Morning Report 7/31/05Missed Connections


I flew United on Bush’s Social Security Tour ’05, and all I got was this lousy T-shirt (and no pension)

Comedy is central: Pitchman POTUS staging his SS assault on the Eastern Seaboard, sharing laughs with, above, funny-money economist Ben Stein in Maryland in June and, below, temporary celebrity (she’s—gulp!—sitting next to the president) Colleen Rummel in Virginia in April.

Iraq has bombed, and the “Global War on Terror” is said to have vanished just in the past few days, but the Bush regime’s war on Social Security is humming right along.

And one of you suckers is born every eight seconds.

So far this year, George W. Bush himself has hit the hustings for 26 personal appearances to sell you rubes a Social Security plan that would prove disastrous for your future.

The war on Social Security is not going well for the American people, especially when our frontline press corps doesn’t connect the dots.

In this morning’s New York Times, the top story in the business section is a beauty: “How Wall Street Wrecked United’s Pension.” Reporter Mary Williams Walsh dissects the monumental default of United Airline’s pension funds, links that crisis to all other pension funds, and comes up with this:

Congress, regulators, lobbyists and the news media are all scrambling to find out what has gone wrong with the pension system. Hearings have been convened in the wake of United’s default, chief executives examined under oath, bills introduced in Congress, numbers crunched. But virtually everyone is looking at the rules covering how much money a company puts into a pension plan every year—not at what happens to the money after that.

While the money managers and other pension professionals who ran United’s pension plan walked away from the wreck unscathed—indeed, they collected about $125 million in fees over the last five years alone, records show—the ones who will have to pick up the bill for the advisers’ collective failure will be the airline’s 130,000 employees and pensioners, the federal pension guarantor and probably, someday, the taxpayers.

Walsh’s story is fascinating, but why the hell didn’t someone at the Times make a connection with the Bush regime’s continued attempt to convince Americans to play the stock market with their Social Security money? It’s the same sucker’s game that has fucked over all those poor United Airlines employees and has made Wall Streeters even richer.

Yes, the money managers on Wall Street would reap a windfall in fees for handling what Bush touts over and over on his nationwide Social Security disinfomercial tour as “personal savings accounts.”

He’s not advocating that you save it; he’s urging you to put it into the stock market, even though a blindfolded monkey could probably pick stocks better than most professionals. The fact is that United’s pension plans didn’t collapse because of reckless speculation on stocks. The portfolios only look bad in retrospect, as Walsh aptly points out:

United’s actions offer a typical example of how most companies manage their pension funds. Its portfolio may look aggressive in hindsight—including high-yield bonds in companies like Adelphia and Bethlehem Steel that eventually went bankrupt, technology stocks that evaporated when the bubble burst and an assortment of private partnerships.

But the general approach was in keeping with what most [companies’ pension fund managers] do: about 60 percent stocks, 30 percent bonds, and a mixture of “alternatives” including real estate and private equity investments. Local governments often invest their pension funds much more aggressively.

Even with all that talk about retirement and pension funds, the words Social Security don’t appear in Walsh’s long-ass story.

So we have to turn to the serious-minded folks at the Center on Budget and Policy Priorities—the best de-bunkers of Bush bullshit on Social Security. But they don’t connect that bunkum with the pension funds’ collapse, so I’ll do it.

Typically during Bush’s tour, he sneers at the Social Security system as he promotes privatization for the profit of his pals. This populist rap gets applause, although likely the audiences are more carefully screened to keep out dissenters than our airports are vetted for terrorists.

Here’s how the silver-spoon POTUS put it in Silver Spring, Maryland, on June 23, as he shared a stage with unfunny comic conservative Ben Stein:

“I’ve got another idea that we’re going to discuss today. It’s an idea that some feel uncomfortable about—I understand that—but I think it’s certainly worth the dialogue. And that is, on the one hand, we ought to permanently solve the solvency issue for Social Security so I can—we can—all of us involved in politics can look at younger workers and say, you’re fixing to pay into a system that will not only take care of baby boomers like me, but there will be a retirement system for you.”

I’m “fixing” to throw up. Bush continued:

“I also think we ought to make the system a better deal for younger workers, and that means giving younger workers the option, the ability, if they so choose, to take some of their money—after all, it’s your money in the payroll taxes—and set it aside in what we call a voluntary personal savings account. It’s an opportunity—(applause). I like the idea of giving somebody a chance to build a nest egg that the government can’t spend. In other words, remember the—(applause). What you have left in the Social Security system today is a file cabinet with IOUs. In West Virginia, I actually went and saw the file cabinet, and I’m proud to report the paper is there. (Laughter.)”

Attack the guv’mint—that always stirs up the common folk. Before we deconstruct Bush’s argument, here was the rest of it:

“I like the idea of encouraging people to own assets that they get to manage. It makes economic sense, if you’re a younger worker, and you realize that we’re taking your money and we’re putting it in a system that may not be around for you, you ought to demand change. But let me tell you what else we’re doing. We’re taking your money and putting it into a system that’s yielding about a 1.8 percent return. That’s a lousy deal.

“So I think you ought to be allowed to take some of your money, set it aside in a voluntary personal savings account so you can invest in bonds or stocks—bonds and stocks, whatever you so choose. You can’t put it in the lottery, by the way. There will be go-bys. In other words, the government is going to say, we’re not going to let you take it to the track; we’re not going to let you—we’re not going to let you take wild risks.

“People do this all the time, by the way, and they get a better rate of return than 1.8 percent. And if you can get a better rate of return than 1.8 percent, that compounds over time. And it’s that compounding of interest that helps create wealth and security in retirement. The voluntary personal accounts will complement that which is available to you through the Social Security system. But you’re going to get a better deal on your own money than in the current system.”

He’s lying. Even according to his own economists and to Wall Street analyses, Bush is lying about this.

And here’s some evidence, rounded up nicely in early June by Jason Furman of the Center on Budget and Policy Priorities. Furman’s no-nonsense piece, “Would Private Accounts Provide a Higher Rate of Return Than Social Security?” said, in part:

Economic research and basic economic principles show that such comparisons simply are not valid. They seriously mislead the public.

Analyses by some of the nation’s leading economists have convincingly demonstrated that the comparisons which private-account proponents often make of rates of return in Social Security to past rates of return in private capital markets are apples-to-oranges comparisons and do not withstand scrutiny.

Oh, yeah? Probably some bleeding-heart socialist saying that, right? Furman continued:

For example, a landmark paper co-authored by economists Olivia Mitchell, a member of the President Bush’s Commission to Strengthen Social Security and a supporter of private accounts, John Geanakopolos, and Stephen Zeldes found that “the popular argument that Social Security privatization would provide higher returns for all current and future workers is misleading, because it ignores transition costs and differences across programs in the allocation of aggregate and household risk.”

The paper states: “A popular argument suggests that if Social Security were privatized, everyone could earn higher returns. We show that this is false.”

Yeah, well, they’re not in the real world. They’re just economists. Wall Street probably thinks it’s a good idea, right? Furman continued:

A recent analysis that the investment firm Goldman Sachs sent to its subscribers explains these basic economic findings. The analysis, entitled “Seven Myths About Social Security Reform,” includes as a leading myth that “Privatization is a much better ‘deal’ for Social Security participants.” Goldman Sachs explains that “after adjusting for these two factors [transition costs and risk], the difference in returns between personal saving accounts and the current system disappears. There is no free lunch available via privatization.”

OK, but Bush says the rate of return now is crummy. Furman continued:

Similarly, in a new article, conservative Harvard economist Robert Barro cites the same two factors in explaining why the claim that private accounts would provide higher rates of return is misleading:

“Advocates of personal accounts cite the low rates of return in the current system, but this is misleading. Prospective returns to young people are low mostly because we gave benefits to older generations of retirees who did not contribute their share of taxes to pay for them. One way or another, the burden of this generosity has to be borne by the young. From the perspective of the trust fund, returns look low because the fund’s government bonds have paid less than stocks. But the premium on stocks is compensation for risk, as gauged by financial markets. Although the ability to hold stocks is a plus, there is no free lunch of assured higher returns.”

You’re probably too queasy by now for any more talk about lunch, free or otherwise. But here’s the capper from Furman’s piece:

Finally, shifting money into the stock market through private accounts might drive up stock prices somewhat (since more money would be competing to buy the same volume of stocks). If so, that would drive down future returns on stocks, since workers would have bought into the stock market at an elevated level.

According to a leading textbook by Harvey Rosen, Chairman of President Bush’s Council of Economic Advisers, establishing private accounts would drive up bond yields “or the yield on stocks must fall, or both.”

If this occurred, private accounts would lead to windfall gains for affluent Americans who already own stocks, which would be offset by lower returns for younger, generally less affluent workers who invested in stocks through their private accounts.

Walsh’s piece in the Times is required reading if you want to understand pension funds before you’re too old to comprehend what the fuck happened to your nest egg.

But the grim truth is that if the Bush regime is able to keep that issue separate from its shuck and jive about Social Security, your grandchildren will be cursing you on the way to their graves.