Naked Capitalism on the Social Security Rip-Off

Like Nixon to China, It Takes a Democrat to Put the First Knife in Social Security

By Gaius Publius. Cross posted from AmericaBlog

Bottom line first, since this is turning long. For the owners of the country (and their paid national managers), the real emergency associated with Social Security isn’t the day the last dollar will leave the Trust Fund. It’s the day the first dollar will leave. That’s a whole different problem, and a whole different timeline, for them.

How did I come to that conclusion? Read on.

Why are benefit cuts one of Obama’s must-have goals?

In 2010, I started working on a thesis here at La Maison about the Social Security Trust Fund and have decided to both resurrect it and see what the numbers around it look like.

Some background: I’ve written about Obama’s (and neoliberalism’s) four big economic goals for his two tours of duty. For me, they are:

  1. Health care “reform” — a privatized alternative to Medicare expansion [done]
  2. A “grand bargain” in which social insurance benefits are rolled back [in work]
  3. Plentiful oil & gas and passage of the Keystone Sludgepipe (KXL pipeline) [in work]
  4. Passage of the Trans-Pacific Partnership (TPP) trade agreement [in work]

One of them doesn’t look like the others — item 2.

You can see the obvious benefit to billionaires and owners of the political system of a public-private health care “partnership” that enriches insurance and Pharma CEOs (item 1). On the oil front, Keystone will make David Koch and the other carbon lords even wealthier, and plentiful oil will extend the carbon regime from which so much wealth is extracted (“drilled”) out of the economy (item 3). Finally, TPP is just a geo-political wet dream for corps and their CEO owners, a one-stop international treaty that would elevate corporate power above sovereign power everywhere it’s implemented. New World Order indeed (item 4).

But benefit cuts? Why are both parties so hell-bent on eliminating or cutting Social Security benefits? Is there really that much at stake — for them? I’m going to slow-walk the answer in this post, and follow up later with numbers (this is turning into a research project on the numbers side). Let’s start with this …

The push to gut Social Security is real in both parties

First, make no mistake, both parties want to gut or kneecap Social Security. On the right (which is to say, among the rulers of the Republican party, not the voters) the Trust Fund is a big fat fruit, ripe for plucking and eating — $2.7 trillion and counting. That’s a lot of money to divert into the stock market, as Bush II tried to do in 2005. He was beaten back, partly because he was a Republican (keep that part in mind); but he gave it the college try.

On the “left” (as the Neoliberal rulers of the Dems like to brand themselves), the push is no less strong, but with slightly different changes on offer. The Wall Street billionaires would love to steal the Trust Fund outright, but you can’t sell that to Democratic voters, so when the “left” is in power, they don’t try to kill it so much as kneecap it, hobble it, cut its little hamstrings to keep it from walking.

The first Neoliberal president — the man who led the corporatization of the Democratic party — was Bill Clinton. He was also the first Democrat to rule after 12 years of Republican “revolution” that started in 1980, the year when everything changed. (Yes, you could call Carter a proto-neoliberal and be right, but that’s a tweak for this discussion.)

Clinton started the push to “fix” Social Security from the “left.” My earliest pieces written at this site addressed Clinton, Social Security and the Trust Fund. About Clinton, from May 2010:

Like Nixon to China: Obama and Social Security

Just like it takes a Republican to open Communist* China, it takes a Democrat to kill Social Security. … If you thought the corporate gifts in the so-called Health Care bill were bad, just wait till Obama’s so-called Deficit Commission gets its claws into Social Security.

Jane Hamsher put up a must-read article earlier this week that serves as a intro to her online salon with Steven Gillon, author of The Pact: Bill Clinton, Newt Gingrich, and the Rivalry that Defined a Generation.

In her intro, Hamsher discusses how Clinton worked with Newt Gingrich to pass pass a “fix” to Social Security. There were secret meetings and everything. (It almost looks like a club, doesn’t it.) The plan included the usual witches’ brew — cutting benefits, raising the retirement age, and fiddling with the cost of living increase. Even privatization was on the table, according to Gillon.

That effort failed, thanks to Clinton’s wandering mind . . . and Monica Lewinski. According to Gillon, the Monica scandal forced Gingrich back into the loving arms of his base, and killed the deal they were cooking up.

About those attempts, Hamsher wrote (my emphasis):

Clinton had been trying to deal with Social Security for some time. In 1994, HHS Secretary Donna Shalala had appointed the 13-member Danforth Commission to advise on Social Security. She appointed three members from labor (including Richard Trumka), Republican Alan Simpson (appointed by Obama to co-chair his Deficit Commission with Bowles) and Pete Peterson (the hedge-fund billionaire funding much of the current economic work being used to justify dismantling Social Security).

Pete Peterson was a member of the commission Clinton appointed to “fix” Social Security. Let that sink in. This is why Clinton regularly speaks at big-deal Pete Peterson events (well, that and the potentially lucrative speaking fees).

Click through for the details — Erskine Bowles was Clinton’s reach-out man to Gingrich.

Clinton, Peterson, Simpson, Bowles in 1994. Obama, Peterson, Simpson, Bowles in 2010. If the complicit corporate media weren’t so silent (that’s you, MSNBC), this would all be seen as one big push on the Dem side, just like Bush II in 2005 and Paul Ryan privatization today is one big push on the Republican side.

Your must-remember takeaway — Bill Clinton was as eager a benefit-cutter then as Barack Obama is now, and for the same reason. It’s a two-party effort and always has been. But what’s the reason? To answer that, we have to look at the Social Security Trust Fund, created during the Reagan years by the Greenspan Commission.

What’s the real purpose of the Trust Fund?

As a follow-up to the “Nixon to China” piece quoted above, I tried to tease out just what Social Security and the Trust Fund were, from the standpoint of the billionaires (then mere multi-millionaire pups) and their minions in the 1980s (new emphasis and some reparagraphing):

How to kill Social Security: Be ignorant about it

… It seems that despite years of public discussion — from the Bush push of 2005, to Obama’s suspected embrace of a Peterson cat food future — many of us still don’t know what Social Security is and how it’s been used. And that’s how they’ll kill Social Security — by turning our ignorance against us. So in the interest of actual information, a few basics:

1. You don’t contribute to your own retirement. You never did. No one did. Your parents’ money went to your grandparents. Your money goes to your parents. Your kid’s money goes to you. It’s an inter-generational contract. It always was.

This is not a program that’s designed to manage your money for you. It’s a program that’s designed to do “good works” — every generation keeps its parents off of cat food. Period. That’s the whole goal. …

2. You already “fixed” Social Security, in 1983. In that fix, Ronald Reagan and the Greenspan Commission (yep, Alan Greenspan) recommended increasing Social Security taxes on the middle class, but not on the Big Boys, the wealthy. The declared goal was to put tons of cash into the Social Security Trust Fund — create a huge rainy day stash — for when Boomers started retiring. (If you click the Trust Fund link, watch what happens to the last column, the total amount, starting in 1984.) … They robbed you once, so they wouldn’t have to do it twice. … [And they failed to adjust for this, which made things worse for us going forward.]

3. Reagan used that earlier “fix” to hide much of his massive deficit, to make it look smaller. That was the real goal (or if you’re feeling kind, the other real goal) of beefing up the Trust Fund. … [D]o you think either of them cared two twits about fixing … a future in which they themselves would be dead? The facts show just the opposite. What they really cared about was destroying the future — “starving the beast” in politer terms — while making it look like the beast was partially fed. …

The Reagan tax cuts steadily lowered the rate on the top dollars earned (keep that “top dollar” point in mind; mere mortals never saw those rates) from 70% to 50%, then to 28%. Those tax cuts, plus his massive spending, made the deficit rocket skyward. Mission accomplished; beast starving.

But how to make that deficit look smaller to the easily fooled? Simple. Grab a huge pile of cash from the middle class, invest that cash in Treasuries, and declare those Treasuries off-budget. Voilà — beast looks partially fed. …

4. The real goal of [the Clinton, Obama] fix is to hide the looting of the last fix. Just like the last time, the goal isn’t [fixing] Social Security itself. The last fix hid the mounting deficit in off-budget Treasuries. But soon those Trust Fund Treasuries might actually get cashed. Since the government would have to borrow to replace them, that transfers the off-budget numbers back on-budget. Oops. …

[T]he deficit hawks aren’t worried about spending the last dollar of the Trust Fund. They’re worried about spending the first dollar. They’re searching for what they can take from you, the impotent many, so that no dollar of the Trust Fund gets spent [and the powerful few never see another tax increase]. …

And there’s your answer. They used your money to patch and paper a hole. The cover-up of that patch job keeps them all in office; keeps them all from looking like thieves and you from looking like dupes and patsies; keeps the rube wallets open for the next round.

Bottom line

You could answer the headline question above (“What’s the real purpose of the Trust Fund?”) in either of the ways indicated above:

▪ You could be generous and say that someone somewhere in this mess — someone at the decider level — actually cared about Social Security, as well as about the looting, that there were perhaps good and bad goals intermixed. In the 1980s that may have been true; I’m not sure. Is it true today?

▪ Or you could say that no one at the decider level really cares about the program itself. They care about the political effect of having (but not ever spending) the Trust Fund’s $2.7 trillion.

When I see people talking today about “protecting Social Security” while (a) starting to dismantle it, and (b) ignoring one of the biggest sources of real revenue — removing the income & salary cap — I can only pick the second choice above, certainly for the post-1980s crowd. Heck, if Clinton had looked at wealth inequality and simply raised the salary cap to its original level — to capture 90% of all income, as it did in 1984 — the Trust Fund would have $1.2 trillion more today. But that wasn’t going to be his solution. Pete Peterson and Alan Simpson were on Clinton’s commission for a reason, and we all know what Peterson and Simpson want — dismantlement and benefit cuts. The knife.

It’s one thing to say you need revenue and then misallocate it. It’s another to start cutting the program itself. At the level of the deciders today (and them only, not the great economists and experts lower down), this is not at all about Social Security; it’s about the political effect of having and using the Trust Fund, and only that.

Note that I twice said “political effect” of the Trust Fund. This is not about numbers either; numbers are just the shell game, the fog. It’s about power, staying in power, keeping people who keep them in power happy. It’s about not raising taxes while screaming about the deficit. Manipulating the Trust Fund has a role to play.

The Republican Party’s owners (their donors) want to loot the Fund and will say so. Again, recall the Bush Push of 2005. The present owners of the Democratic Party includes Wall Street, and they too would like to confiscate the Trust Fund (by “investing” it for you and depleting it with fees). But Democrats can’t say they are looting, because “starve the beast” (and feeding on the flesh) has to be sold differently to Democratic voters.

Democratic voters have to be told they’re “helping,” serving the interests of the next generation. So from the “left” the idea that cutting benefits (shrinking the program itself) trumps cashing in any of the Trust Fund … that has to look like “reform,” not just straight theft, or it won’t begin to fly.

So we’re back to the beginning. Like Nixon to China, it takes a Democrat to put the first knife into Social Security and reduce its actual size. That’s why “benefit cuts” is high on the must-have list of each Democrat who takes the post-Reagan princely throne. Each one … including the next one, in case Obama fails.

Next up in this series

This is theory, explanation, and needs to be fleshed out. I’m going to see if I can get some numbers. The size of the Trust Fund is known, but this is also about dates. The Bigs (who love you and want you to be happy) tell you that the care-about date is 2035 (or whenever), the day the Trust Fund runs dry. That deadline induces yawns, one of the problems that its eager promoters have.

But if I’m right, the real deadline is when the first dollar leaves. When is that? Right now, I don’t know. And when that occurs, what’s the rate of decay? What does that graph look like? Again, I don’t know, but it matters. That’s the rate at which the general fund has to make up for the loss, somehow.

I’d love to find out both data pieces, wouldn’t you? Especially the date when the Trust Fund starts cashing those Treasuries. I’d bet money that this is the cause that’s making the Bigs panic and sweat. Stay tuned.

One response to “Naked Capitalism on the Social Security Rip-Off

  1. A MUST READ —MUST SHARE –yes it’s in all caps–need to share with everyone — so we can be informed and not duped – blindsided by those from the right and left that are in power

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