Trust Us: Social Security Works
I read Counterpunch.com on a regular basis for two reasons. First, I visit the site for its extremely good articles discussing the foreign-policy follies of Western governments. Few sites feature harder-hitting and more consistently anti-interventionist critiques of the policies pursued by Western governments. The second reason I like to visit Counterpunch is to give myself a good laugh. Nothing in the world amuses me more than when self-styled "progressives" attempt to discuss economics.
During my most recent perusal of the Counterpunch archives, I stumbled upon an article by Dave Lindorff entitled "Social Security Scare Tactics." The article made me laugh so hard that whiskey came out of my nose (which is, by the way, excruciatingly painful).
For those of you who don't want the punch line of the article spoiled, stop reading right now. For everyone else, put down whatever it is that you're drinking, because here it is: there's nothing seriously wrong with Social Security! That's right, Lindorff apparently really believes that all of the dire talk about the inevitable and impending bankruptcy of Social Security this year is nothing more than scaremongering designed to manufacture a "fake crisis." Don't get up off the floor just yet, because there's more: Lindorff apparently really believes that the Social Security "trust fund" actually has real money in it, instead of a bunch of worthless IOUs from the Treasury Department!
Now that I've spoiled the punch line, let's have a look at the evidence Lindorff gives for his knee-slapping claim that Social Security is not in dire straits. I use the word "evidence" rather loosely here, however, because Lindorff apparently doesn't think that any actual evidence is necessary to substantiate his claim.
One would think, for example, that any claims that an institution could easily be made fiscally sound would require substantiation by looking at the institution's actual books. Specifically, one expects that such a claim would be substantiated by looking at the actual assets and actual outstanding liabilities of this socialist totem in order to determine whether it is even possible for Social Security to live up to all of the promises it has made to future beneficiaries. For Lindorff, however, looking at the books is not necessary, because he somehow already knows that there's nothing fundamentally and irreparably wrong with Social Security.
For those people not gifted with accounting ESP like Lindorff, Social Security's unfunded liabilities are conservatively estimated to be around $17.5 trillion. Oh yeah, and that "trust fund" that Lindorff mentions as if it were really overflowing with saved money — all the money has already been spent by Congress. As you can see, the numbers are not exactly as rosy as Lindorff's ESP has led him to believe.
What is really interesting is that even while Lindorff is trying to make the case that Social Security's fiscal condition is not all that serious, he concedes that Social Security will indeed go bankrupt this year. He writes:
So with beneficiaries rising faster than anticipated, and the total national payroll in sharp decline, of course things have gone negative for Social Security earlier than originally anticipated.
One would think that an institution going "negative" (i.e., bankrupt) is a sign that there is something fundamentally flawed with it. For Lindorff, however, bankruptcy is nothing to get ourselves worked up about, especially since the bankruptcy is only caused by the demographic problem posed by the baby boomers.
Lindorff thinks the boomers are only a "demographic wave that will eventually pass." He's right — we only have around 30 more years until the "wave" passes. Thirty years of bankruptcy is nothing that need trouble us!
To mention that Social Security is completely bankrupt right now and cannot possibly pay out everything it has promised is nothing but a "scare tactic." One wonders if it occurred to Lindorff to make the same claim when Bear Stearns and Lehman Brothers went bankrupt two years ago. Don't worry everyone, bankruptcy — I mean, "turning negative" — is nothing too serious! Anyone who talks about Lehman's complete "insolvency," or, better still, Bernie Madoff's "insolvency," is just a scaremonger! That's right, Lindorff uses scare quotes around the word "insolvency," as though the word itself is inflammatory.
We know, of course, that socialists like Lindorff were making no such claims back in 2008, because progressives of his stripe view the world through Manichean glasses. In their view, there's the corporate world of greed and theft, and there's the world of ordinary, helpless workers who are protected by selfless government programs that can't possibly do wrong.
People like me who defend the free market but who also have blue-collared shirts must perplex white-collared progressives like Lindorff because we don't fit into this Manichean model. I suppose I've just developed an insidious "false consciousness" by examining the actual books of Social Security, Medicare, the FDIC, etc.
According to Lindorff's banal, progressive worldview, the problem with Social Security is not that it is a bankrupt Ponzi scheme, but that greedy employers are not forced to pay enough into the system. You see, employers only pay half of a worker's contribution to the program. God forbid! The solution to the "fake" Social Security crisis, according to Lindorff, is thus to dramatically jack up the percentage paid by the employer to, for example, a "40/60 split, with the employer paying 50 per cent more than the worker, or even a 30/70 split."
Like any good progressive, Lindorff salivates when he thinks about extorting money out of businesses for his pet projects — businesses that he childishly imagines are bloated to the gills with superfluous cash that could be used to finance grandpa's Social Security checks. However, he never explains the effect that this scheme would have on employment in this country. He doesn't mention this because the scheme would produce one of two outcomes, both of which would be devastating to working people in the United States: it would produce either massive and permanent unemployment, or else lower salaries and wages across the board.
Businesses that are forced to pay more per worker in the form of Social Security "contributions" (without a concomitant increase in labor productivity) will hire fewer workers, and the cost of their goods will rise. The price for labor affects both the quantity of labor demanded and the price of the finished goods the labor is a factor in creating. Employers could offset this increased price for labor by offering their workers lower take-home salaries and wages, (i.e., shift the cost onto workers), but this is precisely the outcome that the Lindorff scheme claims to avoid.
In either scenario, it is the workers who suffer through either widespread unemployment and higher-priced goods, or lower take-home wages and salaries. So much for Lindorff's silly attempt to saddle supposedly greedy employers with the Social Security bill.
These inexorable economic consequences do not trouble Lindorff in the slightest, because he's still got the example of Germany up his sleeve. According to Lindorff, the fact that Germany has a gigantic social-welfare system coupled with the fact that Germany exports more than it imports is proof that social security is not a real problem for the United States.
The economic reasoning is hard to follow here, even by Lindorff standards, but the logic seems to run something like this: Germany has a massive social-welfare system and exports a lot of stuff. Exporting lots of stuff is virtually identical with economic prosperity. Therefore, the United States shouldn't worry about Social Security, because social-welfare programs are not incompatible with shipping lots of your stuff to other countries. If this is indeed an accurate representation of the logic of Lindorff's argument, then we have no choice but to say that he is just as historically ignorant as he is economically illiterate.
In the first place, this argument is a complete distortion of German economic history since World War II. Indeed, the historical record shows quite clearly that the years immediately following WWII were marked by the return of almost 19th-century-style laissez-faire in West Germany, which led to miraculous economic growth, while East Germany languished in poverty and stagnation under the ultra-"progressive" Soviets.
Beginning in the 1950s, however, the West Germans turned away from laissez-faire and toward a state-controlled welfare system of the sort defended by Lindorff. Far from bringing prosperity to the West German people, the new social-welfare state brought what socialism always brings in its wake: recession, unemployment, and reduced productivity.
Lindorff's reference to German history also neglects to mention the case of East Germany, where there was a "safety net" in the form of Soviet-created jobs and welfare for the sick and indigent. East German economic history is not particularly helpful for making Lindorff's argument, however, since socialism, Soviet-style, brought nothing but poverty and economic backwardness.
Lindorff's argument is even worse than this, however, because his argument is completely irrelevant to the issue at hand. The question at hand is whether or not the American Social Security system, which Lindorff himself recognizes will go "negative" this year, can afford to pay out what it has promised. It is thus completely irrelevant to point to Germany and say, "See, their system isn't hopelessly broke yet."
The argument is like Lindorff pointing to his friend's car and exclaiming "See, his car is paid off. Mine must be, too!" And this is setting aside the fact that the European social-welfare states are much poorer than economically ignorant American progressives like to think, and setting aside the fact that exporting lots of stuff to foreigners is not the same thing as prosperity, as any serf in the Chinese hinterlands can tell you.
The problem with people like Dave Lindorff, and with progressives generally, is that they don't ever care to investigate whether the articles of their progressive faith are indeed justifiable in the light of economic theory or economic history. Economic theory is nothing more to them than a constant and tired rephrasing of the old Marxist canards condemning business, coupled with the most childlike faith in the power of government bureaucrats.
What's far worse, however, is that their faith in government programs and bureaucrats cannot be changed by looking at how real government programs and real bureaucrats operate in the world. Hank Paulson was a bureaucrat. Sheila Bair is a bureaucrat. Tim Geithner is a bureaucrat. Ben Bernanke is a bureaucrat, and Alan Greenspan was, too. Those incompetent jerks down at Lindorff's local DMV are bureaucrats.
All of these people are incompetent, and most are liars and thieves of the most despicable sort, but these facts can never persuade the progressive mind to abandon its unshakable belief in the power of government bureaucrats and government programs to remake the world. In the end, this is the reason why progressivism as a system of economic thought is every bit as bankrupt as Social Security.
 For more on what follows, see Hans Hoppe's brilliant economic history of East and West Germany since WWII.