Mar 1 1997

Bogus Crisis, Bogus Solution

Debate on Social Security Privatization Reflects a Narrowing of Options

Democracy in America is a strange thing. Campaigns focus on trivialities, while the big issues–especially those involving lots of money–are decided by elites and presented to the public as faits accomplis.

Nowhere is this more apparent than in the “debate” over Social Security reform. I’ve written here before (7-8/95) about the dubious predictions of the system’s bankruptcy—-projections that depend on estimates of economic growth over the next 75 years that are half the average of the past 75. But even if these forecasts turn out to be true, present benefit levels could be sustained with modest and temporary increases in the social security tax (including taxing incomes above the present $62,500 cap, as well as taxing investment income, which is now exempt). These inconvenient facts have largely been suppressed in press coverage, which treats the public pension system as a terminal case.

In 1994, the Clinton administration assembled a panel of worthies to study Social Security and recommend changes. Five months before the panel issued its final report, the Wall Street Journal (7/9/96) anticipated its conclusions. The headline said it all: “A Consensus Emerges: Social Security Faces a Substantive Makeover; Advisory Panel Will Offer Three Overhaul Plans, All Turning to Markets.” The story’s lead was proof that my opening characterization of American democracy wasn’t left-wing paranoia: “Don’t expect Bill Clinton or Bob Dole to talk about it, but a radical reshaping of Social Security will be on the next president’s agenda.” So a popular, efficient and successful program that affects virtually everyone would be overhauled on the basis of a cooked-up crisis–without a word spoken during the 1996 campaign.

How did our great newspapers cover the panel’s report? With a classic narrowing of the range of possible options. To the New York Times (1/7/97), the only question remaining was “whether U.S. or individuals should make the choices”-—that is, whether the system’s trustees should manage the stock portfolio, or if the task should be left to individuals running their own super-IRAs.

Actually, the New York Times story, by Robert Pear, overstated the case. A faction of the divided commission—-six of the thirteen members—-preferred to tinker with the existing system and then to consider throwing Social Security money in the stock market if the tinkering didn’t work. (The other seven would also boost the Social Security tax and cut benefits, a fact that got lost in the stock market hoopla.) In Pear’s rendition, however, this became: “A Federal advisory panel suggested today that the nation consider investing part of its Social Security revenues in the stock market to insure the solvency of the retirement program.” The notion that the solvency crisis could be a statistical illusion doesn’t appear anywhere in the Times story, and the fact that the “crisis” could be easily dealt with should it materialize appears hardly at all.

Pear did quote Gerald Shea, a panel member whose day job is with the AFL-CIO, as worrying about how privatization schemes would “divert large amounts of money to Wall Street.” Indeed. Depending on how much Social Security money were to pass through the hands of brokers and portfolio managers, it could mean $20 billion to $80 billion a year for financiers. But Pear chose not to put numbers like these on Shea’s assertion; instead,he summoned another panel member, Sylvester J. Schieber, a private pension consultant, to argue that the competitiveness of the financial industry assured that profits wouldn’t be “exorbitant.” Neither Pear nor Schieber shared their estimates of what reasonable profits for Wall Street would be.

The Washington Post (1/7/97) did quite a bit better than the paper of record. The main story prominently reported the proposed tax increases and benefit cuts; a sidebar deflated some myths about the system (e.g., it’s not a Ponzi scheme, and retirement costs won’t sink the economy); and a satellite story, unfortunately hidden in the business section, made some juicy estimates of how much privatization could mean to Wall Street. But the Post still accepted the notion that the system was troubled, and that “tough trade-offs” were required.

Such unanimity is having its intended effect. A Wall Street Journal/NBC News poll reported (Wall Street Journal, 1/31/97) that “an overwhelming 83 percent of Americans now accept that changes are needed in Social Security,” though there is still some skepticism about putting funds in the stock market. Evidently the media have their work cut out for them in 1997.

Doug Henwood is the editor of Left Business Observer and the author of Wall Street.