Mike Schrimpf's compelling fictional tale, "Embracing Social Security Reform"(Thursday, Feb. 3), about the benefits of President Bush's plan to privatize (or as I am sure he would prefer me to say, "personalize") Social Security, is a very fun read - and it will surely appeal to many fans of right-wing literature on this campus. However, in terms of its appeal to fans of reality, it comes up short.
Schrimpf begins with a re-gendering of political terminology that would make Karl Rove proud. He contends that Democrats are unwilling to "think progressively outside the box" and that they have resorted to "spewing off a reactionary response to any change of the status quo." This is an amusing re-imagining of the roles of the liberal and conservative movements in this country.
It is also ironic, because there is nothing progressive at all about privatization of Social Security. The way the system works now, 6.2 percent of a worker's paycheck, up to the first $90,000 he earns, is taken and deposited in the Social Security Trust Fund. His employer matches that amount in a separate payment into the Fund. This is where Schrimpf comes up with the specter of a 12.4 percent payroll tax, which sounds a lot scarier than 6.2 percent. In any case, this money is paid back to retirees as a percentage of their earnings after they reach retirement age.
As the system stands, the average worker receives back from the government 42 percent of his total lifetime earnings. Since the benefits schedule is structured progressively, the lower income workers receive a higher percentage of their lifetime contribution to the trust fund than high income workers. This is a truly progressive system built by a true progressive, Franklin Delano Roosevelt. Bush's privatization ploy is in no way progressive, but a scheme to eventually phase out the program entirely. This is evident because privatization simply does not address the solvency problems that Schrimpf touched upon in his rhetoric-filled conservative wet-dream.
Schrimpf cites figures which have been widely used by supporters of the President's plan in a fear-mongering campaign akin to the weapons of mass destruction talk leading up to the Iraq War. He says that in 2018, the Social Security Trust Fund will begin to run a deficit. The President said in his State of the Union address that this deficit would, by 2042, bankrupt the trust fund.
These dates are simply estimates, and worst-case estimates at that. Depending on birth-rate, death-rate, economic growth, immigration, and a slew of other factors, less dire estimates have placed the bankruptcy date as far down the road as the 2070s. And even when the trust fund is bankrupted, Social Security will still be able to pay out about 70 percent of scheduled benefits.
Bush proposes to deal with this so-called "serious problem" by allowing people to put a certain percentage of their payroll tax into a "voluntary personal savings account" which would be invested in a combination of stocks and bonds. Indications are that Bush also plans to cut guaranteed benefits substantially, ostensibly improving the system's finances and its longevity. For instance, under the 2001 plan, average benefits paid by the government drop from 42 percent of lifetime earnings to 20 percent. Under this plan, if we assume worst-case scenario projections for the current system, someone born in 2000 would receive, on retirement $13,092 of a scheduled $26,400. This is not only half of the scheduled benefits, but 34 percent less than the system would be able to pay if left alone by the President.
Because of this huge shortfall, the President's plan requires a healthy return from funds invested in private accounts. Most projections, including the one used by the Cato Institute, the conservative think tank that Schrimpf cites, assume that the private equity market will grow on average seven percent per year over the long-term, adjusted for inflation. This seems fair on first glance. Since 1929, the S&P 500's average real return has been 6.9 percent. However, on closer inspection, privatizers' assumption of such robust growth in the long term seems a bit optimistic. Because of factors like decreasing economic growth, many economists predict much lower growth in the long term than we have witnessed in historical patterns.
Unless we can assume that the stock market will continue to perform at its historical average, then we cannot accept that privatization will save or even improve Social Security. Schrimpf argues, however, that privatizing will not only improve individual retirees' lives, but also improve the economy in general. This is also a lie. If the government diverts individuals' money into the stock market, two things will happen.
First, it will have to find money from other sources to spend instead of the Social Security money. For every dollar of national savings that it injects into the economy, the government will have to take another dollar out of the national savings market in the form of Treasury Bonds, thus negating the effect of privatization on the supply of private capital. Second, in issuing these Treasury Bonds, the government will add trillions of dollars to its already record debt. This will further undermine the strength of the dollar and actually weaken our economy.
Schrimpf seems genuinely concerned about the welfare of low-wage retirees. If this is truly the case, I suggest that he take up the cause of rolling back the regressive tax-cuts which have sapped our once huge surplus. With this revenue, we won't have to continue to under-fund or even cut programs which clothe, feed, treat, and educate the unfortunate in our country.
In response to Schrimpf's assertion that Democrats refuse to think outside the box and pursue reactionary courses of action when faced with change, I point you to President Bush's refusal to consider any form of payroll tax increase as a response to the perceived Social Security insolvency crisis. This is the definition of reactionism.
In 1983, there was a real Social Security crisis, with the program only months away from bankruptcy. A few years earlier, in his bid for a Congressional seat, President Bush advocated privatization of Social Security. He was defeated. The solution to the crisis came in the form of payroll tax increases large enough to save the system for almost 100 years.
Now the "crisis" is even farther off, and Bush is again advocating privatization of Social Security. This is not a solution. The White House now admits, and the numbers prove, that privatization will do nothing to solve the long-term social security financing problem. Privatization, however, is not even the first step in improving the program. It is an extremely expensive first step in dismantling the program. Schrimpf advocates it as a building block of the ownership society. In order for Social Security to be a part of the private ownership society, it must cease to be a public government program. This fundamentally changes the meaning of Social Security.
Social Security was envisioned and built as a safeguard against the dangers inherent in the market driven world. Our society is driven by return on risk. We understand that there must be losers in the economic game, and we accept the risk that we could lose because the reward for winning is so great. Social Security is just one of many ways our government guarantees that there is a baseline level of subsistence for all Americans, so that we can play the game without fear. Putting even a part of this promise into the private sector removes the guarantee and replaces it with the platinum dreams and gutwrenching nightmares of cutthroat capitalism.
Steven M. Ward is a junior majoring in International Relations.
