Social Security: The Phony Crisis. - Review - book review

Challenge, July, 2000 by Michael Meeropol

Social Security: The Phony Crisis. By Dean Baker and Mark Weisbrot. Chicago: University of Chicago Press, 1999. $22.00, 175 pages.

This valuable and important book covers many subjects, but its main focus is the alleged social security crisis and various reform proposals. The authors argue that social security is based on the concept of social insurance and not on the "altruistic" idea of redistributing income to the needy. Though social insurance is a major component of European economies, in the United States much redistribution of income involves some form of means testing. Social security (including Medicare) is unique. It is the embodiment of the familiar precept that we are our brothers' and sisters' keepers--that we are all responsible for each other.

The ethic is a solidaristic one, which is different from either self-interest or altruism. It transcends this dichotomy in favor of collective self-interest that promotes the advancement of everyone. (p. 13)

Social security is a compact between those who are working and those who no longer can, due to old age or disability. The compact also covers the children and other survivors of deceased workers. The idea is that each generation works--creating physical capital, accumulating knowledge and applying it to production processes, improving technology. These people in their turn leave the world more productive and with a higher standard of living. When they are no longer able to support themselves, their children and grandchildren (who benefit handsomely from all the work done by the retiring generation) share a percentage of their income with their parents and grandparents to protect them from the poverty that often comes with old age, illness, and disability. Along the way, the system also ensures that widowed and orphaned survivors of the working generation will be taken care of.

The very principle of social insurance is anathema to the ideologues of the Right because they believe, with Margaret Thatcher, that "There is no 'society,' only individuals." Individuals are responsible for accumulating personal wealth and utilizing it when they cease working. Individuals are not responsible for anyone but themselves and their children. Exceptions are made in the case of the "truly needy" as defined by the rest of society. Thus, most programs that redistribute income involve a stigmatizing means test that identifies the recipients as having "lost out" in pursuit of the American dream. Beneficiaries of these programs are often demonized, and they are certainly politically isolated. People who receive food stamps are accused of selling them so they can buy drugs or engage in other illegal activities. People who receive Supplemental Security Income (SSI) are accused of faking children's disabilities in order to qualify. People who received benefits under the old Aid to Families with Dependent Children (AFDC) program were accused of having children in order to increase their monthly check, and willfully refusing to work.

Social security (and its extension, Medicare) is different. Because of the genius of the policymakers who devised the program and the political savvy of Democratic Party politicians, social security is considered an iron-clad contract that the recipient has "bought" with her or his "contributions." Republicans and particularly the Reagan administration came to understand that view in 1982 when they floated a proposal to cut early-retirement payments by 40 percent. It produced a firestorm of protest and was quickly shelved. Though social security is a pay-as-you-go system, with current retirees and other recipients being financed by taxes on the payrolls of the current working generation, people believe that the benefits they are entitled to are financed by their money, and so are to be sharply distinguished from "handouts."

The fiction that social security is not a program to redistribute income has helped keep its broad political support, but it has also opened up a possible avenue for attack from those who never liked the idea. The source of that attack is the alleged long-term imbalance in the trust funds. The fact that an imbalance has been alleged and seized upon by those who would change social security from a social insurance program to a system of individual investment accounts is the main reason Dean Baker and Mark Weisbrot wrote this book. Every year the trustees of the social security system must certify that the projected revenue and payment streams are exactly balanced for the next seventy-five years. In 1999, the trustees predicted that if the economy were to grow at 1.5 percent per year for the next seventy-five years, the current revenues and accumulated surpluses in the social security trust funds would be sufficient to pay full benefits only until 2035, after which the payroll tax revenues will cover only abou t 75 percent of promised benefits till 2075. (In the year since, rapid economic growth has delayed the "day of reckoning" to 2037.) Baker and Weisbrot do not believe this is a crisis at all. It would take a rise in the payroll tax of a bit more than 2 percentage points (from 12.40 to 14.47 percent) to close that shortfall now. Over the next ten years, that amount would constitute 1 percent of the gross domestic product (GDP). The authors present these numbers not as recommendations but in an attempt to persuade the reader that the best thing that could be done to "save" social security is to leave it alone. They believe it is essential to have an honest debate to counter the misconceptions that lead a majority of thirty-year-olds to tell pollsters they do not believe social security will "be there" for them. Baker and Weisbrot argue that seventy-five-year projections are little more than guesses with significant margins of error (perhaps greater than 2 percent?). If the shortfall continues to show up over the next ten to fifteen years, there will be plenty of time to decide what to do.