[Marxism] Michael Hudson in Harper's

Louis Proyect lnp3 at panix.com
Tue Mar 22 18:41:54 MST 2005

(This is the beginning of a long article in the latest Harper's. None of 
their articles are ever online but they are well worth tracking down on the 

Why Social Security won't be enough to save Wall Street
By Michael Hudson

They wanted something for nothing. I gave them nothing for something.
  ­J.R. "Yellow Kid" Well

Social Security, formerly the "third rail" of American politics, has now 
been trod upon, in rather dramatic fashion, by George W. Bush. Given that 
the maneuver is both stupid and unnecessary, one must ask why. After all, 
the program's alleged deficiencies, if there are any, will not manifest 
themselves until at least 2018. This is not quite the same as worrying 
about the sun's eventual collapse into a black hole, but for most 
politicians a problem that lies thirteen years in the future is nearly the 
same thing. Clearly all is not what it seems.

Bush himself offers two reasons for the present boldness. The first­that 
Social Security is "in crisis"­is easily dismissed. Government actuaries, 
backed by economists from across the political spectrum, insist there is no 
funding problem. The Social Security Administration will take in more money 
than it pays out for the next thirteen years; it has built up a reserve of 
$1.8 trillion in interest-bearing Treasury bonds for the years after that; 
and any later shortfall can be covered easily by even a partial rollback of 
the re­cent tax cuts for the rich.

Bush's second argument sounds more promising. If the American people will 
simply follow his plan, he says, they too will become rich.

(Bush's opponents note, a possible third reason, which is that he is hoping 
to roll back the New Deal in favor of smaller government. It may be true 
that Bush dislikes the New Deal, but it is hard to envision his proposed 
replacement as a small-government alternative. A fed­erally mandated 
transfer of funds­whether it is from taxpayer pockets to Treasury bills, as 
with Social Security, or from taxpayer pockets to the stock market, as 
under Bush's pro­posed changes­is still a federally mandated transfer of 

The way the system works now, the government withholds 12.4 percent of your 
paycheck, up to $90,000 in annual income. In return, it promises to provide 
you a monthly payment­a pension­from the time you turn sixty-two until the 
time you die. As of this writing, the administration's alternative remains 
somewhat nebulous, but what is clear in all of the variations pre­sented 
thus far is that you will be able to put some of your paycheck into the 
stock market. Bush calls these stock purchases "personal savings accounts."

Vice President Dick Cheney described the benefits of these personal 
sav­ings accounts in January. His example was a young woman who put away 
$1,000 every year for forty years. The Social Security Administration 
cur­rently puts her money into Treasury bills, which at present return 
about 2 percent, so in forty years that investment would have returned 
about $61,000. Not too bad. "But if she invested the money in the stock 
market," Cheney said, "earning even its lowest historical rate of return, 
she would earn more than double that amount­$160,000. If the individual 
earned the average historical stock market rate of return, she would have 
more than $225,000­ or nearly four times the amount to be expected from 
Social Security."

That's a lot of math. Cheney's main point is that an upbeat assessment of 
the stock market­about 7.5 percent annually over forty years, by his 
reck­oning­would easily exceed the 2 percent offered by Treasury bills.

There is no arguing that $225,000 is more than $61,000. On the other hand, 
it's not as if you get a lump sum from the Social Security Administration 
when you retire. The woman Cheney cited could end up taking in much more 
than $61,000 if she lives long enough. (The average annual payment to 
re­tirees today is about $ 11,000.) Or she could die on her sixty-second 
birthday. Like any other investment­or any other form of insurance, for 
that matter­ Social Security is somewhat of a gamble. But then so is the 
stock market. By Cheney's estimation, however, today's stock market is a 
much better bet. "Over time," he concluded, "the securities markets are the 
best, safest way to build substantial personal savings."

That is the argument, anyway. The stock market is the main chance in 
America, and Bush wants to let all of us in on the action.

The one sure mark of a con, though, is the promise of free money. In fact, 
the only way the stock market is going to grow is if we the people put a 
lot more of our money into it. What Bush seeks to manufacture is a boom­or, 
more accurately, a bubble­bankrolled by the last safe pile of cash in 
America today. His plan is a Ponzi scheme, and in that scheme it is Social 
Security that is being played for the last sucker.

(Michael Hudson is Distinguished Professor of Economics at the University 
of Missouri, Kansas City, and the author of many books on international and 
domestic finance, including Super Imperialism: The Origin and Fundamentals 
of U.S. World Dominance.)

Louis Proyect
Marxism list: www.marxmail.org 

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