THE MYTH OF SOCIAL INSECURITY 26

With the Social Security debate now coming to the foreground in the New Year (it has not been particularly deep in the background for some years now) it is time for me to weigh in on this issue in my perhaps mistaken, but certainly non conventional style. One person who will not be discussing SS as an elected member of congress is the former Congressional House Speaker, former House Minority Leader, 2004 Democratic primary presidential candidate, and now private citizen as the 109th congress convened in January 2005, namely Little Dickey Gephardt of Missouri. He had an inexplicable, even strange way of calling it, “Soc Security.” Why did he call it that? Was it a way to economize his words? Being a Democrat, economy of any thing associated with the government is unlikely. I just observed it - I can’t explain it. As a private citizen perhaps Gephardt should try to cajole Linda Daschle, the 2nd wife of Tom Daschle and Miss Kansas of 1978, to leave her highly paid job as a lobbyist in the US House of Representatives for the law firm of Baker, Donelson, Bearman & Coldwell and replace her. Ex-Senator Tom (Puff) Daschle, praise Allah, was ousted from the senate by John Thune R-SD. Linda Daschle’s influence must be greatly diminished given that her nexus to congress has now been severed. Alternately, Gephardt may want to join Fannie Mae now that both former Clinton administration members Franklin Raines resigned under pressure as chairman & CEO and former Attorney General Janet Reno’s ex-henchwoman and 9/11 Commission member Jamie Gorelick quietly slipped out as vice-chairman in the face of a $9 billion restatement of earnings. Lower earnings of course, but then what are a few billions among friends?

The orthodox arguments concerning whether to implement major changes in Social Security and if so what kinds of changes generally go something like this: (1) there is no need to do anything now because it will be solvent until circa 2042 or until 2018 if one counts when it is estimated that outflows will first exceed inflows. (2) The system will eventually go broke so the sooner changes are made to lengthen the solvency period, the less painful the fix will be. (3) What ever is done to change the system, privatizing any part of it should not be considered as that will cost X trillion of dollars over Y number of years (some say $2 trillion over 10 years, but then there are people who believe the earth is flat and even deny that men have walked on the moon, so there you are). In addition to some others, National Public Radio’s moderate liberal Mara Liasson allowed as how anyone who would invest any part of their SS in a private account would be gambling because there is no guarantee their investment would not go south. Of course there is no certainty that the earth will not be hit by another comet or asteroid tomorrow as that which may have extinguished the dinosaurs 65 million years ago or the entire world will be not be enveloped in a giant tsunami the day after tomorrow. I would not bet a large amount of money on these scenarios and so would recommend that Ms. Liasson stick to politics and not make irrational statements on a subject she clearly knows little about. Given the long term performance of the equity markets and the proposed built-in safeguards and restraints of the investment vehicles the returns for private SS investors are about as sure a bet as the sun rising in the east each morning. Would you or Mara like to bet me against that? (4) The best way to restore confidence that younger SS contributors will be permitted to collect benefits upon their retirement is to privatize a significant part of the program on a voluntary basis. (5) In the long term the only way to keep the system solvent is a combination of increasing the ages of eligibility, decreasing the payments to retirees, and increasing the contributions by working people given that the ratio of worker to recipient will changed from 16 to 1 in the past to, oh say, 1 to 16 respectively in the future. Can everyone say, spell, and cogitate the word bleak?

One myth which needs to pass from the scene in order to raise the level of rational discourse is to forget about the “Lock Box” concept concerning Social Security or other government receipts. Even the term seems to have disappeared from the political lexicon in recent years. The last time I heard it was in the 2000 presidential campaign where the angry Algore went down to defeat still insisting that under his administration there would be a “Lock Box” for SS monies that would be inviolable from siphoning off for other government programs. Poor Al was always easily confused. Remember when he couldn’t decide whether to take the advice of one Ms. Naomi Wolff and assume the guise of an Alpha Male dressed in earth tones or stick to his boring nature dressed in conventional dark business suits? He ended up fatally combining his drab demeanor with a harsh and accusatory stump speech delivery which as an incumbent Vice-President against all odds of a still thriving economy and non-militarily active milieu managed to lose a close election which he should have won going away. The Fates were kind to the American people that time.

I do not get all exercised because money is not set aside in what is called a “Social Security Trust Fund” the way many commentators do for reasons discussed below. That does not mean I do not favor privatizing at least part if not all of Social Security savings, on a voluntary basis of course, because I do. Not only will this be income retirees can count on receiving, but it will almost certainly be more than that paid out from the “public” sector funds. Thomas Sowell concluded a January 20, 2005 article by stating, “No matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you back only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.”

“Owning your own private pension plan means that those who owe you have to pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of having the government keep the money.”

Forget all of the above Social Security folderol (excepting the wise counsel of Thomas Sowell) which I am sure y’all have heard from various and diverse pundits in the past few years. Mostly these opinions are recycled over and over apparently without any original positions to input into the cauldron of bold new ideas.

Social Security is a program of the federal government which makes it different from state, municipal, corporate, or private financing. Only the federal government can legally create money and one of the major functions of the federal government is to regulate the money supply. In addition to manipulating several interest rates, the federal government is so dominant in this country’s overall financial and social structure that the welfare of its people is intimately tied to government policies. Therein lays the regulating mechanism for the purchasing power of our money and by extension to Social Security. What does that mean? Allow me to explain.

As a practical matter the federal government does not have a fixed and limited amount of money to spend on individual programs such as Social Security, Medicare, etc. As a consequence there will not come a time when no more money is available to distribute to SS recipients as calculated by how much in receipts are coming in from current SS contributors. This is an important point which should be differentiated from the orthodox acceptance of the balance of SS receipts and payouts, but one which must not be over interpreted. Clearly the economy is not immunized from suffering dire consequences caused by the federal government dispensing vast and uncompensated quantities of money.

In additional to redistributing wealth, another important purpose of federal taxes, with individual income taxes being a prime source, is to remove monies from the economy so as to alleviate the problem of having too much money chasing too few goods and services, i.e. inflation. It therefore follows that payouts in SS will have to be compensated by a diminution in the supply of money. But it does not matter whether this money comes from SS receipts or other forms of taxes. This is not some fanciful hypothesis I originated but rather is the theory of the 1930’s to 1970’s economist, Dr. Abba Lerner, who in 1959 - 1965 taught economics at Michigan State University and at that time was as respected and almost as well known as economist and later Nobel Prize winner Dr. Milton Friedman. According to Prof. Lerner, except for relatively minor taxes e.g., the so called ‘sin’ taxes - tax on alcohol and tobacco to discourage consumption, there are two reasons for federal taxes: (1) To redistribute income and (2) take money out of circulation to keep too many dollars from chasing too few goods and services - in other words to keep inflation under control (see Everybody’s Business: A Re-examination of Current Assumptions in Economics and Public Policy by Abba P. Lerner).

The other side of this federal equation is expenditures. Compensating for SS payouts could also be accomplished, in part or in whole, by decreasing other federal spending such as for social programs, the military, corporate welfare, or even, God forbid, by genuinely decreasing the size of the federal government which both Democrat and Republican politicians are not wont to do. However, like the animals of George Orwell’s Animal Farm, all expenditures are equal - except some are more equal than others. There is the question of efficiency of money spent as well as perceived need and political expediency. These are issues which would have to be balanced by the reality, need, and political clout of retirees.

At this time congressional Democrats and even a few Republicans seem intent on obstructing any and every change to Social Security being contemplated by the Bush administration for what appear to be impurely political reasons. I predict they will either come to an acceptable, to most Republicans, compromise or they will be estopped in their obstructionist tactics considering their previously declared claim for SS reform.

There are those who say that Medicare is a bigger unfunded government liability than Social Security and therefore a larger looming problem. I am reminded that during the American Civil War when the “Trent Affair” threatened to engulf the country in a war with Great Britain, Abraham Lincoln tamping down the fires of conflict told his cabinet, “Gentlemen, one war at a time.”