Is the market really our best hope for the future? President Bush's plan
for Social Security suggests so. In fact for him, personally investing in
the stock exchange is a virtue. With Bush's twist, that notion is a holdover from the "new" economy hype of
the 1990s-President Clinton-style-that saw price bubbles in the dot-com,
high-tech and stock markets.
Bush's plan for reforming Social Security flows from his strong faith in the
market. Take Bush's proposal to create private accounts invested in bonds
and stocks to replace part of the payroll taxes that now fund the program.
Supposedly, this is a great market opportunity, a way to improve one's
personal responsibility by cutting reliance on government spending. Such a
change, however, would add risk to the Social Security program, created in
1935, which now provides about 47 million Americans-the disabled, retired
and survivors-with guaranteed income.
Today, stock prices are overvalued by historic measures. The still-high
price-earnings ratio (stock price divided by last year's earnings) is proof
of that. Thus future stock returns from the private accounts will go down.
Main Street understands this. Never underestimate the common sense of
In Montana where Bush recently touted his proposed Social Security reform,
regular folks were quite uneasy about his proposed creation of private
accounts. An opinion poll produced by The Great Falls Tribune showed
opposition to private accounts for Social Security "by a nearly 2-to-1
margin," the NY Times of Feb. 6 reported.
Clearly, Montana residents understand that the stock market is not a stable
provider of guaranteed income in their old age. Presumably, some of these
people surveyed have seen their stock market investments or those of family
and friends drop since the market peaked in 2000, and then declined. That in
turn paved the way for the recession that began in March 2001, making Main
Street less secure.
Contrast that to the security of corporate America, maintaining its
profitability in part by hiring few new workers and holding down real wages.
Some U.S. corporations' dilemma is what to do with their increased
retained earnings now. Recent merger and acquisition activity (SBC/AT&T and
P&G/Gillette) shows one strategy. Typically, job destruction follows such
Back on Main Street, reduced 401(k) retirement pensions invested in the
stock market have plunged. This has driven older workers who have retired
back into the job market to earn income. They are competing with young
people entering the labor market. Creating more job-seekers than there are
available jobs defines the capitalist economy. More demand than supply
drives down wages and increases the number of surplus workers.
Against that backdrop, private accounts invested in the stock market are a
centerpiece of the "ownership society" that Bush backs. Presumably, such
investments pursued individually by millions of younger workers will provide
them with income stability in their retirement years. Here is the path to
personal responsibility for Generation X and Y. Seemingly, Social
Security's guaranteed income weakens their personal responsibility.
By contrast, Bush's income-tax cuts that are enriching the American upper
class help U.S. society. How does this process actually work? That is a
mystery. Maybe the "scholars" at the American Enterprise Institute can
In the meantime, corporations have been fleeing stock market investments
that provide guaranteed income for their workers' pensions. Corporate work
forces are increasingly shouldering that market risk with 401 (k)
investments. Thus as corporate America beats a swift retreat from stable
pensions invested in the stock market for their employees' retirements,
Generation X and Y are supposed to seek the stock market for retirement
pension stability. Telecommunications workers who saw their pensions and
pay in the form of stocks plunge beginning in 2000 might have a thing or two
to say about such market opportunities.
In brief, Social Security stabilizes consumption spending, which accounts
for two-thirds of the U.S. economy. Its businesses and households,
together, are the top buyers of other nations' exports (led by crude oil),
thanks to funds from foreign lenders. Destabilizing that equation
broadcasts increased market risk to the rest of the world.
Replacing the capitalist economy is one thing. Destabilizing it is another
thing altogether. Bush's strategy to privatize part of Social Security
increases the risk of market instability, which falls heaviest on the
laboring class. Thus his view that market opportunity spurs personal
responsibility distorts economic reality.
Seth Sandronsky (firstname.lastname@example.org) is a member of Sacramento Area Peace Action and a co-editor
with Because People Matter, Sacramento's progressive paper.