Social Security: The Phony Crisis

Rating:
Summary: Excellent book and more relevant than ever
Review: Baker and Wesibrot do a yeoman's job of making the issues confront Social Security and the trust fund understandable and accessible to the average reader. There is so much misinformation (some of it deliberate) and misunderstanding out there on this topic that it's often hard to know where to begin. This book is an excellent place to start.

For other reviewers here that are ready to "throw this book across the room" or who seem to have confused a program of social insurance with "investments", I suggest they actually take the time to read the book and/or educate themselves on the issue of government bonds. First, it is hard to understand why the same government bonds backed by the full faith and credit of the United States and which are universally considered to be the safest investment in the entire free world are great investment vehicles when held by billionaires and central banks but are "worthless" when held by the Social Security trust fund. Second, Social Security is not an "investment" program, it is a program of social insurance designed to insure the elderly, the disabled and the spouses/children of the dead and disabled against poverty. It provides a solid base, a bedrock foundation, on which to build, and as such is perhaps the most successful government program in history.

There are potentially some challenges ahead for Social Security but they are easily overcome though economic growth, growth in productivity or expansion of the working population through birth or immigration. In fact, if the economic growth of the United States simply matches that of the average growth of the last 130 years, the Social Security trust fund is solvent basically forever.

I hope that Baker and Weisbrot will issue an update to this excellent book. It was written prior to the meltdown of the NASDAQ and S&P 500 and before tax cuts for the top 1 percent of the nation (paid for largely with money borrowed from the Social Security trust fund) which all by themselves dwarf any potential shortfall in the trust fund over the next seventy-five years.

Don't fall for the shell game. The trust fund represents the money that you have already paid into the system. Read the book. You'll be glad that you did.

Rating:
Summary: An excellent and valuable book
Review: I have a very high regard for the quality of Baker's and Weisbrot's work and professionalism after reading this book (and subsequently, other publications of theirs). My only complaint is that, having been written in 1999, it is a tad out-of-date and needs revision in order to keep pace with the state-of-the-art anti-social-security spin. For instance, the reviewer from Greenbelt, MD invokes what is now a hoary old chestnut but which was a novel if misguided argument in 1999, that the social security trust fund "does not exist" because it consists of IOUs that the "government has written to itself". In other circles, these "IOUs" are known as treasury bonds and are sold to many other individuals, banks, businesses, and nations, besides being sold to social security beneficiaries by way of the trust fund. These other investors do not doubt that they will be repaid. Why should we?

Furthermore, a blinkered analysis that regards debt instruments such as bonds as fundamentally riskier than "real assets" such as (I presume) real estate, stocks, and other equities is not only to ignore cases where land values crater, stock markets collapse, and companies go bankrupt, but also to willfully invert the relationship between risk and reward. No investment counselor would do this, for instance.

In any event, Baker's and Weisbrot's book illuminates issues like these with a bracing clarity (albeit with a little dryness). I highly recommend it.

Rating:
Summary: An idiotic or deliberately misleading book - take your pick
Review: I read this book in order to see if it would change my opinion about the status of social security. It does not. In fact, it glosses over the key, overriding issue: that the so-called "social security trust fund" does not in fact exist. The claim that huge surpluses are being mounted is meaningless when all that really exists is an IOU that the government writes to itself.

The book spends all of one paragraph (see page 28) on this critical issue, suggesting that the reader imagine that the fund is invested in private stocks and bonds, rather than government bonds, and concluding, "It is difficult to see why the composition of the trust fund's portfolio should make any difference." I just about threw the book across the room at that point! In other words, the authors see no difference between a fund backed by real assets that can simply be sold and a fund that will require raising taxes or additional borrowing on an enormous scale.

Rating:
Summary: They can have it
Review: If the authors of this books think Social Security is such a wonderful investment, and that the market is risky, then they can stick their money in it, but I want out. Oh wait, there goes their money! You mean it's not invested? Of course not, it's a legalized Ponzi scheme. "Pay as you go" is the politically correct expression.

At WORST, the stock market has returned 6% for *ANY* 40 year period in its history. Pick a date, any date, then figure out the returns 40 years from that date, and the worst return you would have is 6%.

So I'll make a deal with the Authors, and Mr. Al Gore. You can keep everything I paid into the system so far (I'm 31), and I'll sign a contract that states I'll never take a penny of tax payer money as long as I live if I get to invest MY own money and I'll take care of myself for the rest of my life. Think of all the money they'll save when I retire! I have a feeling they're not going to let me live my own life, however...

Rating:
Summary: The Truth Shall Set You Free
Review: Social Security has benefited tens of millions during its first sixty years. It provides security in an otherwise insecure economy. This is why it has enormous public support. It is threatened by the deceitful lies and misinformation from a propaganda campaign designed to damage or destroy it. The authors provide the basic facts to inform people of the truth about Social Security. The greatest threat to Social Security come from those who want to destroy it in order to save it (or so they say).

The 'Introduction' says the forecasts of a shortfall for future generations is based on the assumption of an annual growth rate that is half the rate recorded over the past three decades. If the current growth rates do not fail, the system would never run short of money (p.1). The truth is that class warfare has resulted in a real decline in pay since President Reagan took office (p.2). This has created a malaise in people's expectations, due to the well-orchestrated political arguments against Social Security (p.3). This attack lumps Medicare with Social Security to project a huge deficit. But it is Medicare that has the problem due to the lack of cost control (which would be solved by Universal Health Care). Social Security will produce annual surpluses for decades (p.5). America spends twice as much on health care as Sweden, yet Sweden has a much higher percentage of people over 65 (p.6). Sweden has "socialized medicine" and no corrupt Health Maintenance Organizations.

The Bubble in the Stock Market has burst, and destroyed the arguments of those who want to loot Social Security (p.7). But faster growth rates eliminate shortfalls in Social Security (p.8). Stocks are only valuable if there are profits and dividends. If prices rise, they they will fall when there is no rise in the underlying assets. The real truth is that privatized accounts would earn about 2.5% (p.9)! Those who claim investing small amounts over decades will create great wealth have never done so, nor can they point to anyone who has ever done so. Its all just a fantasy.

The idea of raising the retirement age is crazy, given the class lines of life expectancy, and the increasing policies of dumping older workers who must retire at 62 (p.10). Another regressive policy is cutting the cost of living adjustment, which is needed for devalued dollars (p.11). The declining real wages refute this crackpot idea of the Boskin Commission (p.12). Social Security is the largest and most successful antipoverty program. It provides a guaranteed annuity that is inflation resistant, unlike many pensions (p.13). Social Security is most efficiently administered (no private mismanagement). Social Security is more important than ever due to the class warfare from the 1980s. Employer pension plans are going away, and regressive tax laws reduce private savings for retirement (p.14).

The proposed cuts to "fix" Social Security are shown to be neither just or justifiable, or even necessary. The high 6.2% tax rate (really double that) is being used to lower taxes on the super-rich. Wall Street pays for this propaganda campaign (p.16). Much has been said about deficits, but little about the problem of increasing inequality in the distribution of income (p.17). The national debt is a trick where the many are taxed to benefit the few super-rich. The rest of this book covers the "phony crisis" in detail.


Rating:
Summary: Don't FIX what ain't BROKE!
Review: Social Security PRIVATEERS tell us that in 2029.or 2032...now 2050 (notice that the date has to be constantly readjusted BACK every year) it is "calculated" by a Government advisory commission that Social Security won't have enough income to cover more than 75 percent of the benefits it must pay to aging baby boomers.

But the authors point out, the specificity is illusory, all lever-pulling and smoke-blowing from the Wizard of Oz. The projections aren't economic but actuarial extrapolations based on assumptions that the all the actuaries know are fictitious at best. Tweak them ever so slightly--lift real wages by a quarter- or half-percent per annum, or immigration by a little--and the so-called "crisis" disappears entirely. But according to the apparat-niks at the CATO Institute and the attack dogs at the OUT-Fox-ed Network--you might think the numbers have come down from Moses. They haven't. Social Security isn't in trouble and the criticisms of it are not logical as the authors of "The Phony Crisis" point out.

First of all, Social Security is an INSURANCE System, not an "investment". When you factor in the cost of buying disability and survivor insurance and "invest the difference"...the performance "advantage" of equity markets gets razor-thin at best. It turns out that Social Security yields the same as nice safe government bonds, which any intelligent investor knows should form the basis of an investment portfolio.

Secondly, the so-called performance advantage of the markets has a whole lot of IFs that the PRIVATEERS conveniently fail to mention.

Forget hyper-collapse 1929-style for the moment. Since the Crash of October 1987, U.S. markets have been on a nonstop charge; but if you'd gone into the same markets in 1970, you were worse off by 1980--not to mention where you'd be today if you'd bet on Japan in the mid-eighties or Southeast Asia's "sure thing" markets a couple of years ago. Will you do all right in the long term, as brokers and economists insist? Well, probably yes--but then as Keynes observed..."in the long run, we're all dead."

Here's where the income and wealth distribution effects of privatization turn very ugly. For millions of Americans--who bet on Kaypro instead of Microsoft (oops), Pan Am instead of American (sorry) or cattle futures without the skill and connections of Hillary Clinton (smile, please)--life at 75 could mean not "golden years" but working for the folks at the golden arches, or even being out on the street. A FACT of life that the young people who invested in the dotcom bubble are learning the hard way.

How many of us realistically will beat the averages? If 120 million workers are turned loose to bet the markets---40 million of whom are marginally literate or numerate--as the privateers recommend---it turns out that most will lose. The mutual fund industry's dirty little secret is that three-fourths of funds under-perform market indexes. Yet such funds have millions of naïve investors in them; in one recent survey, a majority of mutual fund investors couldn't even distinguish between a "load" and a "no-load" fund.

There is another issue, so far undiscussed in the debate. For the first time in nearly thirty years, the federal budget's in balance. But it's in balance because each year the Treasury borrows $80 billion from the Social Security Trust Fund surplus, and "covers" the deficit in the rest of the federal budget. If a big piece of Social Security contributions go into private accounts, the trust fund surplus will disappear and the federal budget will plunge back into deficit. Which federal programs are we supposed to cut to make up for it?

If you count the cost of the so-called "free market reforms" over the past twenty years--to a once-viable savings-and-loan system, to Mexican workers and peasants (who've paid for bailouts not once but twice), to the world's poor as they've worked off the global debt crisis. Think about the lives of Indonesian peasants, or Korean and Thai workers today--all set to pay for the "can't miss" marketization of Southeast Asia, just as Americans have so wonderfully benefited from downsizing, capital-gains reduction and globalization.

The folks that brought you ALL these disasters are the ones telling us that now it's Social Security's turn to face the "free market reform" just because it doesn't meet the ideological test of a handful of right-wing zealots.

Social Security is not a disaster. Benefits are moderately progressive, meaning that the bottom 60 percent of retirees get more back than they paid in. More than 90 percent of us pay into it during our working lives and more than 90 percent of us can count on its benefits when we retire. The minor adjustments that are outlined by the authors are all that is necessary to save Social Security.

Rating:
Summary: Not the whole story
Review: thanks this book confirms my suspecions

Rating:
Summary: Don't FIX what ain't BROKE!
Review: The authors claim that just because average real return (after inflation) on the stock market has averaged 7% this does not mean you can count on this in the future. Let's take the most pessimistic scenario of long term economic downturn leading to the next few decades of extremely poor return on stocks - though again this is without precedent in our history let's assume the possibility all the same.

Public companies are nothing more than productive assets - investments in people and equipment - that help create a valuable product (good or service) for cash. The value of a company is determined by its ability to produce cash flows from now out into the future. From these cash flows companies reinvest and grow making stock price appreciate, paying dividends, paying bondholders and paying salaries. Social Security taxes come from these salaries. If there is a long-term economic decline - stagnant or decreasing cash flows - then salaries and accompanying tax revenue will also fall. So if the economy takes a long-term slide downward where will the government get the tax revenues to pay for Social Security?

Rating:
Summary: Illogical
Review: The authors claim that just because average real return (after inflation) on the stock market has averaged 7% this does not mean you can count on this in the future. Let's take the most pessimistic scenario of long term economic downturn leading to the next few decades of extremely poor return on stocks - though again this is without precedent in our history let's assume the possibility all the same.

Public companies are nothing more than productive assets - investments in people and equipment - that help create a valuable product (good or service) for cash. The value of a company is determined by its ability to produce cash flows from now out into the future. From these cash flows companies reinvest and grow making stock price appreciate, paying dividends, paying bondholders and paying salaries. Social Security taxes come from these salaries. If there is a long-term economic decline - stagnant or decreasing cash flows - then salaries and accompanying tax revenue will also fall. So if the economy takes a long-term slide downward where will the government get the tax revenues to pay for Social Security?

Rating:
Summary: Social Security is broken for those under 40
Review: The authors fail to show how the current social security system will pay out less than 20% of what young participants (those under 40) contribute over their working careers. And this ridiculously low return on contributions (adjusted for inflation) does not even allow those participants to get any "real" return on their investment. Putting money into a passbook savings account will at least return close to the rate of inflation so that over the long haul you'll get back something close to what you put in. The authors fail to show how badly shortchanged the young contributors are by the current system. For this reason I don't recommend anyone under 40 to bother reading this book if they want to get the truth on social security.