The baby boom is about to meet the New Deal, and one or the other is going to get crushed when it happens. Sometime around 2012, the 76 million member baby boom--a generation that equals the combined population of California and the New England states-- is going to run headlong into the New Deal's greatest legacy, Social Security. As these two giants lumber toward their inevitable collision, Washington's political forces are gearing up for the clash of the new century.
Arithmetic dictates one of two outcomes: Either baby boomers are going to see their Social Security benefits vaporize under tax increases, inflation, and benefit cuts (really "wither on the vine," to borrow a famous phrase), or Social Security is going to be transformed into something entirely different from what it is today.
That something is, in all likelihood, a partially privatized system, an idea dismissed as a libertarian fantasy less than five years ago, but one that has caught hold in Washington with stunning speed. Indeed, in January, President Clinton's own Social Security Advisory Council issued a report offering partial privatization as one of three options to deal with the program's impending bankruptcy. One option maintains the current structure and possibly calls for the government to invest some revenue in the stock market. The other uses mandatory individual savings accounts, but the plan would be administered by the government.
The left has taken notice.
"The party's not over," declares Jeff Faux, head of the labor-funded Economic Policy Institute, which in November held a press briefing to dismiss alarms about Social Security's solvency. The idea of privatization, Faux said, "is driven by a misunderstanding of the way the world works."
This marks the beginning of a battle for the popular mind that will determine what happens to Social Security, and with it, much of U.S. social and economic policy. Just as the New Deal shaped this century, the fight over Social Security will shape the next. Privatization of the nation's biggest government benefit program would have profound consequences--not least, transforming entitlement beneficiaries into stock-market investors.
"The stakes are very high," Faux said. "We're talking about the bedrock of the national social contract."
EPI, joined by a group called the Campaign for America's Future, The American Prospect magazine, the AFL-CIO, and former Sen. Howard Metzenbaum (D-Ohio), lately representing the Consumer Federation of America, have begun the public relations groundwork that will set the theme for impending debates in Congress and the media.
The Campaign for America's Future sent out faxes hailing a recent cover story in Mother Jones: "Stealth Campaign to Privatize Social Security Exposed: Wall Street, Conservative Ideologues and Some Heretical Democrats Backing Plan." Roger Hickey, co- founder of the Campaign for America's Future, predicted, "It's only a matter of time before 60 Minutes and Dateline expose the downside of privatization....our specific role is to build a political movement."
The anti-privatization groups outline a four-pronged attack:
- The problem doesn't exist. Social Security's impending bankruptcy is a hoax perpetrated by scaremongers and right-wing ideologues, from the Concord Coalition to the Cato Institute.
- If there are problems, they can be fixed by minor tinkering with the retirement age, cost-of-living increases, and other tweaks. And any tax increases would be a small price to pay to preserve the New Deal "social contract."
- The Social Security trust fund is solid. It consists of government bonds, and the U.S. government will never default on its debt.
- Greedy Wall Street profiteers are behind the push for privatization. Investment houses and mutual funds see a gold mine, but for beneficiaries there is only unwarranted and potentially disastrous risk.
The first claim lays the foundation of all the others. If it is true that there is no fiscal crisis, there is no need to reform the most popular government program in the nation's history and the one that does indeed protect all Americans from destitution in their old age.
EPI's Jerry Mashaw, a Yale law professor, calls the idea that Social Security is unsustainable "nonsense." Henry Aaron of the Brookings Institution called it a "myth." EPI economist Dean Baker argues that the bankruptcy projections are based on "extremely pessimistic assumptions," and that immigration and higher economic growth will bail out the system.
These are audacious claims, considering the array of experts and institutions who flatly contradict them. There are very few credible analysts who dispute the actuarial facts or their implications for Social Security. Indeed, the Social Security trustees themselves are the ones forecasting the impending bankruptcy of the trust fund in 2029. They include members of President Clinton's cabinet--Secretary of Labor Robert Reich, Secretary of Health and Human Services Donna Shalala, and Treasury Secretary Robert Rubin--none of them privatization-prone or even heretical Democrats. The Federal Reserve, the General Accounting Office, the Congressional Budget Office, and the Bipartisan Commission on Entitlement Reform each have warned of dire and possibly catastrophic problems if Social Security rolls along unchanged.
In a report last September, the World Bank charted the international dimension of the problem, warning that, across the globe, "old-age systems are in serious financial trouble and are not sustainable in their present form." Europe and Japan face the identical problem of a big postwar demographic bulge colliding with big social welfare programs. The impending debt problem is a worldwide one.