Posted on 02/09/2005 10:06:52 AM PST by fight_truth_decay
As Social Security’s critics know, the government program is robed in myths, for example, that it is “insurance” financed with a “trust fund,” paying “guaranteed” benefits “as a matter of earned right.” These myths have given most Americans a mistaken understanding of Social Security. As a result, they perniciously affected policymaking in the past and severely constrain reform options today.
Beginning in 1935, when Social Security was enacted, the program’s administrators made a huge effort to shape the public’s understanding of and beliefs about it. In speeches, articles, pamphlets, and other mass-circulation literature, they described Social Security as “insurance” under which workers pay “contributions” or “premiums” to receive “guaranteed” benefits that, being “paid for,” are theirs “as a matter of earned right,” without any means test.1
The mainstream media uncritically adopted these semantics, referring to “earned annuities regardless of other income,” “old-age insurance,” “insurance premiums,” old-age income provided “as a matter of right,” Social Security as a “mass insurance policy,” and to the government as “writing insurance policies guaranteeing to pay monthly benefits.”2 Moreover, and very importantly, Social Security’s payroll tax and the creation of the “Old-Age and Survivors Insurance Trust Fund” as part of the 1939 Social Security Amendments made this depiction seem real and believable.
As a result these semantics became Americans’ frame of reference for thinking about the program. That is, the terms created a false consciousness about Social Security. By “false consciousness” I mean simply an understanding of something’s nature that is at variance with reality, but that is nevertheless taken as true and governs belief and conduct.
The falseness of these beliefs is proved by Section 1104 of the original Social Security Act, never repealed: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” This routine reservation of power to amend legislation means Congress can cut benefits. And it has, several times, beginning with the removal of Social Security’s money-back guarantee in 1939. This necessarily demolishes the “earned right,” and with it any analogy to insurance, with its binding contractual obligations. For obvious reasons, this particular provision of Social Security, and its implications, were never publicized by Social Security’s partisans.
This false consciousness quickly attained a powerful grip on the American mind. In 1950 the self-employed were brought under Social Security. Beneficiaries who had previously started small businesses in retirement found that their new efforts were now covered employment; monthly self-employment earnings above $50, then $75, would trigger loss of benefits under the “retirement earnings test.” Many self-employed elderly were outraged: had they not been told that their benefits came as a right?3 Similarly, the famous Flemming v. Nestor Supreme Court ruling (1960) arose because Ephram Nestor, deported for being a communist in the 1930s, lost his benefits under the 1954 Social Security Amendments, which suspended benefits for those deported for subversive activity. Invoking statements by politicians that benefits are paid as an earned right, Nestor’s unsuccessful suit is further evidence of the public’s absorption of Social Security’s myths.4
Beginning in the late 1950s several senior groups were organized, including, the American Association of Retired Persons (AARP) in 1958, the National Council of Senior Citizens in 1961, and the Gray Panthers in 1971. The growth of the population aged 65 and over, from 19.1 million in 1965 to 26.1 million in 1980 and 32 million in 1990, fueled the expansion of these senior organizations. The AARP, for example, grew from 800,000 members in 1968 to 5 million by 1975 to 16 million by 1986, and to 28 million in 1990.5
This was a fateful development. By the time Social Security experienced its first financial crisis in the 1970s, the elderly lobby was a mighty force—and its ranks were filled with people who had spent their entire lives since 1935 being told that Social Security was insurance, that they had paid for their benefits, which were theirs as an earned right. Moreover, in their experience Social Security seemed to live up to its misleading image. In short, there had arisen a large, well-organized, and militant pressure-group bloc steeped in false consciousness and armed with the political power to give it a strong influence on policymaking.
Meanwhile, a new myth appeared: Social Security is a “social contract” or “compact between the generations.”6 No such contract or compact exists. The generations did not covenant with one another. Congress passed a law. And no “contract” can coexist with Section 1104, which empowers Congress to rewrite this “contract” unilaterally. Nevertheless, this myth won widespread acceptance.
Reagan’s 1981 Social Security Debacle
The power of the false consciousness was dramatically demonstrated in 1981. Inflationary stagnation and an erroneous double indexing of benefits for inflation, enacted in 1972, had combined to drive Social Security into annual deficits and projected bankruptcy. The Cost of Living Adjustment (COLA) was corrected in 1977, and a massive and bitterly resented tax increase was enacted.7 Yet Social Security’s deficits continued. In May 1981 President Ronald Reagan proposed cutting benefits to end the crisis. The proposal included a reduction in early retirement benefits (benefits which persons can collect if they retire before the normal retirement age) from 80 percent of the normal benefit to 55 percent.8
Attacks on Reagan’s proposals erupted immediately. Democrats in Congress flayed Reagan, declaring that “Benefits are a right—an earned right,” that he was guilty of “breaching a contract,” that “Social Security is bought and paid for by the hard labor of the American worker,” and so on.9 Letters to newspapers declared, “Where do you get the nerve to insinuate that Social Security recipients are ‘supported’ by workers? Social Security is an insurance program, generously contributed to by workers and employers”; beneficiaries “have earned their benefits”; and one’s benefit is “a pension earned by a lifetime of work.”10
In July 1981 Congress defeated most of Reagan’s proposals. But it did eliminate Social Security’s $122 minimum monthly benefit.11 This prompted a fresh eruption of ill-informed anger. For example: “These seniors contributed many hours and dollars to Social Security during their working years. This is not a dole.” “Columnists should stop writing about Social Security as if it were social welfare for senior citizens.. . . Social Security is an insurance program establishing a trust fund.” “The Social Security system is an insurance system whereby our payroll deductions are the premiums we pay.”12 Congress and Reagan flinched; the minimum benefit was restored.
The response to Reagan’s proposed cuts would have been negative in any case. But the specific beliefs voiced proved that Americans had a false consciousness about Social Security, which determined their response to policy proposals and thereby affecting the proposals’ fate. The response proves too that most Americans had never heard of Section 1104—because Social Security’s partisans had chosen not to tell them.
More: Reagan’s defeat had roused the myth-indoctrinated elderly to vigilance and given themselves and politicians a demonstration of their power. From now on, Social Security policymaking would occur in the shadow of their bludgeon.
Social Security Myths and the Post-Reagan Paralysis
In 1983 Congress raised Social Security taxes and reduced future benefits by raising the retirement age and trimming early retirement benefits after 2000. (So much for the “contract.”) The benefit reduction for current beneficiaries was minimal, mostly through a new, modest benefit tax.13 Politicians had learned their lesson.
Throughout the 1980s, Congress wrestled with chronic large budget deficits. Various deficit-reduction proposals were made and some enacted; but most, such as the Gramm-Rudman-Hollings Act, exempted Social Security. The few proposals to cut Social Security, such as a 1985 attempt to eliminate the 1986 COLA, were quickly retracted in the face of seniors’ wrath.14
In January 1993 the new Clinton administration proposed reducing the deficit by freezing Social Security COLAs. The AARP condemned the freeze. Witnessing for the false consciousness, Senator Daniel Patrick Moynihan called it “unacceptable,” since it would weaken the idea that Social Security is insurance. We should, he said, “acknowledge that this is a contributory insurance program. These monies are held in trust. . . . It’s paid-up insurance.” Representative Newt Gingrich called Social Security a “contract” and vowed to “keep the Democrats from tampering with it.” President Bill Clinton reversed himself, told the AARP’s leadership he believed Social Security is a special contract with the elderly—explicitly affirming Social Security’s myths—and dropped the COLA freeze.15
“A Sacred Trust”
The Republican alternative to Clinton’s deficit plan exempted Social Security. As myth-smitten as Moynihan and Clinton, Congressman John Kasich wrote that “Republicans believe that Social Security represents a fundamental agreement between the Federal Government and the American people—an agreement that must be preserved.” Republicans would cut the deficit without cutting benefits, which seniors deem “a sacred trust.”16
By the late 1980s it was clear that when the baby boomers retire, Social Security tax rates mandated under current law will not cover current-law benefits and that Social Security will have to liquidate its government debt holdings. Eventually it will be unable to pay full benefits on time. Debate arose over how to revise Social Security in order to avert fiscal crisis.
Means-testing benefits—eliminating or reducing them for better-off beneficiaries—is one option for reducing costs. But Social Security partisans such as Representative Bill Archer opposed means-testing because it “violates the earned-right concept” of Social Security.17 Means-testing remains unadopted.
Many Social Security reformers assert their commitment to maintaining benefits for current retirees. In 1997 the Heritage Foundation’s Daniel Mitchell observed that “all privatization proposals explicitly guarantee” benefits for current and imminent retirees—partly for political reasons, but also because of a “moral argument. . . . Simply stated, the government made a contract with them to provide a certain level in exchange for taxes paid, and it would be wrong to break that contract.”18 Clearly, Mitchell bought the myth that we are contract-bound.
More recently, David John, also of Heritage, declared that “The benefits of current retirees and those close to retirement must not be reduced. Washington has a moral contract” with these persons. John explicitly advocated legally guaranteeing current-law benefits for them. Legislation has been introduced to create such guarantees.19 This would make a central tenet of the false consciousness a reality, obviously to make reform palatable to the myth-steeped, politically powerful elderly. But locking policymakers into benefit-side rigidity would be disastrous.
Unfortunately, refusal to reduce current retirees’ benefits saddles privatization plans with colossal transition costs, since the initial generation of workers under privatization must finance not only its own retirement, but that of the current beneficiaries. For example, in 1998 Peter Ferrara and Michael Tanner of the Cato Institute proposed leaving current retirees’ benefits unchanged and diverting 10 percentage points of the 12.4 percent Social Security tax into individual retirement accounts. The annual revenue diversions—the short-falls that must somehow be financed—in 1998–2027 would have totaled $10.6 trillion in 1998 dollars.20
The only way to reduce transition costs is to cut current as well as future benefits—but that requires confronting and exploding the false consciousness and educating the public to see Social Security benefits for what they really are: redistributive transfers that are neither guaranteed nor earned rights, but rather contingent, malleable, and subject to revision by Congress. So far, reformers have been unwilling to do so. Until they do, they are doomed to wrestle with transition costs and to concoct complicated, costly schemes to defray them.
It emerges, then, that Social Security is trapped between the imperatives of economics and the imperatives of politics. On the one hand, it must have flexibility to raise taxes and cut benefits to remain solvent and affordable. On the other, taxpayers have been taxed over their threshold of pain for Social Security, while an entitlement mentality precludes benefit cuts—at least for current beneficiaries. Would-be Social Security reformers are caught in this same trap, between a need for flexibility and politically imposed rigidity. The false consciousness worked mightily to create this trap. It necessarily follows that the false consciousness must be demolished for any real, sound reform to happen.
--------------------------------------------------------------------------------
John Attarian is a free-lance writer and scholar in Ann Arbor, Michigan, with a Ph.D. in economics. This essay is adapted from his book Social Security: False Consciousness and Crisis (Transaction Publishers, 2002). Copyright John Attarian.
Cato and its sister organization, the Institute for Policy Innovation, have written legislation introduced into Congress, calling for the diversion into an Individual Account of the full 6.2% payroll tax that a worker now pays into the Social Security Trust Fund. This Individual Account would provide (millions of dollars) that Wall Street could use to save its endangered position. The world financial system is an advanced phase [?] of disintegration, with crises in the derivatives market, Fannie Mae- and Freddie Mac-issued housing paper, the stock market, and so on. Bankers whose power relies on this failing financial system, are desperate to get their hands on a large stream of money to prop it up. The largest steady stream of cash is the U.S. Social Security system. The bankers' problem is that the money is not theirs, and legally, they can not get their hands onto a penny of it. Hence the "privatization" of Social Security, on a crash basis. Their strategy is to tell whatever lie is necessary, but get the money.-Richard Freeman
later....
<><
I listened to this AARP spokesman go on about the fact that AARP was not against the private insurance idea, but wanted it to be in addition to current social security contributions and not taken out of the cash flow stream.
All this sounds nice on paper, but the fact is that Bush is really trying to do what needs to be done and that is to eliminate the program in it's entirety over time.
He wants to do the only possible rational thing and stop the program by the end of the baby boomer retirement. All future retirees would have a 100% privately managed plan and the government would be out of it after the last baby boomer passed away, a category that I find myself in. I am 54.
What this amounts to is the largest reduction in size, scope and future growth of the federal government ever attempted and it is exactly what we need to do.
Future outlays for health and medical, plus military defense will be so large in the future that it will dwarf current outlays. Social security is also the easiest of all the entitlement promises to fix and eliminate. The others will not be so easy and may well be with us until the end of time or our government, which ever comes first.
AARP and those like them are blind as a bat! They refuse to understand the nature of this problem and that government cannot and will not be able to fund Social Security after 2018. It is financially impossible to do all that will be necessary at that time without destroying the funding mechanism that supports the program, and that would be the economy.
Of course, the greatest myth of all is that the mainstream media exists to inform us -- rather than misinform us, creating the popular hysteria so that the demagogues and advertisers can better exploit us.
I think it's time to rethink Social Security entirely; maybe it should just be welfare for those who haven't positioned themselves successfully over the intervening years. A lot of people seem to think that it is an entitlement to a life of unbridled luxury in retirement -- that system cannot be maintained, but the personal account offers that possibility.
Virtually everything the AARP is saying is absolute nonsense, discrediting them for the generation of well-informed matures entering that period of their lives. We now know that that association is not one promoting a winning outlook on life but just more victimization. So there will be emerging winners that serve the new successful maturity of the future while the AARP maintains a stranglehold on the losers and those who delude themselves in the assurances and guarantees of demagogues.
Many older institutions will undoubtedly continue their acceleration in their declines. Their leaders will go down kicking and SCREAMING to diminishing audiences. The age of mythmaking that was synonymous with the age of mass media and control, will give way to culture of the authentically well-informed.
The liberal (demagogic) icons will be remembered indelibly as those sagging faces contorted in a thousand different directions, demanding of every passing stranger, "Do you know who I am?"
the idea that you're entitled to anything just for attaining a certain age has always amazed me.
The article, while correct in the strictly legal sense, is also both wrong and almost irrelevant. After 70 years, the "false consciousness" about Social Security has essentially become "real" consciousness.
Yes, it's true that Congress can make any changes to Social Security, up to and including simply abolishing the program entirely, that Congress has the will to make. But the political, and quite likely the economic, fallout would be devastating.
The only way to change the public's view of Social Security would be for the government to admit that for 70 years it's been lying to the American people, consistently selling them one idea of Social Security that it now intends not to honor. Trouble is, the American people will view this as nothing short of outright fraud. If government were to take the line that Social Security will be "bankrupt" by 2018, it would be inherently admitting that the government bonds held by Social Security will not be honored, essentially defaulting on the obligation to pay them. And if the government can do that, what's to stop it from potentially defaulting on other bond obligations? That, IMHO, would cause far greater damage to the American and world economy than maintaining the program, damage from which we might never recover.
The administration is facing a stiff uphill battle to make sweeping changes to the system.
Agreed.
It is likely that the end result will be more tinkering around the edges.
The crisis will be put off like the last one until it is absolutely necessary. Probably around 2012 or so.
In the interim, the public will have to come to grips with the truth of the situation and Congress will be faced with a situation that will cause future congressional wannabees to require being dragged while kicking and screaming to serve a bankrupt government.
...more class material.
In fact, $530 billion of the $2.292 trillion 2004 budget was to fund social security payments. At a growth rate of about 4.8% in total outlay annually for benefits, the year 2022 will be the first budget year when outlay will exceed $1 trillion for SS!!! In 2006, the $574 billion dollar outlay on a total budget of 2.57 trillion (proposed)or 22% of the total federal outlay is SS.
How do you get past the Democrats who will "fight to the death" Senate Majority leader Reid, and the program is "rock solid" (Hillary) and "a small reduction of say, 20-30% of benefits is a small price to pay to save the program" (Boxer) ??? How do you get it through the heads of these politicans (who BTW are not in the program) to give us our money and privitize the system, saving $500 billion plus in government outlays annually for the administration of this ridiculous program?? Oh, here is another good one, "why should we make a bunch of Wall Street companies rich off this system?", rather than GIVE US RIGHTS TO OUR MONEY!!!
I would look for a three dollar tax on gas by that point, similar to Europe.
Social security will be drawing fully on it's IOU's and the economy will change dramatically.
I will not likely be here to see it, but I suspect I will see the beginnings. I believe we can handle it, but calls for public transport and I suspect rail systems can be envisioned. Airlines will have to be subsidized as they were before, and we will need all the immigrants we can get to work the labor jobs.
As the world churns.
I disagree with the airline subsidy. In the wake of 9-11 people will fly less, as well as new strides in digital and computer tech, the need to fly will be decreasing. Therefore, let them go out of business. It certainly will make security a lot easier. In fact, I agree with George on farm subsidies as well. The government needs to get out of the free market and stop all of the efforts to produce wage rates, products, pricing, and output, and that goes for the ridiculous tax code and all of its special interests. In fact, a solution is available for many problems with SS and tax policy. Check it out: http://www.apttax.com
As fuel taxes are raised to fund budget shortfalls, the airlines will get clobbered.
Subsidies in the form of tax credits will be necessary for them to compete, because other socialist countries will be/are, subsidizing their industry and competition will require us to do the same.
Not only are fuel taxes going to make it harder for US Airlines to compete, but security taxes (per the Bush plan) will also. I disagree that we need to compete with foriegn or socialist government subsidized airlines anyway, as they will not be considered as safe as US Airlines. And who cares? Why don't we get rid of all tobacco subsidies instead? We also have corporate farm subsidies disguised as hurting the "farmer". The family farm is gone too....so maybe we should nastalgically give them subsidies to survive corporate farming? The government needs to get out of the free market...reform the tax code and get rid of the special interests, privitize social security 100%, and reduce the size of the government by eliminating the IRS and the SSA.
We absolutely agree.
The future problem with the airlines however can be seen in the torturous and painful, and still omnipresent demise of AMTRAC.
Public transports as critical as airlines are going to be ten times harder to let go.
That is why I made the assumptions that I did.
AMTRAC....there's some pork barrell. Let them go out of business too.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.