Behind the Myths of Social Security
Not too long ago, it was often said that Social Security was the third rail of politics: Touch it and you die. Nowadays, Social Security is beginning to look more like a piñata for Wall Street interests: Bash it hard enough and a bounty of lucre falls into your lap.
This transformation would never have been possible were it not for a steady stream of media-broadcast disinformation about Social Security, aimed at frightening the public into accepting corporate-sponsored “reform.” Here are a few of the most common myths:
Myth #1: Social Security Is Going Bankrupt
“No one contends that the Social Security system can go on as it is,” writes Louis Uchitelle, chief economics correspondent for the New York Times (1/9/97). Denise Dillon of CNN Newsnight (1/26/97) agrees: “Experts predict Social Security will go broke early in the next century if there are no major changes.”
The source for this fiction is the annual report of the trustees of the Social Security Administration, which says that at the current rate, the trust fund will begin running a deficit in the year 2030. But as Doug Henwood has pointed out (Left Business Observer, 12/22/95; EXTRA!, 7/95), the trustees assume an average annual economic growth rate of 1.5 percent over the next 75 years. The average rate over the past 75 years is 2.9 percent, and even in the slow-growth years since the 1973 oil shock, the rate has been 2.4 percent. If the economy were to grow at an easily sustainable 2.2 percent a year, Social Security would remain solvent as far as the eye can see.
Myth #2: Social Security Is a “Ponzi Scheme”
“We have this Ponzi scheme called Social Security, which in its current form cannot survive,” Anne Kates Smith patiently explains in U.S. News & World Report (7/3/95). A Ponzi (or pyramid) scheme, is a con-game in which one person receives money from two people, who then receive money from four people, and so on. Such a scheme breaks down the moment its participants are unable to convince new people to join; when no new people come into the system, those at the bottom of the pyramid lose their money.
Critics of Social Security say that the en masse retirement of the baby boom generation will create an overwhelming imbalance in the ratio of workers to beneficiaries, leading to a Ponzi-like collapse of the system. The problem with this argument, according to Dean Baker of the Economic Policy Institute, is that the ratio of dependents (retirees plus children) to workers will actually be significantly lower in 2030, the year Social Security is supposed to melt down, than it was in 1960, before the baby boom entered the work force. In other words, the boomers’ much-hyped retirement ought to be no worse for the economy than were their student days.
Myth #3: Privatization Would Benefit Workers
Investing Social Security funds in the stock market is often touted as a boon for workers, as their futures would be ensured by the inexhaustible wealth of Wall Street. What’s rarely pointed out is that these plans require those now in the labor force to pay for their own future retirement while continuing to support current retirees. The two privatization plans proposed by different factions of the Social Security Advisory Council each require increasing payroll taxes by at least 1.5 percentage points, raising rates to nearly 9 percent. They also slash benefits; according to the Economic Policy Institute, a worker earning $30,000 a year would face a 20 percent cut in guaranteed benefits under the more moderate of the two plans. The more radical plan would give retirees a flat benefit of $5,000 and then wish them luck playing the stock market.
Myth #4: The Consumer Price Index Overstates Inflation
When first proposed by Federal Reserve chair Alan Greenspan, the idea of manipulating the federal measure of inflation to lower cost-of-living adjustments was described as a “painless cure” by the New York Times (1/11/95). According to the Times‘ Floyd Norris (12/1/96), “economists who have studied the issue now generally agree that inflation has been overstated.”
While a congressionally stacked panel of economists claimed that the inflation rate is 1.1 percent too high, they ignored countervailing factors (such as the undercounting of health insurance increases) that lead the Consumer Price Index to actually understate inflation—especially for older people. When the Bureau of Labor Statistics tried to calculate a price index for those over age 62, it found that inflation was 0.3 percent to 0.4 percent faster for seniors than for the general population (Left Business Observer, 11/95; New York Times Review of Books, 3/6/97).
Two good on-line sources of information to counteract the disinformation on Social Security and other social programs are the Web sites of the Economic Policy Institute and Left Business Observer.