Social Security: The Phony Crisis

by Mark Weisbrot, Dean Baker, Dean Baker

Book Overview

Is it true that the Social Security system is in serious trouble and must be repaired? As baby boomers begin to retire, will they inevitably, by force of their sheer numbers, bankrupt the system? Is Social Security a big Ponzi scheme that will leave future generations with little to show for their lifetime of contributions? Is the only way to solve the Social Security crisis through radical changes like privatization or bolstering it with massive...

• Format: Paperback
• Language: English
• ISBN: 0226035468
• ISBN13: 9780226035468
• Release Date: September 2001
• Publisher: University of Chicago Press
• Length: 199 Pages
• Weight: 0.70 lbs.
• Dimensions: 0.6" x 6.1" x 9.0"

Customer Reviews

Impeccable and Typical of the CEPR

There are some reviews listed by people who seem to be under the spell of the illusory "free markets." They seem to think that putting "must-have" money into risky investments like the stock market is a great idea. They are missing an important statistical fact when they quote the return on the US stock market, and that is that any average you calculate for a given period will be less for non-elite investors. Through insider trading and superior knowledge, better off investors do far better than non-elite investors. This has been conclusively demonstrated by research into 401k returns and is called the "yield disparity." It is one major reason, in addition to companies contributing less to 401ks than they did to pensions, why so many people's retirement in the US is at risk. Furthermore, all the major investment banks know this, and they are still pushing for to take over the social security system for their own purposes. As far as calling the authors left wing or crackpots. I can tell you the work done by Dean Baker and by the Center for Economic and Policy reseach is some of the best economics done in the country. They are one of the few economic institutes of note who have not sold out to large power interests. If you sit in the top 2% of wealth in the country, go ahead and call them names. You need to, because their facts can not be argued away so easily. However, the rest need to wake up. If you are part of the rest of population (the other 98%) of the country in income and agree with Social Security "reform" you either don't know what is intended for Social Security (i.e. handing it over to wall street) or did not understand the arguments expressed in this book.

Detailed and comprehensive statement of economic fact

I have often heard the jeremiads about social security that through shear repetition hope to gain acceptance. Most significantly we hear that demographics doom social security as the large aging population will dwarf the new workforce and push it into bankruptcy. Baker and Weisbrot use detailed actuarial and labor force statistics to demonstrate that increases in average worker income will more than offset the increases in future recipients. Perhaps Italy and Japan will have those issues but Americans have more children and more immigrants and we shall have sufficient workers to cover the costs of benefits. Why don't the conservative forecasters suggest that we raise the maximum incomes for SS tax if they are concerned about its solvency. I do not want to repeat the arguments of Baker and Weisbrot since they state the case so effectively. The other amazing aspect of the book is that it applies so well to the 2005 privatization debate even though it was writter 6-7 years earlier.

The Truth Shall Set You Free

Social Security has benefited tens of millions during its first sixty years. It provides security in an otherwise insecure economy. This is why it has enormous public support. It is threatened by the deceitful lies and misinformation from a propaganda campaign designed to damage or destroy it. The authors provide the basic facts to inform people of the truth about Social Security. The greatest threat to Social Security come from those who want to destroy it in order to save it (or so they say). The 'Introduction' says the forecasts of a shortfall for future generations is based on the assumption of an annual growth rate that is half the rate recorded over the past three decades. If the current growth rates do not fail, the system would never run short of money (p.1). The truth is that class warfare has resulted in a real decline in pay since President Reagan took office (p.2). This has created a malaise in people's expectations, due to the well-orchestrated political arguments against Social Security (p.3). This attack lumps Medicare with Social Security to project a huge deficit. But it is Medicare that has the problem due to the lack of cost control (which would be solved by Universal Health Care). Social Security will produce annual surpluses for decades (p.5). America spends twice as much on health care as Sweden, yet Sweden has a much higher percentage of people over 65 (p.6). Sweden has "socialized medicine" and no corrupt Health Maintenance Organizations. The Bubble in the Stock Market has burst, and destroyed the arguments of those who want to loot Social Security (p.7). But faster growth rates eliminate shortfalls in Social Security (p.8). Stocks are only valuable if there are profits and dividends. If prices rise, they will fall when there is no rise in the underlying assets. The real truth is that privatized accounts would earn about 2.5% (p.9)! Those who claim investing small amounts over decades will create great wealth have never done so, nor can they point to anyone who has ever done so. Its all just a fantasy. The idea of raising the retirement age is crazy, given the class lines of life expectancy, and the increasing policies of dumping older workers who must retire at 62 (p.10). Another regressive policy is cutting the cost of living adjustment, which is needed for devalued dollars (p.11). The declining real wages refute this crackpot idea of the Boskin Commission (p.12). Social Security is the largest and most successful antipoverty program. It provides a guaranteed annuity that is inflation resistant, unlike many pensions (p.13). Social Security is most efficiently administered (no private mismanagement). Social Security is more important than ever due to the class warfare from the 1980s. Employer pension plans are going away, and regressive tax laws reduce private savings for retirement (p.14). The proposed cuts to "fix" Social Security are shown to be neither just or justifiable, or even necessary. The high 6.2% tax rate

Don't FIX what ain't BROKE!

Social Security PRIVATEERS tell us that in 2029.or 2032...now 2050 (notice that the date has to be constantly readjusted BACK every year) it is "calculated" by a Government advisory commission that Social Security won't have enough income to cover more than 75 percent of the benefits it must pay to aging baby boomers. But the authors point out, the specificity is illusory, all lever-pulling and smoke-blowing from the Wizard of Oz. The projections aren't economic but actuarial extrapolations based on assumptions that the all the actuaries know are fictitious at best. Tweak them ever so slightly--lift real wages by a quarter- or half-percent per annum, or immigration by a little--and the so-called "crisis" disappears entirely. But according to the apparat-niks at the CATO Institute and the attack dogs at the OUT-Fox-ed Network--you might think the numbers have come down from Moses. They haven't. Social Security isn't in trouble and the criticisms of it are not logical as the authors of "The Phony Crisis" point out.First of all, Social Security is an INSURANCE System, not an "investment". When you factor in the cost of buying disability and survivor insurance and "invest the difference"...the performance "advantage" of equity markets gets razor-thin at best. It turns out that Social Security yields the same as nice safe government bonds, which any intelligent investor knows should form the basis of an investment portfolio. Secondly, the so-called performance advantage of the markets has a whole lot of IFs that the PRIVATEERS conveniently fail to mention. Forget hyper-collapse 1929-style for the moment. Since the Crash of October 1987, U.S. markets have been on a nonstop charge; but if you'd gone into the same markets in 1970, you were worse off by 1980--not to mention where you'd be today if you'd bet on Japan in the mid-eighties or Southeast Asia's "sure thing" markets a couple of years ago. Will you do all right in the long term, as brokers and economists insist? Well, probably yes--but then as Keynes observed..."in the long run, we're all dead." Here's where the income and wealth distribution effects of privatization turn very ugly. For millions of Americans--who bet on Kaypro instead of Microsoft (oops), Pan Am instead of American (sorry) or cattle futures without the skill and connections of Hillary Clinton (smile, please)--life at 75 could mean not "golden years" but working for the folks at the golden arches, or even being out on the street. A FACT of life that the young people who invested in the dotcom bubble are learning the hard way.How many of us realistically will beat the averages? If 120 million workers are turned loose to bet the markets---40 million of whom are marginally literate or numerate--as the privateers recommend---it turns out that most will lose. The mutual fund industry's dirty little secret is that three-fourths of funds under-perform market indexes. Yet such funds have millions of naïve investors in them; in one

Excellent antidote to scares and schemes.

This book is a very welcome antidote to claims that Social Security is fiscally unsound and would well be privatized. The authors, economists, cite relevant facts to support their cogent arguments. The usefulness of this book in making clear some major Social Security issues compares very well with books by Robert Eisner (Social Security, More Not Less, and The Great Deficit Scares: the Federal Budget, Trade and Social Security) and with Countdown to Reform, by Henry Aaron and Robert Reischauer. Baker and Weisbrot's book also has valuable information and arguments on health care and other important issues.