Weekly Audit: Why Do Deficit Hawks Hate Social Security?

by Zach Carter, Media Consortium blogger

Last week, Social Security advocates learned something they had long suspected. Arguments for cutting Social Security aren’t really about economics or the deficit. They’re all about waging war on social services.

In short, some very prominent policymakers are out to dismantle Social Security on ideological grounds. The most recent example of this view comes from Alan Simpson, a former Republican Senator from Wyoming who now serves as co-Chair of President Barack Obama’s Federal Debt Commission. Earlier this summer, Simpson was caught on video spreading absurd lies about Social Security, but his latest outburst explains why he’s been so willing to distort the facts. Simpson simply hates Social Security.

As Joshua Holland highlights for AlterNet, Simpson fired off a nasty email to Ashley Carson, who advocates for elderly women, in which he referred to the most successful social program in U.S. history as “a milk cow with 310 million tits.”

Social Security is doing just fine

But Simpson has a lot of power on the Debt Commission, which is expected to recommend that Congress reduce the deficit by cutting social programs in a report this year. But as Holland notes, Social Security isn’t in trouble:

Social Security is in fine shape. It’s got a surplus that will run out in 2037, but even if nothing were to change by then, it could still continue to pay out 75 percent of scheduled benefits seventy-five years from now, long after the surplus disappears, and those benefits would still be higher than what retirees receive today.

What’s more, as William Greider notes for The Nation, Social Security has never added one cent to the federal budget deficit. According to the law that created the program, Social Security never can. Targeting Social Security in order to fix the deficit is like invading Iraq to fight Al-Qaeda. The issues are not related.

Raising the retirement age robs workers

The Debt Commission is likely to recommend raising the retirement age—the age at which Social Security benefits begin to be paid out. But as Martha C. White notes for The Washington Independent, it’s a “solution” that simply robs low-income workers of their tax money. Everybody pay Social Security taxes when they work, and when they retire, they receive federal support. If you don’t live long enough to actually retire, you don’t get any benefit from Social Security.

“The hardship of raising the retirement age falls disproportionately on low-income workers who work in physically demanding professions, jobs they may not be able to continue through their seventh decade. … Moreover, though the average lifespan has increased since Social Security’s creation, those extra years aren’t enjoyed equally by all Americans. Overall, Americans are living about 7 years longer. But the poorest 20 percent of Americans are living just two years longer.”

Raising the retirement age, in other words, disproportionately hurts the poor—the very people Social Security is supposed to help most.

Subprime scandal 2.0

So who would pick up the slack if Social Security were to be cut? The same crooked Wall Street scoundrels who brought us the financial crisis. If the government cuts back on retirement benefits, the financial establishment can step in and manage a bigger piece of the retirement pie.  The more we learn about the financial mess, the less we should want to see our retirement money controlled by bigwig financiers. Truthout carries a blockbuster new investigative report by ProPublica’s Jake Bernstein and Jesse Eisinger that reveals a new, multi-billion-dollar subprime scam engineered by the financial elite.

We’ve known about Wall Street’s subprime shenanigans for some time, but the report reveals that banks were essentially selling their own products to themselves in order to create the illusion that people really wanted lousy mortgages. It’s called “self-dealing,” and it’s supposed to be illegal.

Subprime Disaster, meet Mortgage Nightmare

Here’s how the scam worked: Wall Street crammed thousands of mortgages into securities, then sliced and diced those securities into new products called CDOs. Those CDOs, in turn, were divided into different “buckets” and sold to investors. The riskiest buckets paid out the most money to investors, but were the most likely to take losses if the underlying mortgages ever went bad. As the housing bubble grew more and more out-of-control, investors became wary of these risky buckets, and stopped buying them.

Wall Street banks were still making a killing from the packaging and sale of everything else, though, so they devised a plan to get rid of some risky bits: they’d buy them up themselves, without telling anybody. A bank would create a CDO called, say, Mortgage Nightmare CDO. Then it would create a separate CDO, called, say, Subprime Disaster CDO. Subprime Disaster would buy up a risky bucket from Mortgage Nightmare, creating the illusion to the market that banks were still able to sell off risky mortgage assets without any trouble, even though the bank was basically just selling garbage to itself.

That illusion propped up the prices of these risky assets and created more revenue for the tricky bankers who sold them, and plump, short-term profits for the banks. It also strongly encouraged other bankers to issue lousy mortgages to the public, since those loans could be packaged into lousy CDOs and score short-term profits for Wall Street’s schemers.

Ultimately, this scheming resulted in a multi-billion-dollar disaster for Wall Street, which taxpayers ended up footing the bill for. Anybody want to see that happen with Social Security?

Social programs did not cause the deficit

As Seth Freed Wessler notes for ColorLines, deficit hawks’ emphasis on social programs is at odds with the factors that actually created the deficit. The Bush tax cuts, the wars in Iraq and Afghanistan and the bank bailouts are the big-ticket items when it comes to government revenues and expenses. Yet deficit hawks in Congress have been refusing to extend paltry unemployment benefits or food stamps to the people hit hardest by the recession. And pretty soon they’re going to go after Social Security too.

In reality, the deficit is only a problem if investors are afraid that the government will default on its debt. Markets measure this worry with interest rates—high rates mean investors are worried, low rates mean they are not. Right now, interest rates on government bonds are at their lowest in decades. With the recession dragging on and the recovery weakening, now would be a great time for the government to spend more money to create jobs and help those knocked out of work.

Instead, the policy debate features cranky old men whining about 310-million-titted cows.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

Tags: Alan Simpson, AlterNet, banks, CDOs, colorlines, deficit, Economy, Jake Bernstein, Jesse Eisinger, jobs, Joshua Holland, Martha C. White, ProPublica, recovery, self-dealing, Seth Freed Wessler, The Nation, The Washington Independent, Truthout, unemployment, William Greider, Recession, Social Security, Wall Street (all tags)

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