What if the GOP Had Let Wall Street 'Privatize' Social Security?

For years the GOP, the demagogue John McCain and the Bush administration have looked at Social Security and licked their greedy chops! Now is the time to ask: what if these greedy GOP bastards had privatized Social Security?? The quick response: millions of retirees would be facing starvation or the FEMA camps!

Social Security was targeted not because it was a failure or because it was broken as we were repeatedly told. It was targeted because it was a success --in fact, Social Security was and remains the government's ONLY unqualified success. Certainly --it could have been depended upon to further enrich the fat cats at your expense.

In the meantime, Wall Street and the GOP blackmail the nation: bail out the robber barons or face the collapse of the dollar when, in fact, the bailout itself threatens catastrophic hyperinflation i.e, the utter collapse of the buck.

Economist Michael Hudson: the bailout is a giveaway that will cause hyperinflation and dollar collapse

Bailout talks stall as Bush meets with Congressional leaders and Presidential candidates. German Finance Minister says US will no longer be the financial Superpower. French President Sarkozy says the days when "the all powerful market is always right are over". The Real News Network spoke to economist and historian Dr. Michael Hudson who says that it's not a "bailout" but a "giveaway" and will create a new kleptocracy of billionaires.

Dr. Michael Hudson is a Wall Street financial analyst and historian. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City, he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire and of Super-Imperialism and of The Myth of Aid .

--Once in a Century Rip-Off

GOP attacks on Social Security was party's first phony crisis, perhaps a dry run for the current bailout.

To save Social Security, Bush wants to destroy it -- replacing government-guaranteed retirement benefits with private accounts that will be subject to the whims of the stock market. It's an expensive plan. Allowing workers to divert even a small portion of their payroll taxes into private investments, as Bush is proposing, would require the government to borrow at least $2 trillion to make up the immediate shortfall. It's also completely unnecessary, according to Paul Krugman, a prize-winning professor of economics at Princeton University. In a blistering series of columns in the New York Times, Krugman has marshaled the economic data to show that Social Security is not only solvent, it's in much better financial shape than the rest of the federal government. "The people who hustled America into a tax cut to eliminate an imaginary budget surplus and a war to eliminate imaginary weapons," Krugman wrote recently, "are now trying another bum's rush."

At his tree-shaded home in Princeton, New Jersey, Krugman took a break from working on a new economics textbook to explain why the crisis is phony -- and what's wrong with Bush's plan "to convert Social Security into a giant 401(k)."

What would you say to college students and young workers who are convinced they'll never see a dime of the money they put into Social Security?

You've been sold a scare story. Right now Social Security has a large and growing trust fund -- a surplus that has been collected to pay for the surge in benefits we'll experience when the baby boomers start to retire. If you're twenty now, you'll be hitting retirement around 2052. That's the year the Congressional Budget Office says the trust fund will run out. In fact, many economists say it may never run out. If the economy continues to grow at an average rate, the trust fund could quite possibly last forever.

But what happens if it doesn't?

Even if the trust fund does run out, Social Security will still be able to pay eighty percent of promised benefits. The actual shortfall would be a pretty small part of the federal budget, quite easily made up from other sources. Once the whole baby-boomer generation is into the retirement pool, Social Security's share of the gross domestic product will only increase by about two percent. Well, President Bush's tax cuts are more than two percent of GDP -- and they're happening right now, not fifty years from now. So the idea that there's this Social Security thing that is a huge problem is just wrong.

But if the trust fund does run out, the government would have to raise taxes or cut benefits, or some combination of both, to keep Social Security solvent.

Yes, if the trust fund is ever depleted, then something will have to be done. But you need to have some perspective on the seriousness of this whole thing. On the day the trust fund is exhausted, Social Security revenue will cover about eighty percent of the cost of benefits. Right now -- today -- if you look at the U.S. government outside of Social Security, revenue covers only about sixty-eight percent of total government spending. So on the day the trust fund is exhausted, forty-seven years from now, Social Security will be in better financial shape than the rest of the U.S. government is today.

So if there's no crisis in Social Security, why is President Bush pushing so hard to privatize it?

It's politics. Since the days of Barry Goldwater, the Republican right has really wanted to dismantle Social Security. And now they have a degree of political dominance that lets them push it to the top of the agenda -- even though no rational analysis of the actual problems facing the U.S. government would say that it belongs there.

Why do they want to dismantle it?

It's hard to understand why anyone would want to return us to the days before the New Deal, when millions of elderly people lived in poverty. But if you really dislike the notion that the government provides a safety net for the poor, then Social Security is the prime target. The U.S. government is a big insurance company, with a side business in national security. Social Security is the biggest social-insurance program that we have. It's been highly successful, and it's extremely popular. It's one of the things that makes people feel somewhat good about government -- and so, therefore, it must go.

And some people stand to profit from abolishing it. Wall Street poured a lot of money into both of Bush's campaigns, hoping he will divert Social Security into the stock market.

That's a factor, but I don't think it's the reason behind it. Attacking Social Security is a lot like attacking Iraq -- just because a lot of people stood to get lucrative contracts from it, that doesn't mean that's why they did it. If you privatize Social Security, there's going to be a tremendous amount of income for the mutual-fund industry. That's one reason there is a constituency for this on Wall Street. And that's one of the important reasons why this is really gonna work very badly.

What do you mean? Those who are pushing privatization say that our financial markets are one of our greatest strengths -- that private investment will work better in the long run than government-managed accounts with lower rates of return.

There are two problems with that. First, the fees charged on private accounts will be a significant drain on returns. In a typical portfolio, we're probably looking at a return of four percent. But fees are likely to take at least one percent, like they do in Britain. So now we're down to a return of three percent or less on private accounts. And since Bush wants to borrow $2 trillion to pay for the transition, we're talking about borrowing at interest rates of three percent to establish private accounts that will yield three percent -- with a lot of additional risk. So it's a lose-lose proposition, except for the mutual-fund industry.

The second problem with the market is that some people -- probably many people -- will end up getting much less than they would have under the current system, depending on which funds they pick and how the market does. A lot of people will hit age sixty-five with very little in their private account -- and that means a big return of poverty among the elderly, which is exactly what's happening in Britain right now. As a result, the government will have to step back in and rescue people. We'll have more suffering and bigger bills. People will ask: Where did all that money go? The answer will be: It basically went into mutual-fund fees.

But what if stocks do well? Isn't it possible that privatization would work?

The only possible way that stock returns can be high enough to make privatization work is if the U.S. economy grows at three to four percent a year for the next fifty years. But Social Security's own trustees expect the economy's growth rate to slow to 1.8 percent. If that happens -- if their own assumptions are correct -- then privatization would be a disaster. And if that doesn't happen -- if the economy continues to grow at a steady rate -- then the trust fund is good for the rest of the century, and we don't need privatization.

In selling the idea that there's a crisis, Bush has a lot of powerful words on his side: "choice," "freedom," "ownership society." What words do you have to counter his sales job?

Scam. Three-card monte. I've been thinking a lot about flying pigs. The privateers are claiming that you can have something for nothing. They're basically saying, "Let's assume that pigs can fly." And when you say, "You know, it's not good to assume that pigs can fly," they respond by saying, "What's wrong with you? Don't you understand the enormous advantage of flying pigs?"

The only reason they talk about how wonderful an ownership society would be is because we managed to win the battle over the word privatization. The Cato Institute -- which is the intellectual headquarters for all this stuff -- founded something in 1995 called the Project on Social Security Privatization. But focus groups don't like that word, so in 2002 they changed the name to the Project on Social Security Choice. They didn't announce a name change -- they just went back and scrubbed their Web site, so there's no indication that it was ever called "privatization."

If there's no crisis in Social Security, why aren't the Democrats saying that more clearly and forcefully?

There's a lot of timidity. They're desperately afraid of seeming like "Oh, well -- we have our heads in the sand, and we're not active." I would like to see them step up to the plate and say that these claims that we're going to have a crisis sometime in the next fifteen years is just garbage. Bush is handing them an opportunity by making this the centerpiece of his agenda. Democrats should treat privatizing Social Security the way Republicans treated Clinton's health-care plan -- they should say, "This is a disaster, and we will stand against it." Social Security is simply not the biggest problem facing the government today.

What is?

If you really want to get scared about something that can happen between now and 2052, you should talk about Medicare and Medicaid. The entire system of private health insurance is gradually collapsing. And as the share of people getting medical insurance through their employers continues to decline, the number of people who have to rely on the government for health insurance keeps going up. At the same time, medical costs keep on rising, because doctors keep on figuring out new stuff to do -- procedures that didn't exist ten or twenty years ago.

So what needs to be done to shore up Medicare?

In our system, we have huge administrative costs -- which are mostly driven by insurance companies spending huge amounts of money trying to avoid covering people. Our health-care costs are eighty percent higher than those in other advanced countries. The best way to contain those costs is to go to a single-payer system, one in which the government insures everyone. That would probably cut the cost of health care by at least twenty-five percent.

But there's no way that will happen under Bush.

He actually wants to do the opposite. If he manages to privatize Social Security, he'll try to privatize Medicare next. He'll try to strip away guaranteed health care and turn it into some kind of system of individual health accounts. The right says that what we need is more choice, more competition. But every piece of evidence suggests that health care is an area in which privatization actually raises costs. If they succeed at dismantling both Social Security and Medicare, then you're pretty much back, on domestic policy, to the days of Warren Harding -- which is exactly where they want to go.

--The Fake Crisis: Economist Paul Krugman explains Bush's latest con -- social security

We have been lucky so far to have beaten GOP attempts to let Wall Street insiders steal your Social Security, steal your retirement prospects. If the GOP is not decisively discredited, exposed to be the endemically crooked party that it is in fact, we might not be so lucky in the future. Increasingly --the future is now.

Published Articles

• Bush's Conspiracy to Create an American Police State: Part I, Police States Begin With False Flag Attacks
• Bush's Conspiracy to Create an American Police State: Part II, A Climate of Fear is Maintained
• Bush's Conspiracy to Create an American Police State: Part III, In Fascist Dictatorships Telling the truth becomes a crime
• Bush's Conspiracy to Create an American Police State: Part IV, the state forces an 'existential' choice
• Bush's Conspiracy to Create an American Police State: Part V, Public Opinion Becomes Irrelevant
• Bush's Conspiracy to Create an American Police State: Part VI, The government places itself above the law
• Bush's Conspiracy to Create an American Police State: Part VII, The Government Denies 'Due Process of Law'
• Bush's Conspiracy to Create an American Police State Part VIII: Atrocities are justified with lies, myths or propaganda

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