Privatizing Social Security a Mistake
Social Security places government in one of its noblest roles: as an institution that offers a bedrock financial guarantee to all members of society that they need not fear the financial consequences of growing old or disabled. That’s quite the opposite of the U.S. government’s all too familiar role as a provider of corporate welfare, a patsy to narrow business interests that hijack government programs and agencies and convert taxpayer assets into private profits, with inadequate reciprocal benefits to the public.
So it saddened me to learn that our Social Security system is under attack. Relying on a trumped-up “crisis” in the Social Security program, a band of so-called privatizers want to convert our Social Security commonwealth into individual, private accounts.
The privatizers mislead the public. They distort returns we are likely to experience from a privatized system. They fail to mention the enormous administrative fees that stock brokers and insurance agents might conceivably skim from private accounts, and they remain silent about the likelihood of millions of people losing their retirement income in the stock market. They ignore SEC Chairman Arthur Levitt’s warning that stock fraud hucksters will inevitably take advantage of people who are encouraged to put their Social Security money in the stock market.
Worst of all, privatization will destroy one of Social Security’s great assets systemic tranquillity. We know that in old age or disability, we can count on Social Security for financial support. If the system is privatized this tranquillity will be replaced by anxiety, as we worry about whether we will be winners or losers in the system’s roller-coaster ride on Wall Street.
In his State of the Union address, President Clinton refused to accede to the privatizers’ wishes for now. His proposal to allocate a portion of the federal budget surplus to a Social Security trust fund is a step forward in guaranteeing younger generations benefits similar to those that exist currently.
Unfortunately, the president also reintroduced a notion that seemed to have disappeared from the social security debate in recent months: direct government investment of portions of the Social Security trust fund in the stock market.
Under the President’s proposal, at the end of 15 years, the federal government will have invested about $700 billion in stocks. That means the government would basically own 4 to 5 percent of the entire stock market. This sort of initiative would further balloon an already dangerously inflated stock market and bring the country perilously closer to a corporate state, where corporations and government converge to serve big business interests.
What would happen if the market ever faced collapse? Would the President and Congress sit idly by as $700 billion in government investments shrank to $400 billion? That’s hard to imagine. They’d almost certainly intervene. And any such intervention would primarily benefit private investors who will escape troubled waters without paying any rescue fees. That’s free, de facto investor insurance, and it will raise risk taking to new speculative highs.
Increased government interest in the stock market might also force Congress to legislate with even more of an eye to serving Wall Street than is currently the case. This sort of bias would inevitably result in a host of policies that would negatively effect the public and the environment: weak safety and health standards, suppression of the minimum wage, meaningless restrictions on greenhouse gas emissions, etc.
Proponents of the president’s plan say it is not qualitatively different than federal, state, and local pension fund investment in the market. But those funds are diffused among hundreds of such investors. And they aren’t invested by institutions who are able to bail out corporations and set national economic policy.
If Congress and the president do erroneously proceed with a plan to invest these funds in the stock market, the government must at the very least exercise the generic rights afforded to stock owners: the right to vote shares and influence company policy commensurate with its ownership stake. The government is not like other investors — it has certain policies and principles that it seeks to promote as a matter of law. It would be intolerable for it, as an investor, to ignore such corporate practices as consumer fraud, worker safety, and other corporate crimes that contradict broad public interest concerns.
For more information, contact the National Council of Senior Citizens at 1-301-578-8800 or www.ncscinc.org, or the Preamble Center at www.preamble.org.