As I point out in Framed: Social Security (on the Daily Kos website), “Social Security is one of the keystones of the New Deal and a pillar of progressive legislation. This makes tearing it down one of the prime targets of conservative politics.”
And, sure enough, Social Security is under its most serious attack since it was signed into law in the 1930. Republicans have actually written its demise into legislation they passed in the House. They are using every bit of leverage they can to have President Obama chip away even a little bit. They know that even the slightest change to Social Security is an enormous strategic victory. It allows them to say to the American people, “See. Even Democrats admit that Social Security is a bad idea. That’s why we have to get rid of it.”
How can they get away with this when a large majority of the voters don’t want Social Security touched, and would prefer to see the rich give up a little more money to save it? They can get away with it primarily because the public has forgotten what Social Security really is. This allows people committed to killing it the latitude to label it “government spending” and “an entitlement”.
Do you know what Social Security is? It isn’t government spending at all. It is a requirement that employers pay for the actual cost of the labor they use to make their products. It is part of the private sector. It prevents employers from exploiting workers by paying them only enough to survive while they are actually working.
Social Security cures a huge problem with the free market. This is how the free market operates: It sets a price for a commodity, in this case labor, based on the equilibrium point between supply and demand. There is no guarantee in the free market that that price point is going to be enough for the worker to survive in the long run. It only has to be enough for them to survive while they are working and until someone more able to do the job shows up. At that point, they are surplus. Their means of survival no longer depends on the job—only on the kindness of their family or the charity of strangers.
And, as we saw all too well before the 1930s, that meant that many seniors lived in poverty, barely able to survive and unable to pay when they faced heavy medical bills—until our society provided a universal retirement plan. It is only Social Security and Medicare that keeps many seniors alive. Without it, normal market forces would prevent them from ever saving for retirement, and they would simply die when they were too old to work.
This is why these programs are taken out of payroll taxes. They are really taxes on employers. They require employers to pay enough in the aggregate that workers can survive when they are unable to work because they are disabled or too old. If, for any reason, the amount that goes into these funds is insufficient, then the right thing to do is to raise the employment taxes until employers are paying enough to support the programs.
In fact, there is a shortfall. That shortfall is not in Social Security (which is running a surplus), but in Medicare. It is a shortfall primarily because we have allowed wages to fall and the number of workers employed to decline to the point where the payroll taxes are not sufficient to fund the program. The right thing to do in this case is to raise the employer contribution to those programs.
That’s right. It’s time to raise taxes. This is only right because worker wages have fallen while worker productivity has been soaring. In fact, since the 1970s, wages have fallen about 8%, but worker productivity has gone up about 80%.
Until the 1970s, wages increased along with productivity. But starting in that decade, wages went down while productivity went up. This is largely due to unrestricted globalization, which has put pressure on wages. It is also due to a shift away from wealth-producing industrial jobs to wealth-distributing service jobs. The lack of wealth production means that there is less money to distribute, and causes shortfalls that have resulted in lower wages. This drop in wealth producing industrial jobs (over 25% since the 1970s) is also the result of unrestricted globalization. And this same dynamic has also reduced employment rates. Employment is down 0.9% in the three decades since the 1970s over the three decades previous. This means that 1.4 million Americans are out of work right now due to bad trade policy.
The combination of lower wages and less employment has created a staggering blow to Social Security and Medicare, which get their money from payroll taxes. The right solution to this problem is to raise the employer contribution (since employers have benefited from the increase in productivity, but workers haven’t) and to regulate trade, both by instituting a uniform tariff and by requiring adherence to an international minimum wage as the price of access to American markets.
In the face of good trade policy, corporations would begin to relocate production facilities in the U.S. to serve our market, bringing about sustained job growth in high-paying jobs.
Increased wages and higher employment would not only balance the budget for Social Security and Medicare, but it would also eliminate pressure on the federal budget and allow us to pay down our debt.
The important thing to remember is that Social Security is not government spending. Dollars that go into Social Security are still spent on the same things. Seniors still buy food, clothing, transportation and all the other things consumers buy. When dollars are taken for the government the nature of the spending changes. If you tax a dollar and spend it on the military, money that would have gone to food now goes to weapons. This changes the guns-to-butter ratio of the money in the economy. But money that goes to Social Security still goes to consumer items.
And the other important thing to remember is that Social Security prevents workers from being exploited by the market. The market doesn’t care whether you survive your retirement. If you let the market set wages, then it will gladly kill you off the moment you are no longer working, because you don’t have any use to the market unless you are producing. A strictly market-driven economy will give you the Republican plan for retirement: (1) Don’t retire. (2) But if you do retire, die quickly. (With apologies to Rep. Grayson.)
You can learn more about Social Security and the statistics behind it by going to Framed: Social Security.
Rich Wingerter
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