The Washington elites apparently believe that we are in the worst downturn since the Great Depression because of free spending seniors running wild with their Social Security cheques. What else could explain their obsession with cutting Social Security benefits?
The fashionable cut these days is adopting a “chained” consumer price index for the annual cost of living adjustment. This chained index would reduce the size of the adjustment by 0.3 percentage points annually. This cut is especially pernicious. Since it is cumulative, it would hit the oldest of the elderly hardest. Beneficiaries would see their cheques cut by 3 percent 10 years after they start collecting benefits, by 6 percent after 20 years and beneficiaries in their 90s would see cuts of close to 9 percent.
Of course, Social Security is supposed to be off-budget so it really should not even be included in budget negotiations. From the standpoint of its own finances, it’s hard to see how any defender of the programme would support these cuts.
Burden on the economy
In the long-term, Social Security is projected to face a shortfall that will have to be dealt with in the decades ahead. Presumably this would involve some additional revenue and probably also some spending cuts. Why would any supporter of Social Security agree to these benefit cuts now, without getting anything whatsoever on the revenue side?
But the bigger question is why the President and Congress are even discussing such nonsense at all? Contrary to the hysterical shrieks from the Washington elite, we do not have a deficit problem at the moment. As can easily be shown, the large deficits of the last five years are because the collapse of the housing bubble sank the economy: Full stop.
Over the longer term, we have a problem of a broken healthcare system. We already spend more than twice as much per person for our health care as people in other wealthy countries. If this gap rises to three or four to one, as projected, then health care costs will impose a huge burden on the economy and the budget. But the answer is to fix health care, not to whine about budget deficits.
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These facts are not in dispute, so why is the leadership of both political parties so anxious to cut Social Security? This may not be hard to answer for the Republicans. The party has long been controlled by interest groups who are hostile to government social programmes. The Republican party is pretty open in pushing the case for making the rich richer.
The perhaps surprising part of this picture is that the Democratic party leadership seems to share this agenda. This is not surprising for those who remember the most important maxim of American politics: Follow the money.
While the vast majority of Democrats (like the vast majority of Republicans) strongly support Social Security, Medicare and Medicaid, the folks who finance the campaigns do not. People like former Treasury Secretary and Goldman Sachs and Citigroup honcho Robert Rubin are happy to see cuts to Social Security. And Robert Rubin and his friends contribute serious money to Democratic campaigns.
Current political situation
Democratic politicians are perfectly content to turn to their base after they vote to cut Social Security and ask them where else they plan to go. Democratic politicians are not prepared to ask their funders where else they plan to go. They know that their big funders could easily turn to funding Republicans or at least use their money for ventures like the Campaign to Fix the Debt. They don’t need to use their money to support Democratic candidates for Congress.
This is the reality of the current political situation. In the three decades after World War II, we were able to enjoy a long period of broadly shared prosperity based on a progressive coalition led by labour and industrial capital. The latter was prepared to accept a situation in which workers shared in the gains of growth, both because it would not have been easy to beat back labour, given its strength, and there was plenty of prosperity to go around. The rich of that era, like the people who ran General Motors and US Steel, were content to have their share of a rapidly growing pie.
Today, we have a re-distributional rich based in finance. People like Robert Rubin and Mitt Romney are looking to get an ever larger share of a pie which they don’t especially care whether it grows or not. Our bloated financial sector derives its wealth at the expense of the productive economy.
For today’s elites, a dollar paid out in Social Security benefits is a dollar that could be in their pockets. This goes even beyond any potential tax savings. There is also the matter of the vast sums that can be siphoned off in 401(k) fees if workers can increasingly be forced to rely on the private financial sector for their retirement income.
Until we can find a substantial segment of the elite whose prosperity depends on the well-being of the economy and society we can expect the attacks on Social Security and the living standard of ordinary working people to continue. The re-distributional rich can never be satisfied.
Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research.