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"But if the cause be not good, the king himself hath a heavy reckoning to make, when all those legs and arms and heads, chopped off in battle, shall join together at the latter day and cry all 'We died at such a place;' some swearing, some crying for a surgeon, some upon their wives left poor behind them, some upon the debts they owe, some upon their children rawly left. I am afeard there are few die well that die in a battle; for how can they charitably dispose of any thing, when blood is their argument? Now, if these men do not die well, it will be a black matter for the king that led them to it; whom to disobey were against all proportion of subjection." (Henry V, Act V, Scene 4)

Wednesday, April 20, 2005

Thomas Frank - The Trillion Dollar Hustle (2002 Article)

The Trillion Dollar Hustle
Hello Wall Street, Goodbye Social Security
Originally from June 2002. By Thomas Frank.

“Freedom from Want” was how Franklin Roosevelt described it. And for a good piece of the American public during World War II, Social Security—understood in the broadest sense—was among the country's noblest war aims. For them the connection between the common struggle of war and the common struggle of everyday life was self-evident. In 1944, Roosevelt proposed an “Economic Bill of Rights” for the postwar era; echoes of the idea could be heard in the G.I. Bill of Rights, the U.N.'s Universal Declaration of Human Rights, and President Truman's plan for a national health program. In Britain the war's ferment brought the Beveridge Report, a set of comprehensive social-security proposals so resoundingly popular that they became the foundation of the British welfare state. Both at home and abroad the Allies believed they were building a better world.

The horror is upon us again these days, but we are having trouble with the nobility thing. Even as our leaders exhort us to steel our nerves, buy war bonds, and go about our everyday business; even as they ask us to emulate the sacrifices and selflessness and common effort of the “Greatest Generation,” they are preparing to dismantle—to privatize—what's left of Roosevelt's Social Security program. September 11 may have moved the story off the front pages, but it lessened the Bush Administration's enthusiasm for privatization not one whit. Freedom from Want my ass, runs the slogan this time around. Bring want back!

Nearly any way you evaluate it, the administration's determination to press ahead with Social Security privatization at such a time has to rank high in the “Ironies of American History” record book. But the sudden arrival of war is hardly the only irony at work here. Even before September 11 the plan seemed spectacularly divorced from reality: In July, when the President's handpicked Commission to Strengthen Social Security issued its preliminary pro-privatization report, the country had just lived through a catastrophic plunge in one of its two major stock-market indices, its newspaper columnists were calling for the heads of the Wall Street celebrities whose acrobatics they had cheered only a short time before, and practically every day brought word of the failure or bankruptcy or 90 percent decline in revenue of some former “New Economy” favorite. Nonetheless, that was the time the commission chose to clear its throat, raise its solemn bipartisan voice, and declare that what the nation was suffering from was a “crisis of confidence” in its Social Security system, a program it characterized as a relic of a benighted age when people doubted markets . . . and that just might run into problems some thirty-seven years in the future.

How is one to explain such a perverse reaction to contemporary events? I propose that we understand the commission's relentless hammering of Social Security as just a very late addition to the “New Economy” genre, the exuberance papered over with modest commissionese but otherwise with all the reality-defying reasoning intact. Calculating and argumentative in virtually its every statement, the commission's indictment of Social Security is determined to prove that the stock market, not any government program, is the rightful champion of the little guy's quest for financial security. You've heard this many times before, of course: from the Beardstown Ladies to the Raging Bull website, this was the ideological fantasy of the last decade. This time, though, it is being replayed not to sell us on some mutual fund or hot tech issue but to convince us to bet it all—to liquidate what remains of the welfare state, head down to the great casino, and put our trust in Greenspan. Social Security privatization is to be the trillion-dollar hustle, Wall Street's final joke on those who just can't shake the free-market superstition.

* * *

Although the term is never mentioned in the document, it's hard to avoid thinking about social class when reading the commission's report. For your standard dot-com millionaires, savoring Wired's latest government-damning manifesto from the capacious multimedia room of their options-bought McMansion, the arrival of a day when they will no longer be able to work for wages isn't too great a concern. But for blue-collar workers, people intimately familiar with the deadliness of the free market's ups and downs, Social Security's guarantee of income in old age and disability is a cornerstone of democracy itself. This is why Social Security's most dedicated constituency has traditionally been organized labor, and also why Social Security commissions in the past always took pains to include labor representatives.

This time labor has no seat at the table at all. This time President Bush, as his own press secretary has admitted, chose as commissioners only people who were pro-privatization. This time representatives to the Social Security commission from the CEO community are balanced out by representatives from the Wall Street community, from the libertarian think-tank community, from the neoclassical-economist community, and by a few odd consultants and members of “Business Roundtables.” Labor and its concerns are as invisible here as they are on CNBC.

Don't worry, though. Early on in the report this group of prodigiously like-minded individuals-closer, really, to a week's worth of contributors to the Wall Street Journal op-ed page than to a real government commission-informs the world that what they really are is diverse. African-American CEOs and Latino vice presidents have come together with female economists and traditional white conservatives in selfless dedication to high ideals. And, of course, the group is bipartisan, with little (D)s or (R)s duly affixed to the name of each university professor or Wall Street executive. Just like the people who brought you NAFTA and welfare “reform,” this bunch looks like America.

The commission itself is clearly much taken by the airtight legitimacy such credentials are believed to confer. With labor excluded—with everyone excluded, in fact, who could possibly diverge from the privatization faith—the commission frames its pronouncements in the classic consensus tones of “New Economy” cocksureness. Addressing the history of Social Security, they write only as people can who truly believe that they possess the answers to all the big questions. “Social Security was created,” they declare, in “a world in which markets were perceived to have failed and faith in the individual had ebbed.” Ah, but today we have recovered from such misguided, if not un-American dogma. Today “[w]e better understand the power of markets than Americans did during the shock of the Great Depression.” Specifically, what we understand better is that markets are a friend of the common man. “The stock market and personal investing,” the commissioners write, “are no longer solely the prerogative of the rich and privileged,” a line so ideologically pat and so oblivious to what's happened in the last two years that they might well have drawn it from a TV commercial for Ameritrade.

And that's not the only advance we've made since the dark decade of the 1930s. “We” are also said to be “more strongly committed to equitable treatment of all our nation's people, regardless of race, income or gender.” Although this is surely true in a very general sense, it is also wildly misleading. The implication is that reforms passed in the 1930s—indeed, in any previous decade—are inherently tainted by the racism, sexism, poverty, and generic badness of that age, whereas present-day efforts to repeal those reforms are automatically on the side of the angels simply because we live in a more tolerant time. What a useful sophistry this could prove to be! Others could use it to argue, say, that it's time to repeal the Civil Rights Act of 1964, since back then people like Orval Faubus and George Wallace were running loose in the land.

As we shall see, however, a great deal depends on this passage, with all its insinuations of present-day goodness and the general venality of the old days, so let us remind ourselves of some basic American political history before we proceed. Although there were plenty of bigots in the 1930s, the commission surely knows that New Deal culture was suffused with the sort of diversity-celebrating that would be derided as “P.C.” today: Paul Robeson singing “Ballad for Americans,” the multicultural books of Louis Adamic, not to mention Hubert Humphrey's famous speech at the Democratic Convention in 1948 and that party's subsequent history as the champion of civil rights. The Social Security Act itself was largely the work of Frances Perkins, the first female cabinet officer, and for years its enemies fought Social Security (and welfare too) on the grounds that it pandered to racial minorities. Meanwhile, let us not forget, it was the enemies of the New Deal who, several decades later, made the most spectacular political use of racism: Richard Nixon's “Southern Strategy,” George Bush senior's Willie Horton commercial, and Jesse Helms's “white hands” commercial.

* * *

The bulk of the commission's report is a discussion of the looming solvency “crisis” that Social Security is said to face in the years to come. You've undoubtedly heard this song before, in either its square'n'earnest or its hip-hop versions, so I will summarize. The baby boomers are due to retire one of these days. There are so many of them that when this happens there will be fewer active workers per retiree than ever before. Payments to retirees, therefore, will outstrip Social Security tax income as soon as 2016.

Many, many millions have been spent to persuade the public that this scenario spells doom. Prestigious think tanks have been founded and funded to establish just this point. Generation X “movements” obsessed with privatization have been bankrolled and outfitted for pundit production; generational “leaders” whose one concern is privatizing Social Security have been selected and celebrated to the skies.

The solid stone wall into which this doubt-building industry collides is the Social Security Trust Fund. Anticipating the retirement of the baby boomers, Congress raised payroll taxes in 1983 well beyond where they needed to be to pay for the current group of retirees. Thus Social Security currently runs a sizable surplus, investing its surpluses in government bonds, which should enable Social Security to meet its obligations until 2038—and probably for the rest of the century, given slight adjustments way down the road.

This is where the doom gang gets inventive. Pouring on generous helpings of antigovernment rhetoric, they insist that it is somehow illegitimate for a government agency to hold government bonds. While the front page of the Wall Street Journal might report on political battles over the Trust Fund—i.e., should it or should it not be used to pay for other government expenses?—it is stated bluntly in editorials that these moneys “don't really exist,” that they are “nothing but accounting devices.” This view is widely shared on the right. “I come to you as managing trustee of Social Security,” Secretary of the Treasury Paul O'Neill recently told a Wall Street lunch gathering. “Today we have no assets in the Trust Fund. We have promises of the good faith and credit of the United States government that benefits will flow.” Dutifully parroting this line, the bipartisan commission reports that the Trust Fund money is “not truly saved,” that its Treasury bonds—usually thought to be the safest investment on earth—are “not an asset.” At one point the term “Trust Fund” is even rendered in quotation marks, as though the thing didn't really exist.

This is loony stuff any way you look at it. It can only make sense, economist Paul Krugman writes in the New York Times, if you engage in “a truly Orwellian exercise in doublethink”: that is, by including the Trust Fund in general government revenues when you want to, say, balance the budget and then excluding it when you want to make Social Security look weaker. When the Trust Fund accumulates bonds, they are said to be worthless since they are just IOUs given by one government agency to another, all of them working under one big budget. “But when it runs deficits,” after 2016, Krugman continues, “Social Security is on its own,” a logic that effectively steals the Trust Fund from the public. And when the Treasury Secretary himself makes the claim that the Trust Fund holds “no assets,” something even more unsettling is going on: the highest financial official in the land is talking about defaulting on U.S. government bonds, something that has never happened before. Were the global financial industry to take O'Neill or the commission at their word—to believe that the Bush Administration actually puts zero value on the “good faith and credit” of the issues of the Treasury Department—the world would be thrown into a financial crisis that would make 1933 look like a mildly stormy meeting of the Junior Savers' Club.

Strangely, while the commission frets over such a hallucinatory threat to Social Security, it downplays one of the system's most obvious problems: low wage growth. Social Security taxes, as everyone knows, are paid as a percentage of wages. Wages, though, were stagnant to declining through most of the 1990s, as “New Economy” forces channeled productivity gains into the stock market and the bank accounts of top management. So critical is wage growth to Social Security revenues that slight changes can cause massive revision of budget projections. Economist Dean Baker of the Economic Policy Institute estimates, for example, that “[i]f real wage growth increased by 1 percentage point more than currently projected (the rate actually seen in the fifties and sixties) it would make the [Trust] Fund fully solvent until 2060 and eliminate about 60 percent of the projected shortfall.” The commission, though, refers to the wage issue only in passing, and then dismisses it by announcing that no foreseeable increase in wages will possibly be enough to solve the system's very-long-term problems all by itself. As with the Nasdaq bubble, they'd rather just look the other way. Thinking about what really went wrong with the nineties would mean abandoning the reverence for the corporation and Wall Street that underpins this whole farcical scheme.

* * *

The commission imagines itself to be the rescuer of Social Security. What it actually proposes, though, is that Social Security be replaced by a system of compulsory saving in which everyone's payroll taxes will go to his own account alone and be invested however he chooses. As the report puts it, in a criticism repeated again and again throughout the document, Social Security is “a system utterly devoid of options for building a net worth that reflects the dynamism of the American economy. . . .”

A nation in which everyone owns stock, though, is not the same thing as a nation with social insurance. Social Security's goal is not to furnish citizens with a shot at dynamic “net worth”—leave that to the authors of Dow 36,000 and to the Illinois state lottery. Social Security is about minimizing the catastrophic possibilities that are unavoidable in a free-market system. Owning shares of stock might give you a secure retirement or permit you to ride out a period of disability, but only if you're lucky. If you pick lousy stocks, or if you don't earn enough to buy very many, or if the market doesn't go up and up and up forever, a privatized system won't work. Social Security, on the other hand, uses money contributed by all working members of society to insure each of them against economy-wide events—like, say, a stock-market crash—that, by definition, can be insured against only by government. By covering so many people it also provides services that private insurers will simply never make available at an affordable price. It isn't a radical, subversive institution; in most lands, and for most of the last century, social insurance has been regarded as a fundamental aspect of democracy.

Social Security is, however, also the foundation of the welfare state. It redistributes society's wealth, taking from some and giving to others. And it is the single most successful government program of all time, the bedrock on which the New Deal and Johnson's Great Society were built. Its existence is a constant reminder that the free market once failed monumentally to provide Americans with the basic stuff of life. It is also a tantalizing suggestion that human intelligence can sometimes order things more effectively than market forces.

Social Security has thus traditionally annoyed the country's owners far out of proportion to its subversive content. Those who prosper the most from laissez-faire capitalism have an objective interest in making Social Security seem to be in perpetual crisis, in constantly undermining it, in mocking it, in mystifying it, in spending its surpluses, in giving its Trust Fund away as tax cuts to the very rich. So has it been since the very beginning. During the presidential campaign of 1936, Republicans charged that the Social Security system, what with its identification numbers, was a step toward totalitarianism. Newspapers supporting Alf Landon, the Republican candidate, tried to sow panic by claiming that the Social Security system would require workers to wear numbered dog tags. Management left notes in workers' pay envelopes alerting them to the imposition of the payroll tax and warning them that there was “no guarantee” they would ever see any benefits at all. “You might get this money back,” one of these notes read, “but only if Congress decides to make the appropriation for this purpose.”

Landon's resounding defeat in 1936 helped to make Social Security the sacrosanct program it eventually became. Men of the far right, however, hammered obsessively at these charges for years. Assailing the welfare state as the first step on the road to Communist dictatorship was, by the late 1940s, an editorial standard in publications such as Reader's Digest and The Saturday Evening Post. The other, somewhat contradictory, argument—that maybe government will just take all that tax money and then do nothing—proved equally durable. Carl T. Curtis, a Nebraska senator who only took breaks from his forty-year war on the welfare state to fight the labor movement and defend Nixon during Watergate, was fond of pointing out that “what Social Security benefits are to be paid, and on what terms, depend on the will of the federal government.” Which, to Carl T. Curtis, was a fickle and malignant will indeed.

Today paranoia about big government is wholesome fun for the entire family, not a dark disorder of the far right. And distinct echoes of the Landon campaign can be detected throughout the commission's report. Under the existing system, “workers and beneficiaries have no legal ownership over their Social Security benefits,” the commission steams. “What they have is a political promise that can be changed at any time, by any amount, for any reason.” And changing that promise, ironically, is precisely what this commission urges us to do.

This logical morass is as good an example as any of what might be called the train-wreck ideal: the right's belief that it can persuade the public that government is bad by giving us spectacularly bad government. Just as Republicans in the Reagan era ran up towering federal deficits in order to discredit deficit spending, just as congressmen of the Gingrich era let government services grind to a halt in order to show just how irresponsible congressmen could be, just as Republicans of our own day have taken to electing cretins to positions of great public authority in order to discredit the very notion of public authority, so the present Social Security commission uses the possibility that politicians might try to do away with Social Security as a justification for doing away with Social Security. Of course, the real solution to this puzzle is refreshingly simple and straightforward: abolish this wretched commission at once and send the privatizers the way of Alf Landon.

* * *

The single innovation for which the commission will be remembered is its effort to peel off the traditional constituencies of the left and enlist what it benevolently calls “Vulnerable Americans” in the fight against Social Security. The war on welfare sometimes used a barely concealed racism to advance the cause; here it is recommended that we scrap Social Security because it provides poor service to African Americans, women, Hispanics, and “Low-Income Americans”—to everyone, in fact, except the middle-class “angry white males” who so recently made up the rank and file of the right.

Those accustomed to understanding conservatism as Strom Thurmond writ large might be surprised by the exotic species of racial grandstanding that this new thinking has unleashed among the privatization set. Meredith Bagby, a strident young privatizer who testified before the commission in October, looks forward in her book, Rational Exuberance, to a day when a largely nonwhite young America rebels against Social Security because its benefits go mainly to a still-white—and thus deeply and correctly hated—elderly America. Better to get rid of the whole thing now. Then there is Wade Dokken, CEO of the American Skandia mutual-fund firm, whose book, New Century, New Deal, insists, first, that Dokken is the staunchest sort of Democrat imaginable (even though his book was published by Regnery and blurbed by Republican presidential candidate Steve Forbes) and, second, that Social Security has to be privatized at once because it is clearly racist: whites receive more in benefits from it than blacks. “Workers of the world, unite!” writes this banker with a proletarian heart. “It's time to make Social Security choice a glittering reality for every worker and every family!”

The language used by the commission is more discreet, but the argument is essentially the same. Social Security is unfair to African Americans, the report maintains, since blacks “have shorter life expectancies than other groups” and therefore collect less in retirement benefits on average than others. Although the commission doesn't mention it, this is because so many black people die young. And when the mortality rates are broken down by socioeconomic factors, it becomes clear that, in fact, African Americans live about as long as the average for their socio-economic level. Middle-class blacks have nearly the same life expectancy as middle-class whites; poor blacks have nearly the same life expectancy as poor whites. The tragedy of black America is largely a tragedy of poverty: so many African Americans die young because so many African Americans are poor.

For many this fact would naturally indicate that we need to renew the War on Poverty; through sheer reactionary bravado, the commission tries to turn it into an indictment of the Social Security system. On every real issue concerned with the spectacular, disproportionate victimization of African Americans—the death penalty, mandatory drug sentencing, screwy voting practices in Florida, etc.—the Bush Administration and its appointees have gone out of their way to absolve the authorities of all blame. But on Social Security they cynically heap the most far-fetched innuendos. Having rolled back welfare, having stopped every effort to win national health insurance, having taken massive steps toward eliminating affirmative action, the right now looks out at the world it has created and finds in the raggedness of its cruelty a mandate for abolishing the welfare state altogether.

It only gets worse. In order to sell privatization as the solution for “Low-Income Americans,” the commission professes to be worried that Social Security “is not nearly as redistributive as many people believe” and ticks off a list of legal quirks that prevent the system from benefiting the poor as well as it was intended to do. But, of course, any privatized system is going to magnify this problem, not solve it. Social Security pays out proportionally more to the poor than it does to the well-off; privatization, on the other hand, will offer the poor only as many turns at the great roulette wheel as they can afford from their tiny savings. For bankers, brokers, and existing shareholders, though, it promises a stock-market boom of dot-commian proportions as the forced savings of middle America puff their portfolios on into the endless empyrean. For the well-to-do, privatization means free money.

* * *

What are we to make of such a parade of cognitive dissonance? Why are so many willing to affix their signatures and good names to such a dishonest document? Why push such a pro-plutocrat scheme when, in every other field, patriotic “unity” is the order of the day? Why set out on such stormy seas in so flimsy a craft? Can it really be worth it?

Evidently so, given the prizes at stake. There is, first and most obviously, a stupendous windfall in the works for Wall Street if privatization actually takes place. Bush's commission has already ruled out the kind of semi-privatized system proposed to solve this non-problem during the Clinton years wherein the government would itself invest the Social Security Trust Fund in private securities. Such a strategy, it is thought, would “politicize the markets,” giving those never-to-be-trusted politicians too great a power over the companies in which the money is invested. The only option left, then, is individual accounts, hundreds of millions of them, each one generating the attendant commissions and fees for the nation's brokers.

Just as enticing are privatization's potential effects on the labor force. With Social Security's guaranteed benefits, workers are able to look forward to a time of leisure, to a time of complete freedom from the boss. Under privatization, all guarantees are off. Your retirement is tied solely to the size of your portfolio, which in turn is tied to your willingness to work-longer hours, and on the boss's terms. The new economics of retirement will thus pay dividends in increased workforce discipline and will also force millions to continue working well into their retirement years, enlarging the labor force and helping to keep wages down. “The response to higher-risk retirement income is more labor force participation,” economist Teresa Ghilarducci of the University of Notre Dame explains. “Women are already working, we're going to run out of immigrants, children are out of the question, so we have only one pool of labor remaining, and that's retirees.”

“The idea that the poor should have leisure has always been shocking to the rich,” Bertrand Russell wrote in 1932, and the idea clearly still shocks many. “That's the argument I'm hearing from Washington,” Ghilarducci continues. “'What does the working class want with retirement? They ought to work.'”

An even shinier reward also looms just over the privatization horizon. The Social Security reformers profess concern over the politicization of markets, but what they have in mind might be described as the marketization of our politics, the coronation of Wall Street as the nation's protector and benefactor. What the stock market has clearly failed to do on its own-establish itself as the reliable friend of the small investor and establish its political agenda as that of the common people-the commission now proposes to do by law. With our Social Security money entrusted to Wall Street, its priorities will become the nation's priorities; its demands for deregulation, de-unionization, low wages, and generous “stimulus” packages whenever the Dow looks a little weak will be recast as the demands of little old ladies in Beardstown and blue-collar workers in Providence. Who would dare to legislate for higher minimum wages, say, or stricter protections for arctic wildlife, when such a move could be construed as an attack on the nation's beloved retirees? Although we can only glimpse the possibilities now, this mind-boggling reconfiguration of economic politics is the real promise of privatization, the thing that makes it worth the insane gamble: instantly, privatization would reverse the polarity of the famous “third rail of American politics,” transforming Social Security from the bane of the business community into its most potent weapon, an argument-ending current that would crackle through the fingers of every P.R. man and corporate lobbyist. Touch Wall Street and you're dead.
About the Author

Thomas Frank is the editor of The Baffler and the author, most recently, of One Market Under God.


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