The Simple Reason We Need to Reform Social Security

It may be true that some among the Democrats in Congress are willing to consider cuts to major “entitlements” like Social Security as part of a broader federal budget balancing process. It may be that the president – who is something of a fiscal moderate – may get the support of moderate Dems and have such a bargain pushed through. If that happens I doubt that the result will be more than tinkering with the system without any significant change.

There are several truths to be teased out of this issue:

1. There is unlikely to ever be a long-term balanced federal budget because that’s not the government’s job, which is in large part to use monetary policy to stabilize the economy. A balanced budget requirement would mean the government would not be able to borrow in bad economic times nor to use the full faith and credit of the U.S. to issue currency to keep the economy liquid.

2. Entitlements are that in name only. In reality Social Security and Medicare are pension and health savings funds people have paid into over their working lives. If you were to say people are “entitled” to their own money then maybe you can call them entitlements.

3. As we become a nation more and more polarized into haves and have-nots, guaranteed retirement benefits like Social Security may be all we have to depend upon. Reduce the disparity in wealth and you will get more Dems willing to look at rejiggering entitlements.

On the first two issues, I’ve already discussed it. No point in repeating that here. Look at my recent column on the subject. On the third issue, Democrats draw much more of their support from middle class and poor constituencies than do Republicans. That point came out loud and clear in the last election.

Latinos comprise one particularly important and growing part of the Democrats’ constituency. And there’s a stark reality here: Despite their continuing economic gains, more than any other group in the U.S., Latinos – with jobs still largely in agriculture and in other second level work that offers few benefits – are less likely to be covered by a pension plan, less likely to have significant retirement savings or assets and more likely to rely on Social Security as their primary retirement income than any other group in the U.S.

The result? At over 20%, the poverty rate among Latino seniors is among the highest in the nation, with Latino retirees relying heavily on Social Security benefits as their single largest and sometimes only source of retirement income. In recognizing this, Democrats are not pandering. This is the fastest part of Dems’ core constituency and they are damn sure paying attention.

As to the general growth of wealth disparity in the U.S., look at a recent New York Times story on the wretched excess of CEO pensions and compensation, which has laid open an embarrassing and disturbing truth: private sector workers (and perhaps in the next wave, public sector workers) have seen their pensions and retirement options shrink to the vanishing point, while highly paid CEOs rake in fortunes and have not a care in the world about what retirement will hold in store for them.

That, rather than the cost of Social Security, is the real pension scandal in this country, but with the public focused on the supposed excesses of government pensions, the CEOs – draining billions from American business – seem to be getting away with murder.

Consider, as the New York Times reports, that the CEOs for 200 of America's largest public companies have accumulated nearly $1.9 billion in lump sum pensions. That’s an average of $9.4 million in pension savings each, and is chump change compared to these CEO’s average of half a billion each in stock holdings.

Meanwhile, vast numbers of private sector Americans have had their pension savings trashed, forcing them to work far longer for retirements that will be a shadow of what they had hoped for. Today, only one private sector American in five has a secure defined benefit pension, according to the AFL-CIO, and excluding those pensions and the eroded value of their homes, more than half of all American workers have total savings of less than $25,000.

Is it any wonder then, that as the richest Americans grow still richer – with the top 1% now annually averaging $27 million per household (the average for the rest of us is $31,000 a year) – more and more middle class U.S. workers are putting off retirement.  One in three (up from one in 10 in 1991) now say they don’t expect to be able to retire until at least age 65. Anger at such so called “takers” (who in reality are just receiving what they have already paid for) is horribly misplaced.

There’s a joke going around that hits this nail on the head: In it a CEO, a blue collar worker and a teacher are standing by a plate with a dozen cookies. The CEO shoves the other two out of the way and grabs 11 of the cookies. He gobbles them down and then through a mouthful of crumbs warns the blue collar worker to watch out, “Because that teacher is trying to steal your cookie.”

As I began looking at the Social Security issue I was willing to say that because people live longer (and thus have longer retirements) than the generation of the 1930s when Social Security was created, and because the system’s costs will sometime in the mid-term future exceed fund income, we should re-do benefits.

I’ve come to agree, however, with economist Prof. Jamie Galbraith’s view that we should lower the full retirement age for Social Security, allowing folks to retire more comfortably at an earlier age and opening jobs to entry level workers. That might mean federally subsidizing the increased Social Security costs rather than cutting them, but I’d pose that would be money well spent.