Shock Therapy: Perfect Storm

Part 5

Lenin and the boys at Cato agree with Friedman: “Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”

We know what ideas our “leaders” have lying around. They’ve been drumming them into our heads for years. What shape might the coming crisis take?

Crisis needn’t be a hurricane or tsunami; it can be a financial disaster as well — even a phony one. As long as people are scared and confused and will do what you want them to — that’s all that matters.

Crisis might look like the perfect storm of mortgage meltdown, recession, declining industries and wages, rising deficits, all coming to a head as the boomers retire — and that unfortunate file cabinet full of IOUs, with — so sorry — “no money” to redeem them.

Combine that with a full-court press of pundits, preachers and politicians, all well-manicured and well-fed, none in any danger of going without in their old age, though they insist you must. All of them nattering away at you, on the TV, in the papers, on the radio, relentless as the zombies in The Night of the Living Dead:

“There’s no-o-o-o money! No-o-o-o money! If you don’t do what we say the country’s going to go broke and you’re all going to die!”

It might be that the 1983 debut of both Greenspan’s “reform” and the Cato paper wasn’t coincidental. It might be, indeed, that Greenspan created the debt to the Trust Fund with an inkling that it could eventually be hyped as a “crisis” to take down Social Security for good.

That’s how the IMF did it, Klein says. Get the rubes in debt, then pressure them to take your “shock treatment,” your austerity program. As in Chile, as in Russia, where poverty rates doubled and tripled after the treatmentSee discussion of the effect of “shock therapy” and privatization on Chile and Russia in Melanie Klein, The Shock Doctrine, 2007.; so here. We too must take our medicine.

Bugger that.

There’s no Social Security crisis. There never has been. If you’re not convinced yet, how about this: the projection used to hype the phony crisis assumes a growth rate of 1.8% over the next 75 years.Social Security Administration, 2004 Trustees Report, Table V.B.2, intermediate projection 2015-2080 = 1.8% GDP growth That’s lower than the 1.9% average growth rate of the Great Depression, 1929-1940.Growth % calculated from “Real GDP 1929-1940,” Louis D. Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1790 – Present.” Economic History Services, 10/05.

But there are actually three projections; an optimistic one, an intermediate one, and a pessimistic one. In the “optimistic” scenario, long-term growth averages 2.6%, the Trust Fund never runs out, and there’s a 17-trillion dollar surplus in 2080.Social Security Administration, 2005 Trustees Report, Table VI.F7. So far, reality has always turned out closer to the optimistic projection than the other two. Since 1980, growth has averaged 3.1%.Growth % calculated from “Real GDP 1941-2006,” Louis D. Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1790-Present.” Economic History Services, 10/05. Whee! Feel better?

Not that a projection 75 years into the future has any bankable accuracy anyway.

The projection, like “crisis” it predicts, is a fraud, a cynical Big Lie, a con. They want your money. That’s all they’ve ever wanted, and they’ll keep pushing until they get it, unless they know you understand the con.

The Republicans won’t save you, and the Democrats won’t save you either. They’re the ones up on the tube, debating oh-so-seriously about the “crisis” when they know it’s phony, pretending to disagree, all the better to con you. They’re the good cop and the bad cop, the inside and the outside man in the three-card game.Three-card monte is a confidence game where the “mark” is tricked into betting he can find the money card among three face-down playing cards, a classic short con in which the outside man pretends to conspire with the mark to cheat the inside man, while in fact conspiring with the inside man to cheat the mark. (*definition from wikipedia)

They know that some of you’ll want to identify with the nice, caring Democrats, who’ll save Social Security by raising taxes — just a hair, just a smidge. And others will want to identify with the tough, fiscally responsible Republicans, who’ll institute sensible private accounts.

And while you’re watching the game, taking one side or the other, getting all riled up about the stupidity of the other side — they’re moving in, like the partners in crime they really are, for the coup de grace.

Here’s the straight story.

“The economy” isn’t the casino, isn’t the game, isn’t even the chits of paper we use to trade and keep score with. The economy is the real world of producing real goods and services. So long as American workers are producing real goods and real knowledge for decent wages, there will be enough surplus for their elders’ Social Security.

If, on the other hand, our “leaders” follow the road they’ve been on the last 30 years: off-shoring production, outsourcing democratic government to unaccountable private power, stripping resources faster than they’re renewed, allowing infrastructure and human skills to decay, and substituting a casino economy for a real one, we’ll all go broke, and private accounts won’t change that likelihood one bit.

Social Security’s not in crisis. Our leadership is. Our democracy is.

No tax hikes, no benefit cuts, no private accounts. Hands off, ya lying crooks.

Read Part 1, Part 2, Part 3, and Part 4.

Hannah B. is from the Pacific Northwest and works in healthcare. She can be reached at: bbhannahb@yahoo.com. Read other articles by Hannah, or visit Hannah's website.

9 comments on this article so far ...

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  1. Deadbeat said on November 14th, 2007 at 9:30am #

    Hannah,

    Thanks for all your efforts and attempts to get this truth out about Social Security. The “crisis” is phony and the media is only a propaganda mill conspiring against the interest of working people.

  2. A Mohit said on November 14th, 2007 at 10:28am #

    A great job Hannah. You did good research and wrote a very simple and informative article that is very convincing for anyone willing to learn and understand the SS issue.

  3. Dr Coles said on November 14th, 2007 at 10:33am #

    The full retirement age is based on maintaining a 50% death rate, so the government does not have to pay any paid for benefits but to half of the investors. The government gets 15% of all wages (up to $102,000) in America and is so incompetent as an investment manager, if we could we would have fired them, they do not invest our money and grow the funds. The problem with Social Security is totally caused by government. No, matter your political party affiliation, and setting aside your thoughts on issues. We all need to remember what it is to be an American Citizen. We need to make sure our elected representatives obey their Oath of Office and keep their Oath of Allegiance. See http://tinyurl.com/2znnvl Know whom you are voting for.

  4. Lloyd Rowsey said on November 15th, 2007 at 6:15am #

    It’s a wrap.

    Mohit, you must have not tried to read Part1 and Part2 shortly after Hannah put them up.

  5. John Greenwood said on November 15th, 2007 at 11:01pm #

    Ye who thinks people need not be able to make financial calculations regarding rates of return to weigh the relative benefits of various alternatives because one really has no control over anything that happens in life anyway, let’s look at some of the gross political deceit, lies and unkept promises that have become a part of Social Security that you fail to point out.

    .Here’s what a 1936 government Social Security pamphlet said: “After the first 3 years — that is to say, beginning in 1940 — you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. … Beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. … And finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. … That is the most you will ever pay.”

    Had Congress lived up to those promises, where $3,000 was the maximum earnings subject to Social Security tax, controlling for inflation, today’s $50,000-a-year wage earner would pay about $700 in Social Security taxes, as opposed to the more than $3,000 that he pays today.

    The next big lie is from the same Social Security pamphlet: “Beginning November 24, 1936, the United States government will set up a Social Security account for you. … The checks will come to you as a right.” First, there’s no Social Security account containing your money, but more importantly, the U.S. Supreme Court has ruled on two occasions that Americans have no legal right to Social Security payments.

    In Helvering v. Davis (1937), the court held that Social Security was not an insurance program, saying, “The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way.”

    In a later decision, Flemming v. Nestor (1960), the court said, “To engraft upon Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands … ” That flexibility and boldness mean Congress can constitutionally cut benefits, raise retirement age, raise Social Security taxes and do anything it wishes, including eliminating payments.

    If a private retirement company reneged on its promises, we could take it to court. If Congress reneges on its promises, there’s no judicial course of action whatsoever.

    Vital to any Ponzi scheme, like Social Security, is the ability to recruit as many suckers as possible. In 1999, a little noticed part of President Clinton’s plan to “save” Social Security was to force 5 million previously exempted employees into Social Security. If they were forced into Social Security, it would have created billions in additional revenue. Guess what. Twelve senators, including five Democrats — Dianne Feinstein (D-Calif.), Barbara Boxer (D-Calif.), Christopher Dodd (D-Conn.), Richard Durbin (D-Ill.) and Edward Kennedy (D-Mass.) — descended on the White House to demand that President Clinton not support forcing 5 million of their constituents into Social Security. They warned of the adverse impact on employees in terms of lower rates of return and lost flexibility.

    Isn’t that great? These are the same politicians who are now resisting President Bush’s call to allow Americans to take a part of their Social Security taxes to put into private retirement accounts. If they’d go to bat for those 5 million workers to remain out of Social Security, to avoid the adverse impact of lower rates of return and lost flexibility, why would they fight to deny tens of millions of workers a right to use a portion of their taxes to do the same?

    Here’s a moral dimension to Social Security that you don’t address. What moral principle, consistent with liberty, justifies forcing a person to set aside a certain portion of his weekly earnings for retirement and jailing him if he fails to comply? Retirement isn’t the only important item for which we should budget. How about a congressional mandate that we set aside a certain portion of our weekly earnings for housing, food, entertainment or our children’s education? Were Congress to propose a measure that would require each American to set aside a portion of his weekly earnings for these items, most of us would see it as tyranny. Pray tell, what’s the difference in principle for a congressional mandate that requires setting aside earnings for retirement versus a mandate setting aside earnings for housing or our children’s education?

    Actually, when you stated: as for your “exploitation”: the day the waltons, the mellons, the rockefellers & kochs, & the political class as a whole get behind a movement to allow people to vote on every item in the federal budget, i’ll take you seriously. until then, i see no reason why SS should be a special case.” You conceded that there is at least an element of exploitation and tyranny in SS. We’re making progress here.

    2 other points:
    You stated: “Somehow, the only budget items their good citizenship extends to are social programs. They somehow never want to let people choose whether we want to fund wars & corporate welfare. Forcing people to pay for those programs is never described as “exploitative”.” That was a non sequitur.

    You also stated: “Their outrage, & yours, is selective”. That was another non sequitur. We were only talking about SS here. What makes you think I’m not outraged by these other things. You continue to make erroneous assumptions.

  6. hannah said on November 16th, 2007 at 4:44am #

    Dear John:

    Using someone else’s exact words without attribution is plagiarism:

    http://www.capmag.com/article.asp?id=754
    http://www.jewishworldreview.com/cols/williams052400.asp
    “http://findarticles.com/p/articles/mi_qa3827/is_200006/ai_n8904803”

    Using someone else’s claims without researching them isn’t a good idea.

    1. The author (Walter Williams) of your plagiarized post seriously
    misrepresents Helvering v. Davis. In fact, he lies about it.

    It wasn’t a decision about whether SS was insurance, it was about whether parts of the 1935 SS act were Constitutional.

    There’s no discussion at all about whether SS is “insurance.” In fact, I can’t find the word “insurance” in the case, though I may have overlooked it.

    Read it yourself, you’ll find the quote in P. 6.

    http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=301&invol=619&friend=nytimes

    The quote occured in Justice Cardozo’s’ outline of the facts of the case, not in the decision.

    He summarize the parts of the 1935 act under dispute, saying SS collections go to Treasury by the terms of Title 8 of the 1935 SS act & aren’t earmarked. Title 2 sets up a reserve account for SS, but no appropriations have been made.

    This was so because SS taxes had just begun being collected that year, & the regulations as to the management of funds & the TF hadn’t been laid out completely. They were by 1939. You can read about it here:

    http://www.ssa.gov/history/BudgetTreatment.html

    On the question of whether the then-lack of a specific earmark meant Congress could do whatever it wanted with the money, the Court explicity refused to decide the question:

    “The argument for petitioners is that the tax moneys are not earmarked, and that Congress is at liberty to spend them as it will…
    We find it unnecessary to make a choice between the arguments, and so leave the question open. ”

    Williams misrepresents Fleming as well, but I think I’ve proven the point: he isn’t an honest critic.

    Neither are you, apparently, as you’re willing to plagiarize other people’s words without checking them for truth value just because they seem to support your position.

    You’ve not successfully challenged one fact in this essay. Your only truthful argument is that you’re philosophically opposed to SS (& apparently taxation in general).

    That’s fine. That’s a matter of personal philosophy. If you feel so strongly about the philosophy, why do you need to distort the facts & the historical record?

    It’s true that every tax can be viewed as coercive.

    It’s also true that without the coercive power of the state, you wouldn’t have “your” money. You’re a physical therapist, a profession whose earning power is utterly dependent on the coercive power of the state & it intrusion into the medical realm in any number of ways. To be consistent, you ought to agree to give up those coercions. But they’d mostly have the effect of lowering “your” income.

    If you really don’t know how to compound interest (you keep insisting iI demonstrate for you), I suggest you google it.

  7. John Greenwood said on November 16th, 2007 at 8:41pm #

    Nice detective work there Hannah. I appreciate that your holding my feet to the fire, I’m much too lazy. Never the less, don’t get too smug just yet. Let’s just see if you can raise your own standards of argument without injecting non sequiturs, erroneous assumptions and pretending to know things that you don’t.

    So here goes

    First, as regards to Helvering v. Davis. You say that Williams lied. You are the one distorting the issue. SS is promoted by many as insurance. Your right, insurance is not mentioned in the decision. You state, “This was so because SS taxes had just begun being collected that year, & the regulations as to the management of funds & the TF hadn’t been laid out completely“. Right you are again. “On the question of whether the then-lack of a specific earmark meant Congress could do whatever it wanted with the money, the Court explicity refused to decide the question“: You are right again! “The argument for petitioners is that the tax moneys are not earmarked, and that Congress is at liberty to spend them as it will…
    We find it unnecessary to make a choice between the arguments, and so leave the question open. ” You got the text right but you completely miss William’s point completely, given the uncertainty about management of the funds, and the payouts, SS by definition could not possibly be considered insurance.

    “Williams misrepresents Fleming as well, but I think I’ve proven the point: he isn’t an honest critic.” Au contraire. William’s stated “you have no legal right, in the sense of a contract, to Social Security payments. “ In what way did Williams misrepresent Fleming?

    Here’s the Case Information from Social Security Online. It’s quite clear that William’s is right.
    http://www.ssa.gov/history/nestor.html

    Supreme Court Case: Flemming vs. Nestor

    Background to the Case:

    The fact that workers contribute to the Social Security program’s funding through a dedicated payroll tax establishes a unique connection between those tax payments and future benefits. More so than general federal income taxes can be said to establish “rights” to certain government services. This is often expressed in the idea that Social Security benefits are “an earned right.” This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility–and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.

    There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act, entitled “RESERVATION OF POWER,” specifically said: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor.

    In this 1960 Supreme Court decision Nestor’s denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits. Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor’s benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right.

    OK, so you don’t want to figure out rates of return, because I guess you think it’s a waste of time. Well since you won’t say, I’ll do it. In my little thought problem where one receives twice as much back 30 years later after a one time deposit, the yearly rate of return is about 2.3%. Actually, an easy rule of thumb applies when one tries to estimate the rate where one doubles their money is the rule of 72. Simply divide the number of years into 72%. That comes out to 2.4% over 30 years. Close enough for government work. When one factors in inflation, this isn’t very good. Not being able to make estimates like this means one is going to have a more difficult time choosing among alternatives for their money and resources.

    The bottom line here is that I do not believe you have adequately addressed in my main point and complaint about your point of view Retirement isn’t necessarily the most important item to consider. The working poor, living pay check to pay check could use every penny they make. How do you justify making these people pay into SS for an uncertain payout years in the future vs. putting that money, perhaps into paying the rent, feeding their kids well, saving for a home or investing in their education. An individual may perceive these things to be of greater value over the long run, especially if one considers where their present SS contributions are going. I don’t see how you can justify not allowing them the choice.

  8. hannah said on November 16th, 2007 at 10:42pm #

    John,

    Williams lied blatantly.

    He said the Helvering case decided “SS wasn’t insurance”–when it had nothing to do with that question & never mentioned the word.

    He took a quote out of context pretending it supported his point, when in fact it had nothing to do with it. He implied the Court had ruled Congress could do whatever it wanted with SS monies.

    He has a PhD. If he read the case, he knew he was lying. So since he’s a deliberate liar, there’s no reason to pay attention to anything else he might have to say.

    But Williams’ lying essay is all over the internet & hard copy media. Why is that, do you think?

    Most of the SS debate is deliberately deceptive. The privatizers can’t win on the facts. That’s why they’re lying, & that’s what demonstrates their utter contempt for ordinary people & democratic processes.

    You’re philosophically opposed to SS. Fine. Stick to that argument, it’s honest.

    The “SS crisis,” though, is phony, manufactured, deliberately, by big corporate money, in its own interest.

  9. John Greenwood said on November 16th, 2007 at 11:32pm #

    The “SS crisis,” though, is phony, manufactured. If you recall, I agreed with you on this point. A crisis in my mind is a life and death situation with limited options. That is not the the case with SS.

    You say Williams is a blatant liar. OK, why don’t you comment on my citation from Social Security on line,
    http://www.ssa.gov/history/nestor.html. Certainly, this there is no interest here in eliminating SS
    Here’s the last 2 paragraphs again:

    There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act, entitled “RESERVATION OF POWER,” specifically said: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor.

    In this 1960 Supreme Court decision Nestor’s denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits. Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor’s benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right.

    Your comments please.

    Finally, you continue to avoid directly adressing my bottom line point. Everything else is minor:
    The working poor, living pay check to pay check could use every penny they make. How do you justify making these people pay into SS for an uncertain payout years in the future vs. putting that money, perhaps into paying the rent, feeding their kids well, saving for a home or investing in their education. An individual may perceive these things to be of greater value over the long run, especially if one considers where their present SS contributions are going. I don’t see how you can justify not allowing them the choice.