There have been conflicting headlines this election year about the solvency of Social Security and although Crabby Old Lady hasl a few years until she is eligible, this development is making her – well, crabby. Here are the high points:
On 14 June, the U.S. Congressional Budget Office issued its first-ever assessment of the Social Security system and found it to be in better shape than the public has been led to believe. The trust fund, will not be depleted, according to the report, until 2052.
The Social Security trustees, a different group of officials, came to a similar conclusion in March 2004, though they estimate the the trust fund will be exhausted a decade earlier, in 2042. Still plenty of time for tinkering to keep it going after that.
In February 2004, Fed Chairman Alan Greenspan urged Congress to help reduce the astronomical budget deficit by reducing future Social Security benefits.
And back in January, Mr. Bush had this to say in his State of the Union address:
“Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. We should make the Social Security system a source of ownership for the American people.”
- State of the Union Address, 20 January 2004
Translation: the president was talking about “privatization” of Social Security and here, according to columnist Saul Friedman, is what that initiative means to you and Crabby Old Lady:
“If the president wins a second term, he can be expected to move aggressively to turn part of Social Security into millions of 401(k)s with their billions of dollars invested in Wall Street. Earlier proposals called for diverting one-sixth of the 12.4 percent in Social Security payroll taxes into private accounts. This time, Bush and advocates of privatization will propose increasing to 50 percent the chunk of Social Security taxes to be shifted to private accounts.”
- Newsday, 3 April 2004
And if that doesn’t scare you about funding your old age, Crabby will do her best to supply you with hot soup in winter at the cardboard box you’ll be calling your retirement home. Here is why.
Privatization would change Social Security, which even President Bush has admitted is the most successful social program in history, from a guaranteed lifetime income for old folks (current average monthly payment is a modest US$992) into a Las Vegas longshot, and Crabby has lived long enough to know that whether it is a casino, Wall Street or corporate America, the odds always favor the house. Just ask those Enron and Worldcom employees who were coerced into putting most of their 401k funds in company stock.
And consider, if Social Security is privatized, who will manage your portfolio. Do you know how to read an annual report? Or what discounted cash flow analysis is? How about the differences between the many kinds of stocks and bonds funds, or how to know if a REIT is better investment than equities for your circumstances?
Wall Street brokers and analysts - financial "professionals" - are paid to know this stuff. They work at it 52 weeks a year and they get it wrong all the time. So how do you expect find the time to educate yourself and keep up, year after year, with market twists and turns to ensure your old age? What if there is another stock market massacre? Or dotcom bubble burst? Can you trust your broker not to call Martha Stewart first when something goes wrong?
Make no mistake, Wall Street is a crapshoot. But Social Security, as it operates now, is a guaranteed payback for payroll deductions during working years and it keeps paying until you die, no matter how old you live to be.
The Social Security program is not broke nor is it not broken, and the privatization scam has nothing to do with solving a presumed financial crisis. It has to do with the transfer of wealth from you and Crabby to the already rich.
America’s leadership and its corporate cronies are, in the words of Newsday’s Saul Friedman, “ideologically opposed to Social Security,” so you can expect Republican allies, over the next four months leading up to the national election, to fan the flames of fear to keep alive this program initiative that might be too hot for the president himself to handle during an campaign. In fact, it has already begun.
“The problem of insolvency is still there, though we have a little more breathing room.”
- Senator Larry Craig (R – Idaho)
Newsday, 3 July 2004
In the same newspaper report, Michael Tanner of the Cato Institute is quoted as saying that anyone who thinks Social Security isn’t still in trouble is “whistling past the graveyard.”
Crabby Old Lady would like to remind you of the lesson in former SEC chairman, Arthur Levitt’s 2002 book, Take on the Street: What Wall Street and Corporate America Don’t Want You to Know. To paraphrase:
During the dotcom run-up of the mid- and late-1990s, corporate America created increasingly opaque strategies to hide and hoard most of its proceeds from investors. There is no one, said Levitt (and it is still true), representing the interests of individual investors full-time.
The criminal convictions of a handful of Enron and Worldcom executives notwithstanding, there is no evidence Crabby knows of to prove that corporations have changed their ways, and the rape of Social Security is on target to move forward if George Bush wins a second term.
Crabby Old Lady in enraged about this.