The Phony Social Security Debate

By Nat Weinstein

Is Social Security really heading toward bankruptcy? That’s what all sides in the phony debate among representatives of the capitalist establishment agree on. Meanwhile, their real argument is not over whether the Social Security system is or isn’t in serious trouble and needs to be fixed. Capitalist politicians and their wholly owned and controlled mass media all agree on that. What they are not entirely in agreement on is: how much to cut benefits, how much to increase the payroll tax on workers’ wages, and how fast to go toward whatever cutbacks they decide will bring the least resistance.

However, they see no solution other than those cited above, though there certainly are others.

Those who have been closely watching the debate in the mass media can see that some of the changes serving to reduce Social Security benefits and increase the payroll tax have already been imposed well before this debate in the mass media began. The Social Security tax on wages has steadily risen from 2 percent at the outset of the system to its present 7.3 percent rate and is fated to grow progressively higher. And recently, the age of eligibility for benefits has been increased, for the first time, to 66-years and is scheduled to be gradually increased, month-by-month, to age 70.

Ironically, one of the arguments offered to justify postponing the retirement age even further is that medical science is advancing to such an extent that the average lifespan has already been extended and seems to be on the verge of greater breakthroughs. The result is that those leaving the workforce outnumber those still working. This, they argue makes it necessary to extend even further the time of retirement, because it’s a “pay-as-you-go” plan that is financed directly¹ and indirectly by payroll taxes.

However, this seemingly inescapable conclusion is fatally flawed. In the first place, it’s because of the radically uneven distribution of the nation’s wealth, with the top 20 percent of all households collecting about 57 percent of all income. The top fifth of wealth holders own some 83 percent of all net worth and about 91 percent of financial wealth (Wolff, 2002).

Second, according to the Bureau of Labor Statistics (BLS), only 65.8 percent of the actual total workforce is “either in the workforce or actively looking for work.” Thus, based on this 65.8 percent figure, the official BLS unemployment rate amounts to only 5.2 percent. But a considerable portion of the 34.2 percent, not included in the officially estimated workforce, would certainly take a job if they could find one.

In other words, the labor time required to satisfy the needs of society, which almost from the beginning of human existence has tended to get smaller in proportion to the total population, is simply the result of scientific and technological progress. And this has resulted in the trend in human society throughout history and pre-history to produce more and better of life’s necessities. And do so with the expenditure of an ever-smaller quantity of human labor power—relative to output. The increased productivity of the working class should make it possible to support an ever-larger retired population. That is, if the fruits of this greater productivity were not ripped off by the super-rich.

Those statistics alone suggest that there are far more rational and sensible ways to fix Social Security than the one now in the works. But now the deepest cut of all, the plan to privatize Social Security, is well on its way. And as absurdly illogical as it may be, the powers that be are determined to bull their way as quickly as they can toward privatization, cuts in benefits, and increases in the payroll tax.

In other words, the so-called shrinking of the real workforce has no basis in fact. Rather, it is the profit system that lies at the heart of the problem—the blind and relentless quest for profit for the few at the expense of the many.

‘You can fool all the people some of the time…’

Old Abe Lincoln said it and he was dead right: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” This prompts the question: How much of the nonsense passing for economic wisdom has been swallowed by the American people? As we shall show, not nearly as much as was hoped for by the capitalist establishment.

One 77-year old retiree, Doris Lundin, asked a question at a public hearing on the matter organized by Senator Max Baucus, a Democrat. Baucus, despite his being “on record” as opposed to the Bush administration’s assault on Social Security, nevertheless attempted to sell the Democrats’ version of “reform” to citizens of Billings Montana.

Evidence that the American people are not about to buy the bill of goods offered for sale by Democrats and Republicans alike was highlighted when Ms. Lundin asked the senator from Montana: “How much money has the government spent from Social Security and put in IOUs?” As the audience applauded, she added, “And why can’t they pay it back?” (New York Times, February 6.)

That’s another one of those trillion-dollar questions that the Senator could not answer. And the citizens of Billings made clear by their applause that they also want to know the answer to Ms. Lundin’s question. Besides, there can be little doubt that the majority of Americans share the concern of their counterparts in Montana. And more importantly, they want an answer to the second part of Ms. Lundin’s question: Why can’t they pay it back?

We are not finished with these questions, but first a few more things need to be addressed.

For instance, the role of the capitalist owned and controlled mass media, which is designed to convince readers that whatever their policies happen to be at the moment are the right ones. But to maintain their influence over the section of the public that reads their newspapers and other publications they have to convince their readers of their objectivity.

The New York Times, as a case in point, seeks to gain their more critical readers’ confidence more than most, by taking a critical stance toward policies meeting with an unusual amount of resistance—like their mealy-mouthed opposition to “President Bush’s rush to war in Iraq.” But despite all their objections, they found a way to justify the war and give it their unequivocal support.

The latest example of their methodology appeared in the February 10 Times in an editorial, titled, “When Math is Worse than Fuzzy.” It provides us with an insight into their method and also the state of mind of important sectors of the ruling class. The editors write:

“Whenever the Bush administration wants to sell a costly new program, look carefully before you accept any numbers it puts out. The math isn’t just fuzzy, as the current euphemism would have it—it is often downright misleading, and deliberately so. The latest example is the newly acknowledged cost of the Medicare prescription drug bill…. The number that had the deficit hawks choking then was a projection that the drug benefit would cost $400 billion over 10 years, from 2004 through 2013.…

“Now it turns out that the earlier discrepancy was small beer compared with the latest upsurge in the projected 10-year cost of the drug benefit… [T]he drug benefit is actually expected to cost some $720 billion over the first 10 years, from 2006, when the benefit kicks in, through 2015.”

We leave aside the matter of why the Medicare prescription drug bill is so large while the actual benefit to the people covered is so pitifully small—with huge co-payments now increasingly required by those “insured” before they can get the medication prescribed. The reason the pharmaceutical industry is one of the most profitable is because of its ability to price-gouge patented drugs and write the laws restricting the sales of generic drugs.

The “always objective” editors of the Times had nothing to say in regard to this and other little details, which is where the devil is often to be found.

The real purpose of privatization

It is also becoming common knowledge that one of the biggest reasons for privatizing Social Security is to give a powerful shot in the arm to the faltering American economy and stock market.

The trillions of dollars that privatization of Social Security will pour into the stock and bond market will have the effect of making capital cheaper for banks and corporate investors.

The cost of borrowed capital is affected like all things in capitalist economy by the law of supply and demand. A flood of capital into the markets from millions of brand new individual investors will have the effect of making borrowed capital far cheaper for corporate investors. And because the cost of borrowed capital cuts into the bottom line of corporate profits, the cheaper the cost of credit, the higher the average rate of profit.

And the higher the expected rate of profit, the more investment there is, which in turn stimulates the economy. At least that’s what those making the decisions have in mind.

However, Bush and company’s plan for fixing Social Security will have the opposite effect—leading to its actual collapse. But it’s a foregone conclusion that today’s congressional and media “opponents” of privatization will go along with the scheme because, as we will show, the weakening economy and the falling dollar is driving them to desperate measures!

Social Security is fixable but capitalism can’t be fixed

A radical overhaul of Social Security is certainly necessary. But this problem, like all other problems, has more than one possible “solution.” The Bush administration’s proposal goes far beyond merely privatizing a “portion” of Social Security. It includes the borrowing of trillions of dollars from moneylenders to foot the bill.

On the other hand, there are a few whose voices are loud enough to be heard in the mass media who have gone so far as to suggest that the system can be fixed by extending the $90,000 limit on the amount of one’s annual wage or salary that can be taxed. To be sure this cap on the payroll tax has been steadily increased over the years. But only far enough to make sure it covers the entire working class, as nominal wages have risen but the purchasing power has steadily declined.

One commentator, critical of the plan to privatize Social Security, has gone so far as to propose lifting the prescribed limit of the payroll tax on wages and salaries from its present cap of $90,000 to $140,000 annually—a 55 percent increase. But that would actually affect only a tiny proportion of capitalists who pay themselves a salary (as well, of course, as a share of corporate profits). That piddling increase in tax income would be like emptying an ocean with a teaspoon.

In fact, it would not cover even a fraction of the cost of servicing the increase in the national debt that will result, which is now nearly $8 trillion and is increasing at an average rate of $1.86 billion per day since September 30, 2004, according to government statistics. And the notion of adding new trillions to the debt to privatize Social Security gives some inkling of the depth of the problem.

Apocalypse now?

It must be said that under conditions of a relatively sound financial and monetary system, a government bond has for a long time in America been as good as gold. But the larger one’s debt becomes relative to income, the greater is the risk that the debtor will default on interest payments. This is true whether the debt is owed by an individual person, or a corporation, or the world’s richest and most powerful nation. And the way capitalist economy works, lenders demand a higher rate of interest if the risk of a default increases. The logic of this process can and very often does reach unsustainable levels leading to bankruptcy.

If the United States is bankrupted, moreover, the entire global capitalist monetary system will go bust. All sectors of capitalist economy will be destabilized and chaos will be the inevitable result. That’s why a small but increasing number of thoroughly pro-capitalist journalists are talking about the coming economic catastrophe with titles to their essays like “Apocalypse Later” and “Apocalypse Now!”

Clearly, the national debt and its cost is a time bomb ticking away at an ever-faster pace and sooner or later it must detonate.

What makes capitalists do what they are doing?

There’s an old saying that a drowning man will grasp at a straw. The will to survive is such a powerful force that no ruling class has ever given in to the will of the great majority, even when there’s barely a ghost of a chance of coming out on top and regardless of the cost in human life.

The most sober and intelligent among the movers and shakers of capitalism know that no one can resolve the fundamental contradictions of capitalist economy. They are fully aware that the best they can hope to accomplish is to postpone as long as they can the inevitable monetary, financial, economic and political crisis. And that is something the world’s capitalists decided to do 61 years ago at Bretton Woods.

Realizing that it’s not possible to resolve the fundamental contradictions of capitalism, they decided on a scheme by which to postpone the inevitable. In a nutshell, the new policy established at that historic conference was to reorganize the world economic structure. The new policy was designed to permit an exponential expansion of credit at the price of permanent inflation and an ever-growing mountain of debt.

Sooner or later, the architect of the plan conceded, the public debt incurred by all capitalist nations over the long haul would grow to unsustainable proportions. And all the signs of its having reached its limit are now mounting, almost by the day. And the time when it will all come to a head is rapidly approaching.

The workers of America, together with the other victims of the assault on the safety net of the entire working class, will have no choice but to organize to take control of the government. In the mean time, the time is ripe for the organization of a mass protest movement to defend our common class interests.

We live in terrible, but “interesting” times. But they are more than interesting because the working class and fellow victims are being subjected to ever-deeper cuts in their living standards. The logic of the ruling class effort to drive living standards as low as needed to keep the faltering U.S. economy afloat will leave workers no choice but to make today’s one-sided class war two-sided.

And this in turn, will open up an opportunity once again to build a new mass revolutionary workers’ movement to end capitalism once and for all and change the world in favor of the working class.

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¹ The Social Security system is indeed indirectly, as well as directly, paid for by workers. This is because only workers, working farmers and self-employed workers produce surplus value. Consequently the value the latter create is subtracted by capitalists at the point of production. Another portion is expropriated by taxes levied by federal, state, and local government. Altogether this constitutes the unpaid portion of the value created by labor power alone.