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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

April 13th, 2010 9:32 AM

Attack Wall Street, Not Social Security

Suppose our top generals described the growing threat from a hostile Middle East power. The country has tens of billions of oil dollars, a growing army, chemical and biological weapons, and is in the process of developing nuclear weapons. After carefully describing the risks posed by this country, our generals suggested an immediate attack on Canada. They explain that combating this Middle East country would be difficult, but defeating Canada is easy.

This is essentially the story of the latest attack on social security. Everyone who looks at the projections agrees; the scary budget stories being hyped in the media and by the Wall Street crew are driven almost entirely by projections of exploding health care costs. But instead of proposing ways to fix the health care system, these deficit hawks want to attack social security. They tell us that fixing health care is hard. By contrast they think that cutting money from social security will be relatively easy.

The facts on this are straightforward and known by everyone involved in the budget debate. The US health care system is broken. We pay more than twice as much per person as the average for other wealthy countries.

And it is projected to get worse. In three or four decades we are projected to pay three or four times as much per person for health care as people in countries like Germany and Canada. Since more than half of our health care is paid through public sector programs like Medicare and Medicaid, this explosion in health care costs will bankrupt the government if it actually occurs. Of course it will also devastate the private sector.

On the other hand, it is easy to show that if we contain health care costs then our budget problems are relatively minor. In fact, the current projections of enormous budget deficits two or three decades out would flip over to projections of enormous budget surpluses if our health care costs were comparable to those of any other wealthy country.

Logic would dictate that our top priority should be getting our health care costs under control. But fixing health care is difficult because, as we saw in the health care debate, this means confronting the health insurance industry, the pharmaceutical industry, the medical supply industry, highly paid medical specialists and other powerful lobbies.

The deficit hawks don't want to fight this fight. Defeating these powerful interest groups would be a hard fight. And for the deficit hawks it would likely be an especially painful fight since these are their friends.

By contrast, the Wall Street deficit hawks don't have friends who depend on social security for their income. Wall Street investment bankers like Peter Peterson and Robert Rubin are unlikely to associate with such people. This is why they see attacking social security as easy.

Of course attacking social security makes as much sense as our generals' plan to attack Canada. The Congressional Budget Office's projections show that the program can pay full benefits until the year 2044 with no changes whatsoever. Even after that date the program would always pay a higher benefit than what current retirees receive, even though somewhat less than the full scheduled benefits.

The long-term problem is not that anything improper has been done with the program; the reason that social security is projected to eventually face a shortfall is that future generations are projected to live longer than we do. This raises costs since our children and grandchildren are projected to enjoy longer retirements than we do. In short, there is no story of generational inequity here, contrary to what the Wall Street deficit hawks say.

If our deficit hawk generals are too scared to take on the health care industry then we also have to also make them too scared to take on social security. If we need to reduce the deficit the best place to start is a financial speculation tax. A modest set of financial transactions taxes, like the 0.5% tax on stock trades in the United Kingdom, can easily raise $150bn a year. This would go a long way toward addressing future budget shortfalls and it would raise money from people who can afford it: the Wall Street crew whose financial shenanigans led to the meltdown.

Federal Reserve board chairman Ben Bernanke recently suggested cutting social security because: "that's where the money is". That's not true, the real money is on Wall Street. Let's go get it.

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