The Phony Social Security Crisis and 'Privatization' Scam

The Social Security Trustees Report (The 1996 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds) forecasts that the combined OASI and DI Trust Fund will be essentially bankrupt by 2029. This forecast is the main basis for many young people's cynical belief that FICA "taxes" are, for them, merely burdensome "intergenerational transfers" because there won't be any benefits for them when they retire. It also lends support for the Republican aim to "privatize" Social Security. But the Report's own charts reveal that this is a phony crisis of economic and political assumptions, not actuarial relationships. (The latest fund-raising campaign of the Rudman/Tsongas Concord Coalition also promotes this effort by calling Social Security a "ponzi scheme" which will collapse unless it is drastically reformed.)

But as the Social Security Trustees' own Annual Report (6/5/96) shows, the alleged "crisis" is a political fiction, caused not by the actuarial relationships but by the Trustees' own politically- determined ECONOMIC assumptions.

The Report includes three hypothetical projections which assume 7%, 6% and 5% unemployment, as shown by these three charts from the Report. Because the Trustees implicitly accept the false current myth that full employment and stable prices are incompatible, they focused their attention and publicity only on the 6% projection, which does go bankrupt in 2029. When family breadwinners lose their jobs, it's harder to balance family budgets, and the same is true for Social Security: high unemployment reduces current FICA "tax" contributions and increases benefit payments (as older and partially disabled workers are involuntarily "retired").

The charts show that the 5% unemployment projection is financially sound for the foreseeable future -- with no problems in either the Trust Fund (Fig. 1) or the cost/income relationship (Fig. 2), and only a moderate increase in the beneficiary/worker ratio (Fig.3). Unemployment is already down almost to 5%, and there is no valid economic reason why it should be allowed to go back up to 6% and higher.

The Trustees apparently didn't have the political courage to also include a projection for the 4% unemployment which used to be considered normal during the 28 years from World War II to 1973 -- and which is implicitly legally mandated by the Humphrey/Hawkins "Full Employment and Balanced Growth Act of 1978." So, for perspective, I have added dashed lines which roughly estimate this projection, which would not only assure continued financial soundness but also bring the beneficiary/worker ratio back to the present level after 2060 -- and probably even permit a significant responsible reduction in the FICA tax rate.

It is true that major policy reforms are needed to systematically coordinate our monetary, fiscal and other policy tools to achieve below-4% unemployment by 2000 without inflation. But these would have much less drastic effects on ordinary people than those currently being proposed for welfare and Social Security reform.

Thus, to talk about a Social Security "crisis" and need for "privatization" without also focusing attention on the unemployment assumption -- and the potential solution of continued economic recovery -- is to perpetrate a fraud on the American public.!

Because high unemployment also causes or exacerbates most of our other serious national problems and hinders their solutions, if President Clinton wants history to view him as one of the really great presidents, he needs to recognize that the strongest support for his visionary "bridge to the 21st century" would be a firm commitment to develop the policy tools needed to maintain stable full-employment economic growth with stable low interest rates, low inflation and a balanced full-employment federal budget.