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BILLIONAIRES, REPUBLICANS, ON “WARPATH” TO PAUPERIZE AMERICAN MIDDLE CLASS

By Sherwood Ross | April 21, 2011

America’s well-to-do are waging war on America’s “shrinking middle class,” Senator Bernie Sanders, the Vermont Independent, says.

“The nation’s billionaires are on the war path. They want more, more, more,” and “their greed has no end and they are apparently unconcerned for the future of this country if it gets in the way of their accumulation of wealth and power.”

Sanders says that, “Right now, the top one percent controls more than 23 percent of all income earned in America,” which is more wealth than “the bottom 50 percent” put together. What’s more, he notes, “In the last 25 years, we have seen 80 percent of all new income going to the top 1 percent.” This comment is supported by data showing that productivity gains created by U.S. workers over the past several decades have not resulted in increased pay for them but have instead gone into profits. Salaries have stagnated.

“All of the progressive legislation that started with FDR is on the chopping block,” Sanders declared. “Despite the fact that Social Security today has a $2.6 trillion dollar surplus, they are targeting Social Security. They are targeting Medicare. In Arizona, people on Medicaid who need transplants are no longer able to get them—-(and) that is a real death panel.”

The Vermont senator’s charges about the Social Security surplus are backed up by the Social Security Administration itself. SSA says from 1937, when the first pay outs were made, through 2009, Social Security spent a total of $11.3-trillion. In the same period, though, it received $13.8 trillion.

Over the years, nearly 454 million Social Security cards have been issued and, presumably, as many people have been beneficiaries of the system. And between five and six million new cards are being issued every year. That’s a lot of help for a lot of people.

Sanders says that since the Citizens United Supreme Court decision “what we are beginning to see in elections is unbelievable. Billionaires are going to flood states with all kinds of negative, dishonest ads in an effort to defeat people defending the middle class.” He added that the Republicans’ “have been pretty honest” about their goal “to bring this country back to where we were in the 1920s.”

Not only are the well-to-do out to demolish the progressive legislation enacted as America struggled out of the Depression of the 1930s but well-to-do individuals and corporations are skirting the tax laws enacted to make them pay their fair share of taxes on their income.

“Right now,” Sanders says, “we are losing about $100 billion every year because corporate America and the very wealthy are stashing their money in tax havens like the Cayman Islands and Bermuda.” He continued, “In 2009 ExxonMobil made $19 billion in profits and not only did the company not pay anything in taxes, it got a $106 million refund from the IRS.”

In an article he wrote for May-June’s Utne Reader, Sanders continued, “We should be aware that since 1997, we have almost tripled funding for the military” and if the nation is serious about reducing the deficit, the Pentagon budget is among the “things we need to look at.”

Sanders called for Americans “to put pressure on a handful of Republicans—-to tell them, ‘Go into your hearts, talk to your constituents and tell me if it is appropriate to hold hostage the future of this country for an agenda that benefits only the very rich.’”

Sanders concluded that if we don’t act, “if they roll over us now—there is no stopping them. It is time we organize.” Maybe seniors will consider organizing into groups with the word “Voters” and “Defenders” of Social Security in their title. Seniors vote in large numbers and the names of their organizations could send Republicans a message.

April 21, 2011 Posted by aletho | Economics, Supremacism, Social Darwinism | 2 Comments

Showdown in Iceland

Will Iceland Vote No or Commit Financial Suicide

By MICHAEL HUDSON | CounterPunch | April 8, 2011

A landmark fight is occurring this Saturday, April 9. Icelanders will vote on whether to subject their economy to decades of poverty, bankruptcy and emigration of their work force. At least, that is the program supported by the existing Social Democratic-Green coalition government in urging a “Yes” vote on the Icesave bailout. Their financial surrender policy endorses the European Central Bank’s lobbying for the neoliberal deregulation that led to the real estate bubble and debt leveraging, as if it were a success story rather than the road to national debt peonage. The reality was an enormous banking fraud, an orgy of insider dealing as bank managers lent the money to themselves, leaving an empty shell – and then saying that this was all how “free markets” operate. Running into debt was commended as the way to get rich. But the price to Iceland was for housing prices to plunge 70 per cent (in a country where mortgage debtors are personally liable for their negative equity), a falling GDP, rising unemployment, defaults and foreclosures.

To put Saturday’s vote in perspective, it is helpful to see what has occurred in the past year along remarkably similar lines throughout Europe. For starters, the year has seen a new acronym: PIIGS, for Portugal, Ireland, Italy, Greece and Spain.

The eruption started in Greece. One legacy of the colonels’ regime was tax evasion by the rich. This led to budget deficits, and Wall Street banks helped the government conceal its public debt in “free enterprise” junk accounting. German and French creditors then made a fortune jacking up the interest rate that Greece had to pay for its increasing credit risk.

Greece was told to make up the tax shortfall by taxing labor and charging more for public services. This increases the cost of living and doing business, making the economy less competitive. That is the textbook neoliberal response: to turn the economy into a giant set of tollbooths. The idea is to slash government employment, lowering public-sector salaries to lead private-sector wages downward, while sharply cutting back social services and raising the cost of living with tollbooth charges on highways and other basic infrastructure.

The Baltic Tigers had led the way, and should have stood as a warning to the rest of Europe. Latvia set a record in 2008-09 by obeying EU Economics and Currency Commissioner Joaquin Almunia’s dictates and slashing its GDP by over 25 per cent and public-sector wages by 30 per cent. Latvia will not recover even its 2007 pre-crisis GDP peak until 2016 – an entire lost decade spent in financial penance for believing neoliberal promises that its real estate bubble was a success story.

In autumn 2009, Socialist premier George Papandreou promised an EU summit that Greece would not default on its €298bn debt, but warned: “We did not come to power to tear down the social state. Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts.” But that seems to be what socialist and social democratic parties are for these days: to tighten the screws to a degree that conservative parties cannot get away with. Wage deflation is to go hand in hand with debt deflation and tax increases to shrink the economy.

The EU and IMF program inspired the modern version of Latin America’s “IMF riots” familiar from the 1970s and 80s. Almunia, the butcher of Latvia’s economy, demanded reforms in the form of cutbacks in health care, pensions and public employment, coupled with a proliferation of taxes, fees and tolls from roads to other basic infrastructure.

The word “reform” has been turned into a euphemism for downsizing the public sector and privatization sell-offs to creditors at giveaway prices. In Greece this policy inspired an “I won’t pay” civil disobedience revolt that grew quickly into “a nationwide anti-austerity movement. The movement’s supporters refuse to pay highway tolls. In Athens they ride buses and the metro without tickets to protest against an ’unfair’ 40 per cent increase in fares.” (Kerin Hope, “Greeks adopt ‘won’t pay’ attitude,” Financial Times, March 10, 2011.) The police evidently are sympathetic enough to refrain from fining most protesters.

A Le Monde article accused the EU-IMF plan of riding “roughshod over the most elementary rules of democracy. If this plan is implemented, it will result in a collapse of the economy and of peoples’ incomes without precedent in Europe since the 1930s. Equally glaring is the collusion of markets, central banks and governments to make the people pay the bill for the arbitrary caprice of the system.”

Ireland is the hardest-hit Eurozone economy. Its long-term ruling Fianna Fail party agreed to take bank losses onto the public balance sheet, imposing what looks like decades of austerity – and the largest forced emigration since the Potato Famine of the mid-19th century. Voters responded by throwing the party out of office (it lost two-thirds of its seats in Parliament) when the opposition Fine Gael party promised to renegotiate last November’s $115-billion EU-IMF bailout loan and its accompanying austerity program.

A Financial Times editorial referred to the “rescue” package (a euphemism for financial destruction) as turning the nation into “Europe’s indentured slave.” EU bureaucrats “want Irish taxpayers to throw more money into holes dug by private banks. As part of the rescue, Dublin must run down a pension fund built up when Berlin and Paris were violating the Maastricht rules … so long as senior bondholders are seen as sacrosanct, fire sales of assets carry a risk of even greater losses to be billed to taxpayers.” EU promises to renegotiate the deal augur only token concessions that fail to rescue Ireland from making labor and industry pay for the nation’s reckless bank loans. Ireland’s choice is thus between rejection of or submission to EU demands to “make bankers whole” at the expense of labor and industry. It is reminiscent of when the economist William Nassau Senior (who took over Thomas Malthus’s position at the East India College) was told that a million people had died in Ireland’s potato famine. He remarked succinctly: “It is not enough.” So neoliberal junk economics has a long pedigree.

The result has radically reshaped the idea of national sovereignty and even the basic assumption underlying all political theory: the premise that governments act in the national interest.

The Irish government’s €10 billion interest payments are projected to absorb 80 per cent of the government’s 2010 income tax revenue. This is beyond the ability of any national government or economy to survive. It means that all growth must be paid as tribute to the EU for having bailed out reckless bankers in Germany and other countries that failed to realize the seemingly obvious fact that debts that can’t be paid won’t be. The problem is that during the interim it takes to realize this, economies will be destroyed, assets stripped, capital depleted and labor obliged to emigrate. Latvia is the poster child for this, with a third of its population between 20 and 40 years old already having emigrated or reported to be planning to leave the country within the next few years.

The EU’s nightmare is that voters may wake up in the same way that Argentina finally did when it announced that the neoliberal advice it had taken from U.S. and IMF advisors had destroyed the economy. Debt repayment was impossible. As matters turned out, it had little trouble in imposing a 70 per cent write-down on foreign creditors. Its economy is now booming – because it became credit-worthy again, once it freed itself from its financial albatross!

Much the same occurred in Latin America and other Third World countries after Mexico announced that it could not pay its foreign debts in 1982. A wave of defaults spread – inspiring negotiated debt write-downs in the form of Brady Bonds. U.S. and other creditors calculated what debtors realistically could pay, and replaced the old irresponsible bank loans with new bonds. The United States and IMF members applauded the write-downs as a success story.

But Ireland, Greece and Iceland are now being told horror stories about what might happen if their governments do not commit financial suicide. The fear is that debtors may revolt, leading the Eurozone to break up over demands that financialized economies turn over their entire surplus to creditors for as many years as the eye of forecasters can see, acquiescing to bank demands that they subject themselves to a generation of austerity, shrinkage and emigration.

That is the issue in Iceland’s election this Saturday. It is the issue now facing European voters as a whole: Are today’s economies to be run for the banks, bailing them out of reckless loans at public expense? Or, will the financial system be reined in to serve the economy and raise wage levels instead of imposing austerity.

It seems ironic that the Socialist parties (Spain and Greece), the British Labour Party and various Social Democratic parties have moved to the pro-banker right wing of the political spectrum, committed to imposing anti-labor austerity not only in Europe, but also in New Zealand (the 1990s poster child for Thatcherite privatization) and even Australia. Their policy of downsizing public social services and embrace of privatization is the opposite of their position a century ago. How did they become so decoupled from their original labor constituencies? It seems as if their function is to impose whatever right-wing agenda the Conservative parties cannot get away with – not unlike Obama neutering possible Democratic Party alternatives to Republican lobbying for more Rubinomics.

Is it simply gullibility? That may have been the case in Russia, whose leaders seemed to have little idea of how to fend off destructive advice from the Harvard Boys and Jeffrey Sachs. But something more deliberate plagues Britain’s own Labour Party in out-Thatchering the Conservatives in privatizing the railroads and other key economic infrastructure with their Public-Private Partnership. It is the attitude that led Gordon Brown to threaten to blackball Icelandic membership in the EU if its voters oppose bailing out the failure of Britain’s own neoliberal bank insurance agency to prevent banksters from emptying out Icesave. Last weekend half a million British citizens marched in London to protest the threatened cutbacks in social services, education and transportation, and tax increases to pay for Gordon Brown’s bailout of Northern Rock and the Royal Bank of Scotland. The burden is to fall on labor and industry, not Britain’s financial class. The Daily Express, a traditionally campaigning national paper, is now running a full throttle campaign for Britain to leave the EU, on much the same ground that Britain has long rejected joining the euro.

What is the rationale of Iceland and other debtor countries paying, especially at this time? The proposed agreements would give Britain and Holland more than EU directives would. Iceland has a strong legal case. Social Democratic warnings about the EU seem so overblown that one wonders whether the Althing members are simply hoping to avoid an investigation as to what actually happened to Landsbanki’s Icesave deposits. Britain’s Serious Fraud Office recently became more serious in investigating what happened to the money, and has begun to arrest former directors. So this is a strange time indeed for Iceland’s government to agree to take bad bank debts onto its own balance sheet.

The problem is that the more Iceland’s economy shrinks, the more impossible it becomes to pay foreign debts. Iceland’s government is desperately begging to join Europe without asking just what the cost will be. It would plunge the krona’s exchange rate, shrink the economy, drive young workers to emigrate to find jobs and to avoid the bankruptcy foreclosures that would result from subjecting the nation to austerity.

Nobody really knows just how deep the hole is. Iceland’s government has not made a serious attempt to make a risk analysis. What is clear is that the EU and IMF have been irresponsibly optimistic. Each new statistical report is “surprising” and “unexpected.” On the basis of the IMF’s working assumption about the króna’s exchange rate at end-2009, for example, the IMF staff projected that gross external debt would be 160 per cent of GDP. To be sure, they added that a further depreciation of the exchange rate of 30 percent would cause a precipitous rise in the debt ratio. This indeed has occurred. Back in November 2008, the IMF warned that the foreign debt it projected by year end 2009 might reach 240 per cent of GDP, a level it called “clearly unsustainable.” But today’s debt level has been estimated to stand at 260 per cent of Icelandic GDP – even without including the government-sponsored Icesave debt and some other debt categories.

Creditors lose nothing by providing junk-economic advice. They have shown themselves quite willing to encourage economies to destroy themselves in the process of trying to pay – something like applauding nuclear power plant workers for walking into radiation to help put out a fire. For Ireland, the EU pressed the government to take responsibility for bank loans that turned out to be only about 30 per cent (not a misprint!) of estimated market price. It said that this could “easily” be done. Ireland’s government agreed, at the cost of condemning the economy to two or more decades of poverty, emigration and bankruptcy.

What makes the problem worse is that foreign-currency debt is not paid out of GDP (whose transactions are in domestic currency), but out of net export earnings – plus whatever the government can be persuaded to sell off to private buyers. For Iceland, the question would become one of how many of its products and services – and natural resources and companies – Britain and the Netherlands would buy.

It is supposed to be the creditor’s responsibility to work with debtors and negotiate payment in exports. Instead of doing this, today’s creditors simply demand that governments sell off their land, mineral resources, basic infrastructure and natural monopolies to pay foreign creditors. These assets are forfeited in what is, in effect, a pre-bankruptcy proceeding. The new buyers then turn the economy into a set of tollbooths by raising access fees to transportation, phone service and other privatized sectors.

One would think that the normal response of a government in this kind of foreign debt negotiation would be to appoint a Group of Experts to lay out the economy’s position so as to evaluate the ability to pay foreign debts – and to structure the deal around the ability to pay. But there has been no risk assessment. The Althing has simply accepted the demands of the UK and Holland without any negotiation. It has not even protested the fact that Britain and Holland are still running up the interest clock on the charges they are demanding.

Why doesn’t Iceland’s population say to Europe’s financial negotiators: “Nice try! But we’re not falling for it. Your creditor game is over! No nation can be expected to keep committing financial suicide Ireland-style, imposing economic depression and forcing a large portion of the labor force to emigrate, simply to pay bank depositors for the crimes or negligence of bankers.”

The credit rating agencies have tried to reinforce the Althing’s attempt to panic the population into a “Yes” vote. On February 23, Moody’s threatened: “If the agreement is rejected, we would likely downgrade Iceland’s ratings to Ba1 or below.” If voters approve the agreement, however, “we would likely change the outlook on the government’s current Baa3 ratings to stable from negative,”  in view of a likely “cut-off in the remaining US$1.1 billion committed by the other Nordic countries and probably also to delays in Iceland’s IMF program.”

Perhaps not many Icelanders realize that credit ratings agencies are, in effect, lobbyists for their clients, the financial sector. One would think that they had utterly lost their reputation for honesty – not to mention competence – by pasting AAA ratings on junk mortgages as prime enablers of the present global financial crash. The explanation is, they did it all for money. They are no more honest than was Arthur Andersen in approving Enron’s junk accounting.

My own view of ratings agencies is based in no small part on the story that Dennis Kucinich told me about the time when he was mayor of Cleveland, Ohio. The banks and some of their leading clients had set their eyes on privatizing the city’s publicly owned electric company. The privatizers wanted buy it on credit (with the tax-deductible interest charges depriving the government of collecting income tax on their takings), and sharply raise prices to pay for exorbitant executive salaries, outrageous underwriting fees to the banks, stock options for the big raiders, heavy interest charges to the banks and a nice free lunch to the ratings agencies. The banks asked Mayor Kucinich to sell them the bank, promising to help him be governor if he would sell out his constituency.

Kucinich said “No.” So the banks brought in their bullyboys, the ratings agencies. They threatened to downgrade Cleveland’s rating, so that it could not roll over the loan balances that it ran as a normal course with the banks. “Let us take your power company or we will wreck your city’s finances,” they said in effect.

Kucinich again said no. The banks carried out their threat – but the mayor had saved the city from having its incomes squeezed by predatory privatization charges. In due course its voters sent Kucinich to Congress, where he subsequently became a presidential candidate.

So, returning to the problem of the credit rating agencies, how can anyone believe that agreeing to pay an unpayably high debt would improve Iceland’s credit rating? Investors have learned to depend on their own common sense since losing hundreds of billions of dollars on the ratings agencies’ reckless estimates. The agencies managed to avoid criminal prosecution by noting that the small print of their contracts said that they were only providing an “opinion,” not a realistic analysis for which they could be expected to take any honest professional responsibility!

Argentina’s experience should provide the model for how writing off a significant portion of foreign debt makes the economy more creditworthy, not less. And as far as possible lawsuits are concerned, it is a central assumption of international law that no sovereign country should be forced to commit economic suicide by imposing financial austerity to the point of forcing emigration and demographic shrinkage. Nations are sovereign entities.

It thus would be legally as well as morally wrong for Iceland’s citizens to spend the rest of their lives paying off debts owed for money that should rather be an issue between Britain’s Serious Fraud Office and the British bank insurance agencies. Overarching the vote is how high a price Iceland is willing to pay to join the EU. In fact, as the Eurozone faces a crisis from the PIIGS debtors, what kind of EU is going to emerge from today’s conflict between creditors and debtors. Fears have been growing that the euro-zone may break up in any case. So Iceland’s Social Democratic government may be trying to join an illusion – one that now seems to be breaking up, at least as far as its neoliberal extremism is concerned. Just yesterday (Thursday, April 7) a Financial Times editorial commented on what it deemed to be Portugal’s premature cave-in to EU demands:

“Another eurozone country has been humbled by its banks. Earlier this week, Portugal’s banks were threatening a bond-buyers’ go-slow unless the caretaker government sought financial help from other European Union countries. … Lisbon should have stuck to its position. … it should still resist doing what the banks demanded: seeking an immediate bridging loan. … By jumping the gun, the government risks having scared markets away entirely. That may prejudice the outcome of negotiations about the longer-term facility.

“The caretaker government has neither the moral nor the political authority to determine Portugal’s future in this way. It should not precipitately abandon the markets. That may mean paying high yields on debt issues in coming months – higher than they might have been had the government not folded its hand too soon. … The right time to opt for an external rescue would have been at the end of a national debate.”

The same should be true for Iceland. Looking over the past year, it seems that the island nation has been used as a target for a psychological and political experiment – a cruel one – to see how much a population will be willing to pay that it does not really owe for what bank insiders have stolen or lent to themselves.

Iceland’s government seems to have become decoupled from what is good for voters and for the very survival of Iceland’s economy. It thus challenges the assumption that underlies all social science and economics: that nations will act in their own self-interest. This is the assumption that underlies democracy: that voters will realize their self-interest and elect representatives to apply such policies. For the political scientist this is an anomaly. How does one explain why a national parliament is acting on behalf of Britain and the Dutch as creditors, rather than in the interest of their own country accused of owing debts that voters in other countries have removed their governments for agreeing to?

~

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached at mh@michael-hudson.com

April 8, 2011 Posted by aletho | Economics, Supremacism, Social Darwinism | Leave a comment

American rich keep getting richer

Press TV – April 5, 2011

A group of 25 hedge fund executives in 2010 managed to earn a combined $22.1 billion — an amount equivalent to 441,400 American households each making $50,000 a year (roughly the current average).

This is one more example that the gap between the super-wealthy in the United States and the rest of Americans is growing wider and wider.

Considering that the median household size is 2.6 persons, that means that these 25 took home as much as the average of 1,150,000 Americans combined. That is bigger than the population of Dallas…or Rhode Island.

HIGHLIGHTS

Ten years ago, the same 25 Wall Street barons would have taken home a total of $5 billion. Now, a single hedge fund chief, John Paulson, was able to make that much ($4.9 billion) in 2010. Allgov

Paulson made billions during the worst of the financial downturn because he bet that the mortgage bubble would burst. Most of his profits in 2010 came from investing in gold, buying and selling stock in Citigroup…and collecting an estimated $1 billion in management fees. Allgov

“So many of these guys are killing it on the management fees,” said Bradley H. Alford, chief investment officer of Alpha Capital Management, which invests in hedge funds. “You can’t feel good giving 30 percent of your returns to some guy who was up single digits. That has to give you indigestion.” NY Times

FACTS & FIGURES

The hedge fund industry as a whole did not do better than the stock market last year, the HedgeFund Intelligence Global Composite Index, which tracks nearly 4,000 hedge funds around the world, had a median gain of 8 percent in 2010, trailing the 11.7 percent rise in the MSCI World Index of stocks and the 12.7 percent rise in the Standard & Poor’s 500-stock index. NY Times

The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year in terms of wealth rather than income, the top 1 percent control 40 percent. Investorshub

Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. Investorshub

While the top 1 percent have seen their incomes increased by 18 percent over the past decade, those in the middle have actually seen their incomes fall. Investorshub

All the growth in recent decades-and more-has gone to those at the top. Investorshub

April 5, 2011 Posted by aletho | Economics, Supremacism, Social Darwinism | 1 Comment

Cutting Social Security: Policy Without a Purpose

By DEAN BAKER | CounterPunch | April 1, 2011

The accepted wisdom in Washington policy circles is that we have to cut Social Security if we are serious about dealing with the deficit. Before anyone rushes to shave the benefits of retirees it might be worth asking why.

By now, just about everyone has seen the charts touted by the deficit hawks showing that the cost of Social Security, Medicare, and Medicaid is projected to go through the roof in the decades ahead, while the cost of everything else is more or less under control. This looks very ominous. The neat trick is that if Social Security is pulled out from the category with Medicare and Medicaid, and instead placed in the category with everything else, the chart looks almost exactly the same.

The real story is that the cost of Medicare and Medicaid are projected to go through the roof because the cost of health care is projected to go through the roof. We can put in any program – veterans benefits, Head Start, foreign aid – together with Medicare and Medicaid and show the cost of these three programs together going through the roof.

Lumping in Social Security with Medicare and Medicaid conceals the reality that the real long-term budget problem is a health care cost problem. The United States already pays more than twice as much per person for its health care as other wealthy countries. It gets little obvious benefit for this additional expense. Per person health care costs in the United States are projected to rise even further relative to both GDP and costs in other countries.

If these cost projections prove accurate, then it will have a devastating impact on the U.S. economy. Part of this story will be the huge deficits touted by the budget hawks since more than half of national health care spending is paid through the public sector. However this trajectory for health care costs will also have a devastating impact on the private sector as well. The cost of health care for workers was one of the big factors in the bankruptcy of General Motors and Chrysler two years ago. If health care costs continue to soar, then the burden it imposes on employers and workers will rise correspondingly.

No one disputes these facts. The basic arithmetic would seem to demand an all out effort to control health care costs; why does Social Security get dragged into the picture?

It’s hard to argue that Social Security benefits are too generous, or that retirees enjoy extravagant lifestyles. The average Social Security benefit is just over $1,100 a month. The median income for a household headed by someone over the age of 65 in 2009 was $31,400. And the vast majority of Social Security benefits go to those who need them most. More than 75 percent of benefits go to individuals with non-Social Security income of less than $20,000 a year and more than 90 percent of benefits go to individuals with non-Social Security income of less than $40,000 a year.

Moreover, benefits in the United States are relatively stingy by international standards. We have already raised the age to receive full benefits to 66 with a further rise to 67 scheduled in the next decade. The private pension system has largely collapsed and the current group of near retirees saw much of their home equity disappear with the collapse of the housing bubble. As a result the situation of retirees is likely to be worse in the near future, especially after taking into account the growing burden of out-of-pocket health care expenses projected in the decades ahead.

This is the reality for the overwhelming majority of retired workers. The story told by the deficit hawks of the affluent elderly banking their big Social Security checks is a complete fabrication. It would make little difference in the program’s financing if we could zero out the benefits to the genuinely wealthy among the elderly. In fact, the cost of administering some sort of means test would likely exceed the potential savings, unless the purpose of the means test was to hit people that would fit anyone’s definition of middle class.

It is also worth remembering that the program pays for itself now and is projected to do so for the next 26 years. While it does face a projected shortfall in later years in the century, the deficit over the program’s 75-year planning horizon is still just 0.6 percent of GDP. This is approximately one-third of the increase in annual defense spending between 2000 and the present. Unless the intention is to use tax dollars raised through a designated Social Security tax, which is very regressive, for other purposes, this is the limit of the potential savings from Social Security cuts.

The undisputed facts around Social Security make the drive to cut benefits look like a policy without a purpose. Unfortunately, swearing support for such cuts now appears to be the price of admission to serious policy debates in Washington.

~

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

April 1, 2011 Posted by aletho | Economics, Supremacism, Social Darwinism | Leave a comment