“The End of Social Security as We Know It?” — Robert Dreyfuss’ investigation into the Social Security-bashing business — drew ire from across the political spectrum. Meanwhile, Paul Krugman’s essay, “The Spiral of Inequality,” elicited an entertaining response from supply-sider and Kemp adviser Jude Wanniski. Plus: the future of California agriculture.
There is a solid liberal case for reforming Social Security. Unfortunately, Robert Dreyfuss failed to state it in his article (“The End of Social Security as We Know It?” November/December). Here’s what he missed:
- Social Security is not progressive. Retirees in the 10 wealthiest congressional districts receive benefits averaging 28 percent higher than those in the 10 poorest districts.
- The richer you are, the less you pay. Social Security taxes are 12.4 percent on the first $65,400 of wages (half of which is picked up by the employer). Thus, the working class and most of the middle class — those who earn less than $65,400 — pay the full 12.4 percent. But if you earn $100,000, the tax rate drops to 8 percent. An executive earning $5 million owes Social Security taxes only on the first $65,400 — a tax rate of 0.16 percent! That’s regressive.
- Senior citizens are the group least in need of federal largesse. Nearly a quarter of America’s children live in poverty, while seniors ages 65 to 69 enjoy the highest median net worth in America. Yet federal benefits to seniors tower 11-to-1 over benefits to children. The Urban Institute concludes, in its book Retooling Social Security for the 21st Century: “The principle of progressivity requires that the needs of the people who pay taxes be compared to the needs of those who receive the benefits financed by the taxes. Many workers today have lifestyles and consumption levels below those of many of the Social Security recipients they are supporting.”
I am a progressive, and I subscribe to Mother Jones. But I am also a 26-year-old facing a future of higher taxes and lower benefits. If giving me part of my own FICA taxes to invest responsibly means “the end of Social Security as we know it,” then I feel fine.
ARLYNDA LEE BOYER,
DIRECTOR OF OPERATIONS
NEW YORK, N.Y.
The drive to privatize Social Security is not an insidious conspiracy perpetrated by Wall Street insiders. Rather, it is the result of a look at the indisputable facts.
Last summer, the Social Security system’s board of trustees reported that Social Security will be insolvent by 2029, moved up from 2030 in the previous year’s report. This represents the seventh time in the last 10 years that the insolvency date has been brought forward.
Even if Social Security’s financial difficulties can be fixed, it remains a bad deal for those now entering the labor market. Payroll taxes are already so high that when today’s young workers retire, they will actually receive a negative rate of return — less than they paid in. Future tax increases (or benefit cuts) will simply make this problem worse.
The only way to keep Social Security solvent while being fair to today’s young workers (71 percent of whom already pay more in payroll taxes than in federal income tax) is to transform Social Security into a true savings program through privatization.
DIRECTOR OF HEALTH AND WELFARE STUDIES,
Robert Dreyfuss writes that “because the collected [payroll] tax exceeds the amount due beneficiaries, the government saves a significant chunk — almost $60 billion last year alone — squirreling it away in the [Social Security] trust funds, which, at the end of last year, stood at $496 billion.” This is misleading to the point of being inaccurate.
The excess taxes are not saved, they are spent along with other general revenues for government purchases of goods and services. The government recognizes that it has consumed this wealth and issues itself an IOU essentially stating that it owes itself the money it has spent. When the time comes for Social Security to cash in these IOUs, the government, which has no reserves for this contingency, must raise taxes or issue debt to honor the request. The tax man cometh not when the trust fund is empty, around 2030 as you stated, but when benefits exceed taxes in 2012, for that is when the IOUs are put to the government.
WILLIAM SHIPMAN, PRINCIPAL
STATE STREET GLOBAL ADVISORS
Mother Jones‘ recent depiction of Senator Bob Kerrey’s intentions toward Social Security is grievously inaccurate.
Sen. Kerrey is not an advocate of privatization. He has introduced a plan — the Personal Investment Plan (PIP) — which would allow individuals the opportunity to have 2 percent of their FICA tax go toward an IRA-type retirement account. A PIP would be similar to a thrift savings plan and is intended as a supplement to Social Security and not a replacement thereof.
All of Sen. Kerrey’s current reform proposals are aimed at preserving the stability of the Social Security safety net for all current and future beneficiaries.
MICHAEL V. MARINELLO,
PRESS SECRETARY TO SEN. BOB KERREY
Robert Dreyfuss’ article reinforced many of the key points I often make in my efforts to educate the American people about the Social Security program.
- Although Social Security faces a long-range financial shortfall, there is no immediate funding crisis. We have time to make reasonable and rational decisions about the future of the program.
- Social Security was never meant to be a personal investment scheme. As its name implies, it is a program that accomplishes larger social goals, such as keeping millions of older Americans out of poverty.
- Social Security is more than a retirement plan. It is a family program that currently provides economic security to 6 million people with disabilities and their dependents, as well as to 7 million widows, widowers, and children who have lost a family breadwinner.
Although Social Security does not face an immediate funding crisis, it does face a crisis of confidence fueled by those who spread misinformation about the program. And it would face a real crisis if we were to act precipitously and adopt ill-thought-out proposals for reform.
SHIRLEY S. CHATER
COMMISSIONER OF SOCIAL SECURITY
Robert Dreyfuss responds:
Boyer is right that wealthier people receive higher Social Security benefits than the poor. It is not a perfectly progressive system, nor was it designed to be. But it is indeed progressive, since poor and working-class retirees receive far greater benefits relative to what they contribute.
William Shipman, meanwhile, tries to scare people by dismissing the Social Security Trust Funds as a collection of IOUs. These “IOUs” are in fact treasury bonds, in which the trust funds are invested in order to earn interest. The Social Security system took in $73 billion more than it spent last year. By purchasing government securities, it is making the safest, most secure investment it can find. Were Social Security to put its savings in, say, Shipman’s bank, it would merely get an IOU from Shipman.
In Through the Looking Glass, Humpty Dumpty tells Alice, “When I use a word, it means just what I choose it to mean.” Sen. Kerrey’s staff seems to feel the same way. Marinello writes that the Nebraska senator “is not an advocate of privatization,” and he then proceeds to describe a privatization plan that would divert nearly one-sixth of Social Security’s FICA revenue into the coffers of Wall Street’s money managers and mutual funds. By making his proposal optional for current workers, Kerrey would apply generous dollops of grease to a slippery slope. More affluent and secure workers would opt for the PIPs that Marinello describes. This would have two effects: First, it would create more pressure in the future for Congress to increase the “privatized” share of FICA from 2 percent to 5 percent and then to the full 12.4 percent; second, it would leave poorer, less secure workers all alone in a shrinking pool of nonprivatized Social Security contributors, turning the system into a welfare program.
Paul Krugman has had nothing much to say about political economy for the last several years other than the rich are getting richer faster than the poor are getting richer (“The Spiral of Inequality,” November/December). He has written this story hundreds of times, in newspapers, magazines, and books. Unsuspecting editors continue to pay him for plagiarizing his own material. Because he appears in such illustrious publications as the New York Times Magazine and Foreign Affairs, the editors of Mother Jones and, no doubt, Ladies’ Home Journal are thrilled to see his manuscripts flow over the transom, with yet another exciting exposé about how the rich are getting richer faster than the poor are getting richer. This is a chain letter he writes to himself, his very own pyramid club, the most elaborate Ponzi scheme in American journalism.
The central problem of the last 30 years is that the poor are getting richer much, much faster than the rich are getting richer. First let us get our accounting unit squared away. To measure anything in the floating paper dollar will get us nowhere. We must convert all wealth into the measure employed by mankind for 6,000 years, i.e., ounces of gold. On this measure, the Dow Jones industrial average of 6,000 today is only 60 percent of the DJIA of 30 years ago, when the DJIA hit 1,000. Back then, gold was $35 per ounce. Today it is $380 plus. In the last 30 years, the people who owned America have lost 40 percent of their wealth held in the form of equity. If you owned no part of corporate America 30 years ago, because you were poor, you lost nothing. If you owned lots of it, you lost your shirt in the general inflation.
Now we get to entitlements. If you own a $100,000 bond that pays 7 percent a year, you will have an annual income of $7,000 for the life of the bond. If you are entitled to a government check to cover your Medicare bill of $35,000 a year, for the rest of your life, you have wealth that is the equivalent of $500,000. Because you are only scribes, you are not expected to know this stuff, Mother Jones. In this example alone, we find that the poor hold guaranteed entitlements on $7 trillion of unfunded tax liabilities, for their old age and health benefits, which can only be paid for by the rich, who are the nation’s producers. At the same time, the rich face a 28 percent tax liability on another $7 trillion in inflated capital gains. Add up the portfolios of the rich and the poor, 30 years later, and you will find the poor have become fat and happy, the rich impoverished. This is why we are in the fix we are in. Everyone wants to be poor, because it has so many more advantages!
The basic problem with people like Krugman is that they are careful never to make economic predictions, so they can never be brought to heel. Nobody actually pays Krugman for his economic counsel, and if anybody did, they would soon be bankrupt. If Krugman had to predict to make a living, he would starve to death.
JUDE WANNISKI, PRESIDENT
Paul Krugman responds:
Jude Wanniski is an important figure. He was one of the founders of supply-side economics and is currently its most celebrated guru. Moreover, he is inseparable from Jack Kemp, who may yet become president one day. It is important that the ideas and character of such an influential man be well-understood.
There are three issues to address in Wanniski’s letter. First is his assertion that contrary to general opinion the last 30 years have been a terrible time to be rich and a great time to be poor. Second is his attack on my qualifications and character. Finally, there is the question of what Wanniski’s letter says about him and those who rely on his wisdom.
On wealth and poverty: I knew that Wanniski believed in the gold standard. I did not know that he regards gold as the only valid measure of purchasing power, independent of what useful objects that gold can buy. Over the past 30 years the rich have become able to live in much bigger houses, drive or be driven in much fancier cars, take many more lavish vacations, and hire many more servants. Nonetheless, Wanniski insists that they have suffered because the Dow Jones has not kept up with the price of gold. Somehow, I have trouble feeling their pain.
Meanwhile, the poor have become “fat and happy,” because they know that they will receive $35,000 in Medicare benefits each year, “paid for by the rich, who are the nation’s producers.” Actually, Medicare is paid for with payroll deductions, which means that most of the burden falls on the middle class. The current Medicare expenditure per retiree is less than $6,000 — where did that $35,000 figure come from? And not every poor person is entitled to Medicare for the “rest of [his] life”; children, who make up 40 percent of the poor, will have to wait a while before the checks start coming. Details, details.
About me: I have some professional advice for Wanniski. If you plan to engage in character assassination, it pays to do some homework. With modern technology, it’s quite easy. All I had to do was type in “Jude Wanniski” and click the mouse to get all kinds of interesting information, from stories about the unrelenting efforts of Jack Kemp to give Wanniski a central role in the Dole campaign to reports that Wanniski’s consulting firm employs followers of cultist Lyndon LaRouche.
Might I suggest that Wanniski type in “Paul Krugman” and see what he gets? He might be surprised. My most recent book was on international trade, not income distribution, and it got a very favorable review in that liberal publication, the Wall Street Journal.
We should be grateful to Wanniski for writing this letter, which tells us all that we need to know about his ideas, and more than we wanted to know about his character. The interesting question is what all this says about those who trust in him — above all, about Jack Kemp. After all, the one thing that even Kemp’s opponents always say is that he is an agreeable person — that he is not one of those angry, paranoid, everyone-who-disagrees-with-me-is-an-idiot-or-corrupt, the-liberal-media-is-conspiring-against-us types. So we may well ask: What’s a nice guy like Kemp doing with a guru like this?
Note: Read the longer version of the Wanniski-Krugman exchange.
Economist Paul Krugman has won fame by inveighing against “pop” economists (who turn out to be economists who disagree with him), or non-economists (whom he considers unqualified to debate economic issues). In “The Spiral of Inequality,” however, Krugman acts like a pop historian — making generalizations about fields far beyond his specialty, and presenting only the scantest evidence.
Why are most Americans’ wages stagnating and income inequality growing? Krugman says “values changed.” America once had “the kind of values that helped to sustain” a middle-class society, but our “egalitarian ethic…is gone.” His evidence? A single statistic on CEO salaries.
Krugman is on firmer ground discussing the role played by the weakening of American labor unions, our corrupt campaign finance system, and Washington’s retreat from the pro-middle-class policies of the early ’50s. But his arguments ultimately are warped by a hidden agenda — his long-standing determination to let U.S. economic globalization policies completely off the hook for the income crisis.
Since the early 1970s, U.S. economic policy has encouraged imports from low-income countries, encouraged the flight of American manufacturing to these countries, and acquiesced in a flood of imports from both rich and poor countries that violate U.S. and international trade laws. The results have undermined union power and exerted downward wage pressure throughout the entire U.S. economy.
Krugman’s solutions to the income crisis are domestic in nature and fail to grasp the whole of the issue. Without vibrant domestic industries to employ low-wage Americans, the Earned Income Tax Credit amounts to just another welfare program. New pro-union laws will be similarly futile as long as managers can employ Chinese or Mexicans instead of Americans. In other words, without remedies at the international level, the income crisis will continue.
Paul Krugman tells us “there is no purely economic reason why we cannot reduce inequality in America,” and he seems to be living up to Mother Jones‘ praise of him as an “irreverent economist” evoking “the horror of conservatives everywhere” with his fearless liberalism.
Bull feathers. In his mainstream media writing, Krugman consistently claims that there’s nothing much government can do to improve economic conditions or solve social problems, and he comes down hard on the left for promoting many of the “liberal” policies that he himself seems to be advocating in Mother Jones. Krugman apparently makes occasional feints like this to preserve his “liberal” reputation, but these should not fool anybody, least of all the editors of Mother Jones.
More typical of Krugman is his uninformed, and thoroughly neoconservative, Social Security bashing. He supports the “sensible proposals” of Peter Peterson and his Concord Coalition, the loudest hawkers of the “Social Security is headed for disaster” scenario — in other words, the exact opposite of the truly sensible proposals for Social Security made in the very same issue of Mother Jones by Robert Dreyfuss and others.
RICHARD B. DU BOFF
BRYN MAWR, PA.
Contrary to Gray Brechin’s assertion (“How Paradise Lost,” November/ December) that farming is on its way out and that new housing developments will “finish off what remains of the state’s…orchards,” the amount of land planted to trees and vines in the Central Valley is at record high levels and continues to increase with each passing year. Similarly, more Central Valley land is now devoted to vegetable production than at any time in California history. When corrected for inflation, farm cash receipts in the valley over the last two decades have doubled, outpacing GNP growth. No other farming region in the United States can match that record. If this is decline, then many Midwestern farmers would welcome it.
These gains are associated with a 25 percent increase in agricultural labor demand in California. Hundreds of thousands of workers from Mexico or Central America have come to the valley to find work. American citizens don’t want to get their hands soiled, so willing hands from the Americas to the south flock to the jobs.
The new alliance between environmental advocates and urban development interests seeks to take as much water away from farming as possible and divert most of it to residential development. No one mentions the uncomfortable fact that shutting down farming in the Central Valley will cost hundreds of thousands of jobs, destroying the tax base of dozens of communities and school districts where agriculture is the only industry.
When government officials, water district bureaucrats, and professional environmental advocates sit down together in the major urban centers of the state to discuss dividing up the state’s water, those who live and work in the communities who stand to lose are not represented. That those who would be most severely impacted are people of color is, of course, never mentioned in the polite circles of environmentalism or water management.
DON VILLAREJO, EXECUTIVE DIRECTOR
CALIFORNIA INSTITUTE FOR RURAL STUDIES
Gray Brechin’s article made clear that we must act to restore freshwater flows to the upper San Joaquin River, clean up the toxic stew in the lower river, and retire the selenium-poisoned lands on the west side from irrigated agriculture before it is too late.
Three old and false assumptions lie at the heart of our present dilemma:
- You can dry up the San Joaquin River, once the second largest river in the state, without serious effects downstream.
- Rivers, fish, and wildlife habitats have unlimited power to assimilate natural and manmade toxins.
- It is safe for the food chain — which includes us all — to mix drinking water with agricultural, industrial, and municipal sewage coming into the San Francisco Bay delta and the California Aqueduct.
It’s time to change our thinking about how we manipulate our rivers and protect our drinking supplies and our farmland. Reviving a living river õn the San Joaquin Valley will restore fisheries and recreational activities for the residents of our fast-growing valley towns and will clean aqueduct drinking water for Southern Californians.
CARLA BARD, FORMER CHAIRWOMAN
STATE WATER RESOURCES CONTROL BOARD
Gray Brechin fails to mention important progress in California’s water, land, and wildlife conservation that has occurred.
In 1994, Gov. Pete Wilson signed a historic accord with the federal government providing for the restoration and improved long-term management of the San Francisco Bay delta. The accord — which gives priority to ecosystem management — has the unprecedented support of California’s three main water constituencies — urban, agricultural, and environmental advocates.
Furthermore, in 1995 Gov. Wilson signed into law a new state program to provide for the purchase of conservation easements on farmland threatened with development.
There is no doubt that population growth in the Central Valley — and throughout California — will continue to exert great pressure on our natural resources. However, despite the impression left in Mother Jones, it is possible to integrate economic and environmental progress.
DOUGLAS P. WHEELER
CALIFORNIA SECRETARY FOR RESOURCES
In our November/December issue, we incorrectly identified the ecotravel company Wildland Adventures. Mother Jones regrets the error.
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