I've been having an e-mail discussion I met with a woman at a Social Security roundtable on Tuesday. She says she really wants both parties to put aside their partisanship. "I want our legislators to get to the meat of the issue and just do it." But she keeps resorting to the same decontextualized Democratic speeches to argue that Democrats really have been arguing for privatization all along. First, it was the
Hyde Park Declaration. Today, it was Clinton's
speech to the Social Security fora.
Anyway, I spent a bit of time demonstrating what Clinton really said in that speech--and I thought it might be useful for some of you as you try to refute wingnuttery. Steal at will.
My response is below the fold:
I'm rather amazed that you would bring up Clinton's speech on social security, given your dissatisfaction with Levin's speech the other day. What Clinton is doing here is precisely what Levin was doing on Tuesday--weighing out the options, without endorsing any of them. Further, there are several things that Clinton says here, both in what you've quoted and in the rest of the speech, that make it clear that Clinton would be solidly opposed to what the Bush team is proposing (which makes sense, since he has stated the same position recently).
For example, in the passage you cite Clinton notes two of the problems that democrats have with the Bush proposal. First:
your investments might lose money and you might not be so well-off with them when you retire, so that the combination of your investment fund, plus your guaranteed Social Security fund might be smaller than would have otherwise been the case.
Clinton then (and Democrats now) are clear--they're not willing to make the switch to private accounts unless they can make sure people aren't going to be significantly worse off than they are now (this is particularly true now, given that the Bush team has recently admitted that the privatization scheme does nothing to shore up the overall solvency of the program). Why would we do this if it were going to make people worse off? Yet Bush's plan offers no kind of minimum guarantee, which means that a lot of people would be worse off than they currently are.
Also, Clinton says:
the administrative costs of managing it can be quite high -- much, much higher than Social Security -- so that even though you might earn a higher rate of return, a lot of it would be taken right back from the people who are handling your accounts
What Clinton is talking about here is the amount of money you would have to pay to brokers to administer the system--particularly in the case of the Bush plan, which proposes to use private brokers, these are significant. Think of how much money they take out each year from your Mutual Funds--1% in the smallest cases, but up to 7% for more closely managed funds. The most common figure I've seen for the amount that the Bush plan would take out off the top is 3%. Which says that your stock investments would have to make 6-7% before you'd even be breaking even with what you've got now. If you didn't make that much, you'd be losing money; the only people who would benefit would be the stockbrokers. Now Clinton offers another option, to avoid these high fees:
What about having the government do it?
This is something that MIGHT benefit the entire social security system (and in reality, that's what some democrats have expressed an interest in, although there are still problems with it, such as the effect it would have on the stock market when huge numbers of retirees withdrew their money from the market at the same time). You could invest a percentage of the social security money into an index fund, so that it got a better return than we currently get. But in doing this, you give up all notion of a "personal" account. You don't get to choose what you invest in, you don't get to risk more in hopes of making more money. It's just a different place to store the money until you need it. Now, there actually is some wavering from the Bush team; I've heard Cheney say there would be a very limited list of what you could invest in, for example. But if this is true, then the accounts aren't really private or personal accounts at all. There is no way out of the problem--either you pay so much in fees that a large number of people, even getting the kind of returns that stocks make on average, would be worse off than they currently are, or you don't really have private accounts at all.
Now Clinton says three things elsewhere in his speech that make it clear that he would categorically oppose the kind of plan the Bush team is proposing. He says:
Third, Social Security must provide a benefit people can count on. Regardless of the ups and downs of the economy, or the gyrations of the financial markets, we have to provide and dependable foundation for retirement security.
[snip]
I think -- what I would like to say is, if we go down this road, we need to make sure that behind this there's still a rock-solid guarantee of a threshold retirement that people will be able to survive on.
This is one of the underlying problems with the privatization plans. Either you're willing to let many of your seniors and disabled people live in poverty, in case their investments lose money. This is what the Bush plan is proposing, to let the individual shoulder the risk, even if it means they live in poverty in the case of an unforseen accident. Or, you're going to put some kind of guarantee in place to help out people who need their money during times when the stock market is doing poorly. This, of course, would add a lot of cost to a system that already would require a 2-10 trillion dollar front-end investment. I, for one, am not willing to ask seniors to live in poverty if they happen to retire at an unfortunate time, which means that the current system is actually much less expensive than privatization would be, if it were to meet my goals for the system.
Clinton also says:
As you know, I believe strongly that we must set aside every penny of any budget surplus until we have saved Social Security first.
When the Democrats were engaging in these discussions, we had a historically high surplus. We had the money to do things like transition to a stock-based system (the 2 to 10 trillion I mention above). And Paul O'Neill, when he was treasury secretary, actually pushed Bush to change the social security system rather than offer tax cuts, but Bush refused. From O'Neill's The Price of Loyalty:
"There will be a transition cost, Mr. President," O'Neill explained, surprised. "Perhaps a trillion dollars over many years. This will be more difficult to do with large budget deficits." (296-7)
In spite of that warning, Bush went ahead and cut taxes again, eliminating the last bit of surplus and putting us into deficit spending. This gets to the problem I spoke about at the roundtable. We've gone from historically large surpluses to historically large deficits. At the same time, for a variety of reasons, our creditors are beginning to switch their reserve currency from dollars into euros. This makes our budget deficits more dangerous than they've been in 50 years, because if our creditors ask to be paid back in euros, we will not be able to simply print our way out of debt. We will have to pay it, we will have to raise interest rates, we will have to cut back dramatically on things like education funding and even military spending. Now, if we go ahead with Bush's plans, we will incur that multi-trillion dollar cost, which will in turn make it more likely that people will make us pay our debts in euros. In other words, if we adopt Bush's Social Security plan now, we risk utterly devastating the American economy. Which brings us to one of the other things Clinton said, which is the fundamental reason why he wouldn't support Bush's Social Security plan now, and why I think it is downright reckless.
And fifth, anything we do to strengthen Social Security now must maintain our hard-won fiscal discipline. It is the source of much of the prosperity we enjoy today.
To implement his plan, Bush is advocating putting our nation into much deeper debt than we already are in. He's advocating doing this at a time when our financial system is in a really fragile position, when we're one shock away from having some really catastrophic conseeqences. He wants a free ride, even though that free ride could end up in a really spectacular crash.
I'm very much in favor of making sure the Social Security system is strong enough so that I will some day be able to collect benefits. But I'm not willing to do anything that threatens our economic system more generally. And that's what Bush is proposing.