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TechnoratiSaving Social Security
Here's a cheap and effective form of economic stimulus – tell America's baby boomers that their welfare benefits are safe
The stimulus bill approved by Congress last week - and due to be signed into law by President Obama [today] - is a very good first step toward slowing the economy's decline, but it clearly is not large enough to accomplish the job. The US economy will be seeing a loss of close to $2.6 trillion in demand over this year and next due to the collapse of housing and commercial property bubbles.
To counteract this collapse, Congress gave President Obama just over $700bn in real stimulus. President Obama will have to make further requests from Congress to close the gap between what the economy needs and the stimulus package approved last week.
However, there is one step that President Obama can take to boost the economy without going through Congress: he can reaffirm his support for social security, and assure the baby boomers nearing retirement that he will not allow their benefits to be cut. If this huge cohort - now in their late 40s, 50s and early 60s - know that they can count on getting their promised benefits, they will feel more comfortable spending and supporting the economy at a time when it badly needs a boost.
The impact of social security on boosting consumption has long been touted by economists, most importantly Harvard economics professor Martin Feldstein, who had been Ronald Reagan's chief economist and is now an advisor to President Obama. (We will ignore the fact that his early results on this topic were driven by a programming error and that his later results disappeared with government data revisions.)
Feldstein claimed that workers spent more money during their working years than they would have otherwise because they expected to receive social security benefits when they retired. Therefore they had less need to save for retirement.
However, many workers may not be expecting to receive their social security benefits because there has been a concerted effort over the last quarter of a century to undermine confidence in the programme and to cut the level of benefits. If workers question whether they will get the social security benefits they have paid for, they will feel more need to save rather than spend.
Workers are likely to be especially fearful about the prospects of getting their social security benefits now due to an all out assault on the program financed by billionaire banker Peter Peterson. Peterson has spent much of the last two decades trying to cut social security, Medicare and other benefits for the elderly. He recently contributed a billion dollars to a foundation bearing his name that is primarily committed to this goal.
Peterson's investment has paid off both in exposure from the media and more importantly attention from many members of Congress and their staffers. There are now dozens of senators, congress people and their staff running around Capitol Hill crafting creative new ways to cut social security. Baby boomers are right to fear that Peterson and his crew will take away their benefits.
While the idea of taking away benefits for which workers had already paid was always outrageous, it especially outrageous at a time when these workers have just seen much of the wealth in their homes and their retirement savings disappear in the housing crash and the collapse of the stock market. Making matters even worse is that fact that Peterson's friends in the financial industry, along with many of the economists who would like to cut Social Security, were the primary culprits in this disaster story.
But, President Obama can quickly get us beyond this attempted heist to the benefit of both older workers and the economy. He can simply assure the baby boomers that he will not allow the Peter Petersons of the world attack their benefits.
In fact, he should assure the baby boom cohorts that their social security benefits are safer than having money in the banks (even the government insured ones) and that they can plan accordingly. This may not lead to a huge burst of new spending, but baby boomers will spend more confidently through time knowing that they can count on getting the benefits they have earned.
President Obama will clearly have to take other steps to get the economy fully back on its feet, but a simple speech assuring baby boomers that social security is safe will be an important step in the right direction. This speech also has the additional advantage that, unlike other forms of stimulus, it doesn't cost anything. As we all know, talk is cheap.
20 Comments so far
Show AllDean Baker is correct that Social Security tends to counter economic volatility. But increased consumption isn't going to solve our long range problems. Because over-consumption is one of our worst problems. It is surely a waste of time to debate within the boundaries drawn by the elites. We simply need a smaller economy. Take a nice long vacation from consumption, people.
HOW THE GOV. ROBS YOU OF SOCIAL SECURITY
Each year, those receiving social security or disability payments get an cost of living increase based on the CPI (Consumer Price Index). The government has changed how they calculate the CPI, basically to lower it. Thus, the retiree gets gets a lower cost of living increase, resulting in vast savings for the government.
If you want to see what the CPI would be under the old calculation versus the current one, go to shadowstats.com
Remember, the Federal Reserve creates inflation by diluting the value of the money. Since its founding in 1913, a Federal Reserve note (a "dollar") is worth 5% of what it was worth. A price increase is a supplier's response to that inflation; a price increase is not inflation.
The US has always had a lousy retirement program in SS that never offered a dignified retirement because it was created as a supplement to retirement income in a time when pensions were prevalent. Pensions were replaced by the phony 401k's which were never meant to replace pensions but were jumped on by business as a way of shedding pension expenses. They looked good when the stock market was going up, now...
Now pensions are rare and going bust or stolen, 401k's have been exposed for the fragile disasters based on the stock market they always were, and all that is left is SS which was never really meant to be a total retirement. Until the US has a decent retirement program that funds some sort of guaranteed retirement with dignity, no one can ever feel secure in spending because they never know how much to save for retirement or where to put it. It's no wonder people who have lost 50% of their 401k's aren't spending and won't be spending anytime soon, their retirement is gone and there is nothing that is going to replace it!
" tell America's baby boomers that their welfare benefits are safe"
Mr. Baker,
Social Security is not a "wellfare" program. It is a retirement program
paid for by the citizens continuously from their pay checks.
By calling SS a welfare program, then you are playing in the hands of those who
want to destroy the program.
You should choose your words carefully. Shame on you.
commoner,
Maybe you need to get over your prejudices over the word "welfare".
Same with the word "socialism".
---USAn---
PJD,
I have no prejudice against welfare, but SS is not a welfare program.
It is a retirement programm. So, both welfare and SS are two different
programs and it is better not to confuse them with each other. Please don't be so quick on the trigger!!!
I wonder if Baker wrote the subtitle
"While the idea of taking away benefits for which workers had already paid was always outrageous, it is especially outrageous at a time when these workers have just seen much of the wealth in their homes and their retirement savings disappear in the housing crash and the collapse of the stock market."
Not only is it outrageous, it's dangerous. If anyone thinks the baby boomers are going to sit on their ass' while "Daddy Warbucks" and his GOP cheerleaders in Congress think their going to screw this group with no backlash, then they're living in a fantasy world.
If they think the civil rights riots of the 60's were bad, let them try to highjack the Social Security of these 1960's/70's protestors, especially after they've all had their savings disappear into thin air!
According to William Greider's article http://www.alternet.org/workplace/126898/obama_will_fight_with_us_to_quash_the_campaign_to_loot_social... ) , this is not the government's money; the government essentally acts as the fiduciary in trust for the beneficial owners......"We The Taxpayers".
Many of us are just waiting for these self-righteous GOP fools to try to steal our Social Security in the name of (get this) "fiscal responsibility" and reform. How obnoxious is that!?
Very good question, PDJ. I often wonder why so little appears in the mainstream press. I had never heard of Peter Peterson until this article.
Has anybody done any research to find out how many media companies Peter Peterson owns ?
No, but he's worth several billion.
As I understand it there is nothing per se wrong with the SS Trust Fund except that it is just a sham to collect more tax--no matter that that was not the original intent. I say there is nothing wrong with the SSTF because the IOUs from the gov to the fund do exists and are more or less adequate for quite some period out into the future. The sham is that the US Gov is using those moneys as part of the general fund to run the gov.
This theft begin back in the Johnson Admin when the pay role taxes funding the SSTF were merged into the General Fund. This little sleight-of-hand accounting trick allowed for Johnson to fight his war and at the same time fund the rest of the gov operations--fraudulently fund them with surplus SSTF money which was to support this program off in the future when the ratio of workers to employees would be less favorable. And nothing has changed since.
According to the 2008 US Gov Financial Report, the US deficit for the fiscal year ending this past Sept was not the .5 billion dollars reported under the "unified budget" but rather 3 billion dollars--this difference was supplied by the surplus SSTF pay role taxes collected during this period. (Beginning in 2017, there will be no surplus of collected pay role taxes over then current SS obligations. After that everything will begin to run in reverse--the US Gov will not only have to find another way to fund its hidden deficits, it will also have to borrow money to pay back its obligations to the SSTF so that system can continue to function.
Whether it is Johnson's war or Bush's war, you can have both guns and butter so long as you are willing to steal the SS retirements from future Americans.
The country is bankrupt both fiscally and morally.
There is no US Social Security Trust Fund. It's a pay as you go Ponzi scheme whereby current liabilities are funded from current income. If there is any excess of income the government uses it to buy Government bonds and then spends the proceeds from its sale of bonds.
I wonder how many of the retired, soon-to-retire, and wishing-they-could-retire folks who voted for Bush in 2000 over Gore, feel any remorse. At least, Gore was insisting on putting Social Security in a "lockbox."
US voters make most voting decisions based on a candidate's media presence. The more a candidate resembles John Wayne, the more they like him.
Obama won only because of the huge economic meltdown in September. Had it occurred in November, Commander McClone and Queen Sarah would be sitting in the White House.
Bush supporters will rationalize their votes until the day that the last survivor of the US working class takes up the last remaining sleeping space beneath the last crumbling bridge.
We do not need Dean Baker to tell us that there are those in our country that are committed to getting rid of Social Security, Medicare, and most other programs that benefit common people instead of the rich. They will stop when the super rich have it all, and the rest of us are nothing but slaves for them. Keep on your Congress reps and senators to be on guard for this. What if the country had fallen for GWB and his privatisation scheme?
Why is the reputable US economist Dean Baker having to publish his analysis of a purely US domestic program (Social Security) on the pages of the Guardian of London, England?
Couldn't he get it in the NYT or Washington Post? Or has he been Chomskied from any US op-ed pages for his "extremist" (i.e. pro-government regulation, criticism of corporate media) views?
---USAn---
The US military industrial media complex continues to hope that ss will be privatized to further enrich Wall Street at the expense of ss recipients. So don't expect to see such articles in the mainstream US media.
Although the Guardian article is right on...it doesn't go far enough.
Not only are the boomers not going to spend more now, they will delay retirement, or in many cases never retire. I am one of those people and as much as I am disappointed that I won't be able to retire as planned, I am more disappointed that millions of today's college students will be underemployed or unemployed for many years because me and millions of other boomers are staying in our "family wage-paying jobs" far longer than we planned to.
Sioux Rose
RayD: Good points.
Just for the sake of fiction, I'd like to present an "Oh, God" moment featuring the illustrious Mr. Peterson.
God, "So Peterson, you had quite an embarassment of riches while living on earth. And tell me, sir, how did you use them?"
Can you imagine this guy's "defense," that in spite of all he had, he invested his millions into INSURING that others in NEED would have little? Can a heart beat in such an individual? I mean we know Cheney's is a metallic lock-box robotic contraption, something akin to a tiny grandfather clock... LIFE has long exited THAT equation, or excuse for a mortal.
sioux..
nice laugh
cheney and all
i live on ss
nothing else
paid since 13
i am pretty passive
but???????
ken