Chapter 5: May 2010 Update
The depth of the recession reportedly created in 2010 the situation long projected for 2016 – the moment at which the Social Security Fund paid out more than it took in: a projected small shortfall for 2010 of $29 billion in a total inflow and outflow of $700 billion. The gap will be more than covered by the interest on the Treasury Securities into which the #2.5 trillion accumulated surplus has been placed down the years; but it will sharpen the discussion around the scale of the public debt now underway.
The focus will inevitably be on the President’s bipartisan National Commission on Fiscal Responsibility (jointly chaired by Erskine Bowles and Alan Simpson), whose first meeting occurred at the very end of April. Charged with finding solutions by December 2010 to the medium and long term dept projections, Social Security payments are bound to be in its sights: not least because they will be kept there by the pressure from right wing organizations (like the Peter G. Petersen Foundation, long committed to welfare curtailment, and the organizations of a high-powered Washington conference in April on just this issue) and Republican figures like Ben Bernanke, whose used an April 7th address to warn Americans that “they may have to accept higher taxes or changes in cherished entitlements such as Medicare or Social Security if the nation was to avoid staggering budget deficits that threaten to choke off economic growth.” (The Washington Post, April 8, 2010). Liberal commentators have been equally active:
- challenging the composition of the commission as “packed with “Social Security Looters” (http://www.alternet.org/story146183) – everyone a potential looter except Andy stern, president of SEIU;
- challenging the “starving the beast” philosophy that lies behind the Republican’s thesis of public sector debt crowding out private sector economic growth (see Paul Krugman “The bankruptcy boys”, The New York Times, February 22, 2010)
- and insisting that growth will solve the deficit issue, not the other way round (see Robert Kuttner, “Fiscal Folly”, The Huffington Post: posted April 4, 2010)
The Center for American Progress, close to the Obama administration, issued its own The Big Questions: Setting the Stage for Fiscal Reform for the New Deficit Commission on April 26, 2010. The 6 big questions were listed as follows
- How do we make government more efficient and productive to achieve savings and better serve the American public?
- How do we spur economic growth?
- How can we bring the defense budget into alignment with fiscal realities while meeting our 21st century national security needs?
- How can we achieve critical savings in the health care arena?
- Can changes to Social Security be a part of the solution?
- Can we increase tax revenues?
The CAP report answered its own penultimate question this way
There is a projected long-term imbalance in Social Security that, while not a main driver of long-term federal deficits, will contribute to them and will eventually put benefit levels at risk. With private sector pensions becoming weaker, a strong Social Security system is especially important to economic security. The commission has an opportunity to address the long-term imbalance and also strengthen the system for beneficiaries by putting in place a minimum benefit to ensure that no elderly person who has worked most of their life lives in poverty. Any reasonable reforms will have virtually no impact on the 2015 fiscal picture and a relatively modest effect on longer-term projections. But reforms could starkly demonstrate to skeptical debt markets that the United States is willing to take on a politically difficult fiscal issue—a demonstration that could put the United States in good stead with investors around the world.
For all the fine initial words in that paragraph, there is a serious sting in its tail. Those of us keen to defend pensions for working Americans would do well to be on guard, against policies that are geared to “stark demonstrations to skeptical debt markets”. There are dangers ahead against which liberals will need to prepare.
David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.
He writes here in a personal capacity.