If beauty is in the eye of the beholder, the same might be said about social problems. With a war -- unexpectedly costly in both monetary and human terms -- raging in Iraq, job growth stagnant, and large budget deficits projected for the foreseeable future, Alan Greenspan made headlines late last month decrying the purported fiscal burden posed by retiring baby boomers. Most of the mainstream media, including newspapers and local TV news in my home state, treated his pronouncements with the usual reverence. Yet Greenspan's perspective is open to challenge. This sage's track record of faulty forecasts and broken promises make him a suspect guide to future public policy.
Ever since its enactment by the Roosevelt administration, Social Security has been a target of conservatives in the Republican Party. Only after Barry Goldwater lost decisively in his 1964 campaign, in which he promised to repeal Social Security, did most Republicans finally put this issue to bed for a time. Even Ronald Reagan never challenged the fundamentals of Social Security.
By the '90s, however, some conservatives had hit upon a new tactic. Rather than challenge the legitimacy of the program, they suggested that it was going to run out of money. The best way both to secure the program and to improve retirement prospects for aging baby boomers would be partial privatization of Social Security, they said. In one of his greatest disservices to the Democratic Party, Bill Clinton went along with Republican prophecies of eventual doom for the system.
Despite this widespread consensus that Social Security is in trouble, the numbers have never been there. The Social Security Trust Fund's own report says it will be able to meet all its obligations through the year 2042. Even these figures are based on assumption that the US economy will have a slower growth rate than it experienced throughout most of the 20th century. The trustees assume rates of growth characteristic of the 19th-century, when our economy, largely bereft of the safety nets like Social Security and unemployment compensation, experienced several disastrous business downturns. Interestingly enough, every time corporate interests have returned to this topic, the doomsday number projected by the Social Security trustees is even further in the future.
Greenspan himself should and probably does know this. In 1982 he chaired a commission that recommended modest tax increases to sustain the system for the foreseeable future. Those recommendations were enacted and have been extraordinarily successful. Greenspan's current push to cut benefits for baby boomers in effect breaks a commitment. As economist Dean Baker puts it: "If Congress follows Greenspan's current recommendations for cutting Social Security, the large surplus built up by the Social Security trust fund (more than $1.7 trillion presently) will not be used for Social Security. Instead, the money collected through Social Security taxes will be used to pay for farm subsidies, defense, and other categories of general government spending."
Princeton economist and New York Times columnist Paul Krugman reminds us that the taxes on which the Social Security surplus has been based are regressive. Social Security is funded only through taxation of income and only the first $88,000 of income is subject to that tax. As it stands right now, the vast expenditures projected in the Bush budget will be paid for either by increasing the federal debt or, if Mr. Greenspan has his way, by cutting retiree benefits for Social Security. Some conservatives argue that cutting benefits by postponing the retirement age is no big deal. The population is living longer and healthier lives. Yet talk of the US as a postindustrial society is overblown. Those Americans who rely the most on Social Security still often do physically and mentally taxing labor. They have a right to look forward to their retirement.
We need to ask why we are in this predicament in the first-place. Just three years ago, Alan Greenspan recommended that the federal government embark upon vast personal income tax cuts because, as he put it, the federal surplus was growing and was going to continue to grow to the point where the national debt would be reduced to zero. He also assured us that tax cuts would not endanger Social Security benefits.
Greenspan is not alone in faulty economic forecasts. But with a track record of failing to predict the bursting of the dot-com bubble in the stock market, the accompanying recession and the more recent mistakes about the federal budget, Greenspan's advice should hardly be taken without more than a little skepticism.
US economy presents more obvious and immediate problems than a highly speculative shortfall in a federal entitlement program four decades from now. That economy now is running an unprecedentedly serious trade deficit. Despite recent declines in the value of the dollar, that trade deficit is at an annual rate of about 5% of gross national product. These are numbers generally characteristic only of so-called Third World nations in fiscal crisis and soon-to-be under the draconian guidance of the International Monetary Fund.
I will not join Greenspan in predicting economic crisis. But for my money, the trade deficit is a more immediate and bigger issue. The Bush administration has granted extraordinary tax favors to the wealthy. That money would be far better spent in modernizing our energy and transportation systems, improving our schools, and funding basic research. Expenditure in each of these areas is necessary if the US is to resume its role as a world-class economic power. If our government pursues that course, it will be far more able both to deal with its trade deficit and to meet its obligations to future generations.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@prexar.com.