in bringing about the ruination of tens of thousands of American investors and employees counting on pensions from now bankrupt corporations.

The United States Social Security System has become the model favored my many critics of the British system, including many Conservatives and executives of British trade associations.

The lessons from the British experience seem to me so clear and so pertinent for us that you have to wonder why we do not find ourselves inundated by a spate of dispatches from London in all national newspapers and networks.

Then there is the experience of Chile----frequently cited by supporters of privatization as an example of successful example. But, don’t take their word for it, do your own research, and you will discover that the Chile experience was a dreadful mistake ----another mess like Britain’s with about the same causes.

Now let’s move to another huge benefit of leaving Social Security alone.

And I begin by asking “Where are the conservatives when we really need them?”

Now that President Bush has released his proposed Fiscal 2006 budget, I want to tell you that the financial future of this country will be determined by whether conservative Republicans in Congress, encouraged by Republicans in their home districts and states, will stand up to an irresponsible President and say, “No, Mr. President. We will not follow you down this path any longer.”

That’s just my opinion, of course. But, from what I read in the national press, a lot of Republican leaders feel the same way.

Conservative Republicans are worried about both their party and their country. Many of them believe that Bush’s budgets will drive the country into financial disaster, and, if that happens, the GOP will not win another national election for decades.

The national debt is now more than $7.6 trillion. Bush’s 2006 budget calls for spending $2.57 trillion, of which some $450 billion will be added to the deficit.

We ended 2004 with a trade deficit of $617 billion, an all-time high. The record national debt, national deficit and trade deficit are major contributors to the falling value of the dollar against the Euro and the Yen.

The European Central Bank faces billion-dollar- a- year losses because of the decline in value of its hoard of dollars. Japan’s central bank, holding more than $700 billion of U.S. debt, looks to the possible loss of $40 billion if the dollar declines as much as expected against the yen this year.

European and Asian banks are buying almost 85 percent of new issues of U.S. bonds, and both foreign bankers and policy makers are openly wondering whether they can afford to keep buying United States bonds and keep using the dollar as their reserve currency.

Foreign bond buyers are supporting us in the life style to which we have become accustomed.

How long will they keep doing it? Conservatives amongst us should be the first to ask that question. Financial responsibility lies at the very heart of their value system and it is one of the first things they demand of government. Or at least it has been so up to now. Will they step forward to save our country?

If so, they can, for starters, decline to pass Bush’s Social Security changes, thereby saving an estimated $4.5 trillion that we would need to borrow over the next two decades.

Another huge saving is possible if Congress declines to extend the tax cuts pushed through in Bush’s first term. That’s a saving of $2.1 trillion over the next ten years. These two instances of doing nothing will save us from obligating ourselves to sell an additional $6.6 trillion in bonds by 2025.

That means if Republican voters----especially those in “safe” Republican districts ---- believe that the deficit crisis is real and dangerous, they should make it known that they expect their Representatives to represent them, even at the risk of offending the President.

If Republican voters do not make the deficit an over-riding issue in the elections of 2006 and 2008, they will have failed both their party and their country. I apply the same standard to Democrats, but as any Republican will be happy to tell you, Democrats are not running the country.

I have three more points to make---two of them I can do quickly.

First I want you to know that I know I have in fairly dogmatic fashion made a lot of statements about things that will or can happen 40 or 50 years in the future, and I know that nobody can accurately predict the state of the world or the country or Sarasota county in 2050 or 60.

A lot of drastic and unexpected things can happen to shift the course of history. Neither George Bush nor I have any real clue what may happen in the next 50 years.

Next, I want you to understand that I know there are several changes we could usefully make in Social Security---changes such as take the $90,000 cap off the amount of wages and salary that are subject to FICA taxation. Or raise the age at which Social Security payments start---something that should probably be done in any case given our increasing longevity. But these are all fairly minor and can be tackled later when we have a President and Congress who really want to save Social Security.

Finally, I take note that I have not mentioned Medicare, Medicaid and other health care costs. There, friends, is the real crisis, the real budget breaker, both for the federal government and for the states.

Medicare, the federal program to help meet the medical costs of people receiving Social Security, is funded in part both by payroll deductions and by deductions from monthly Social Security payments.

Medicaid, a program to help pay medical costs for poor people, is funded jointly by the federal government and the states. This year states will spend more on Medicaid than on education.

Costs of both programs are increasing annually. A good portion of the response by the federal government has been to push more of the cost down to the states.

The states are trying to push more of their costs to counties, hospitals, nursing homes and doctors----to just about everybody in the health care industry except drug manufacturers and insurance companies.

More than 15 percent of the gross national product goes for health care. The President and Congress, governors and legislatures, by and large are trying to avoid dealing realistically with this expensive problem. (The President’s vaunted and costly plan for prescription drugs does more for pharmaceutical companies and HMOs than it does for Seniors.)

If I were a Baby Boomer, I would stop worrying whether Social Security will be there for me when I retire, and concentrate on whether affordable medical care will be available when I retire----or even while I am still working.

That’s a legitimate worry for the young, the old, and the in-between.

And, I perceive it not as a political issue, but as a test of our ethics and morality. Do we believe we should honor our fathers and our mothers, and our grandfathers and grandmothers? Do we feel we should see to it that Americans do not live out their later years in poverty or poor health?

Do we recognize that the realities of our changed and changing world mean we cannot rely on private or faith-based charity to meet the needs of older generations?

How many of you, if you even know your neighbors, are capable of taking care of them when they are ill? When meeting health needs often means procuring expensive drugs or paying for surgery or other expensive treatment.

Why can we not recognize that meeting the health and minimal financial needs of our older generation requires a huge organized effort that can only be handled by government?

I am not one of those who believe government is the enemy. I believe we established government to meet needs that would otherwise go unmet.

We cannot save Medicare and Medicaid by doing nothing. We need to do a lot. Some of it can be done by using our ingenuity to reduce costs. Such as maybe using the vast purchasing leverage of the federal government to buy prescription drugs. Or encouraging patients and doctors to communicate with each other by e-mail, and I am confident each of you could come up with a dozen ideas that might be worth trying.

But, when all that is done, we are going to have to face the fact that more money will be needed as the Baby Boom generation becomes the geriatric generation.

And that money will have to come from taxes----increased taxes. And by plugging tax loopholes now available to people able to shift income from salary to dividends and to corporations as a reward for shifting their most profitable operations overseas.

I am hopeful, indeed confident, that we will do the right thing by the generations following on behind us. It’s the American thing to do.