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Social Security and the Economic Crisis

Posted Mar 24 2009 3:58pm

category_bug_politics.gif To any elder who receives Social Security benefits (all of us older than 65 or so), a survey by Sun Life Financial released last week is shocking: overall, 48 percent of American workers would prefer to stop paying into Social Security even if it meant they would receive no benefits when they become eligible.

The breakdown of the survey by age is understandable if, as is probably true, the younger you are the less you know about the benefit:

  • 59% of workers in their 30s prefer not to pay and not receive benefits

  • 51% of workers in their 40s agree

  • 44% of workers in the 50s prefer not to participate

The top shocker, however, is that 33 percent of workers older than 60 would choose to stop paying into Social Security if they had a choice – again, even if it meant they would receive no benefits.

As a reader emailed Andrew Sullivan who writes The Daily Dish at The Atlantic:

“This survey suggests that 1/3 of our soon-to-retire population has questionable financial judgment. If that isn't an argument FOR mandatory Social Security, I don't know what is.”

Let me make this personal for a moment. Twice in my life, after the age of 40, emergencies made it necessary for me to cash out my 401(k)s. In addition, three periods of unemployment ranging in length from a few months to two years, put me deeply in debt each time. After I found work again, it took many months to pay off the debt during which time, I could save – well, call it nothing; it was close enough.

Were it not for the value of my apartment in New York, which I sold in 2006 before the housing crash, AND SOCIAL SECURITY, I would be living in a rented room in the back of someone's home. I thank President Roosevelt and Social Security every month when that check is deposited to my account. I doubt that anyone whose Social Security benefit is more than pocket change would disagree.

Particularly with the collapse of the economy, it is incomprehensible that anyone would voluntarily give up Social Security in exchange for 7.2 percent more in their paychecks. Listen to economist James K. Galbraith writing last week in Washington Monthly:

“For the first time since the 1930s, millions of American households are financially ruined. Families that two years ago enjoyed wealth in stocks and in their homes now have neither. Their 401(k)s have fallen by half, their mortgages are a burden, and their homes are an albatross. For many, the best strategy is to mail the keys to the bank... “...the American middle class find today that its major source of wealth is the implicit value of Social Security and Medicare – illiquid and intangible but real and inalienable in a way that home and equity values are not. And so it will remain, as long as benefits are not cut.” [emphasis added]

About a month ago here, I wrote about the approaching attack on Social Security. It comes from several conservative quarters, and one of them is particularly well-funded - one billion dollars in private money from 82-year-old billionaire, Pete Peterson, whose anti-Social Security/Medicare campaign William Greider laid out clearly in his Looting Social Security story in The Nation in early February.

The 21st century name for cutting Social Security and Medicare is the benign sounding “entitlement reform” and although he won't address it for awhile, even President Obama, in the period between his election and inauguration, committed himself to entitlement reform. In addition (Galbraith again):

“...on February 23 [Obama] convened what he called a "fiscal responsibility summit." The idea took hold that after two years or so of big spending, the return to normal would be under way, and the costs of fiscal relief and infrastructure improvement might be recouped, in part by taking a pound of flesh from the incomes and health care of the old.”

One of the most oft-repeated arguments for cutting Social Security and Medicare is that greedy geezers are taking money from the young. Last week Dean Baker, who is co-director of the progressive think tank, Center for Economic and Policy Research, pointed out the flaw in this reasoning at alternet:

“Finally, the recent collapse of the housing bubble and the resulting stock market plunge have reduced the wealth of older workers and retirees by close to $15 trillion. This is a transfer to the young, since they will be able to buy the housing stock and the corporate capital stock for a far lower price than they would have expected to pay just two years ago.

“Remarkably, the granny basher crew has somehow failed to notice this enormous transfer of wealth from the old to the young. They just continue their crusade to cut Social Security and Medicare as though nothing has happened.

“It should be evident that the granny bashers don't care at all about generational equity. They care about dismantling Social Security and Medicare, the country's most important social programs. It is important that the public recognize the granny bashers' real agenda so that they can give them the respect they deserve.”

As I've written here many times in the past, the projected shortfall in Social Security in 2041 when, if we don't begin fixing it now will result in only 78 percent of benefits being paid, is easily repaired.

Among the best suggestions are raising or even removing the salary cap on which the Social Security tax is paid. It is now capped at $106,800, so don't tell me it would harm poor people, and accomodation can be made for any burden to small business. Gradually raising the age at which full benefits are paid is another good idea - we are living longer, healthier lives than when Social Security was enacted in 1935.

John K. Galbraith's wide-ranging Washington Monthly story, titled No Return to Normal, is about why the economic crisis is bigger than we yet know and will last longer than the cable pundits, eager to sugarcoat our problems, report - and maybe even, according to Galbraith, it is bigger and will be longer than the Obama administration understands so far. But today, I'm concentrating on the sections in his story about Social Security. Here is the part of Galbraith's overall solution to the crisis that applies to Social Security:

“...we should offset the violent drop in the wealth of the elderly population as a whole. The squeeze on the elderly has been little noted so far, but it hits in three separate ways: through the fall in the stock market; through the collapse of home values; and through the drop in interest rates, which reduces interest income on accumulated cash. For an increasing number of the elderly, Social Security and Medicare wealth are all they have.

“That means that the entitlement reformers have it backward: instead of cutting Social Security benefits, we should increase them, especially for those at the bottom of the benefit scale.

“Indeed, in this crisis, precisely because it is universal and efficient, Social Security is an economic recovery ace in the hole. Increasing benefits is a simple, direct, progressive, and highly efficient way to prevent poverty and sustain purchasing power for this vulnerable population.

“I would also argue for lowering the age of eligibility for Medicare to (say) fifty-five, to permit workers to retire earlier and to free firms from the burden of managing health plans for older workers.

This suggestion is meant, in part, to call attention to the madness of talk about Social Security and Medicare cuts. The prospect of future cuts in this modest but vital source of retirement security can only prompt worried prime-age workers to spend less and save more today. And that will make the present economic crisis deeper.

“In reality, there is no Social Security 'financing problem' at all. There is a health care problem, but that can be dealt with only by deciding what health services to provide, and how to pay for them, for the whole population. It cannot be dealt with, responsibly or ethically, by cutting care for the old.”

For those of you who have read this far, I know I've given you a lot of dense reading today. I am about to give you more. Please read all the stories to which I've linked today and in particular, I urge you, plead with you, to read Galbraith's story. It is long and some of it is technical, but it is crucial to understanding all the economic news (some of it quite stupid) we are deluged with every day.

And it will also be important when, in the future, I ask you join the fight to save Social Social and Medicare from the entitlement reformers not just for ourselves, but for our children and grandchildren who, as the Sun Financial survey indicates, need to be saved from themselves.

[ At The Elder Storytelling Place today, Joanne Zimmermann tells how she came to know You Are Not in Control. ]

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