Pension ‘crisis’ helps create one

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People who talk of the crisis in social security help create that very crisis. This week, John discusses the Bush administration’s strange urgency for reform.

Like most advanced economies, America faces demographic problems. The numerous baby boomers, the generation born in the 25 years after the second world war, will soon retire. Their fewer children and grandchildren will have to bake their bread and nurse their illnesses.

The US is relatively well placed to deal with these problems. Population imbalances are less severe than in Japan and most of Europe. And the budgetary implications are less acute: although America spends a lot on medical care, the retirement income the state provides is relatively low.

Moreover, bipartisan reform in the 1980s put America’s social security system on a robust footing. Contributions were increased to build up surpluses to meet the growth in retirement benefits. These surpluses will continue to accumulate until around 2018 and then, on current projections, will be run down over the following 25 years. Since longevity continues to increase and America’s growing income inequality means that the contribution base is growing less rapidly than national income, it will be necessary to reform the system to ensure its viability in the second half of the 21st century. But the Congressional Budget Office estimates that over the next 50 years the present system will receive contributions averaging 14.02 per cent of relevant income and pay out 14.29 per cent.

So why does the second term Bush administration, which does not seem to care about the real and immediate budget deficit in its principal activities, regard the funding of social security as its most urgent economic problem? I have been poring over these figures wondering if, from a distance of several thousand miles, there is something I have missed. But there does not seem to be. The numbers are not controversial: the same ones are used by the people who say there is an urgent need for reform. The interesting question they raise is not: “What should be done about social security?” It is this: “Why is this minor and distant issue subject to such intense political attention?”

There is a book on my shelves published in 1982, called The World Crisis in Social Security. I now feel slightly ashamed of my contribution to that volume. Not because of its content: my criticisms foreshadowed sensible reforms for Britain that were implemented soon after. Rather I feel ashamed for my youth and naivety and my failure to understand the game in which I was being asked to play.

A retreat from public sector pension provision might create a large flow of money into the stock market. This prospect leaves financial institutions salivating. So it has always been easy to obtain funding for projects such as The World Crisis in Social Security and much of this funding has been channelled through America’s rightwing think-tanks. Greed in the investment community is conjoined with the principled opposition of those for whom America’s social security system, popular though it may be with voters, is the legacy of that detested socialist Franklin D. Roosevelt.

Every pension system has weaknesses and there are always honest but simple scholars who can be encouraged to point them out. Hence my agreeable trip to Washington to debate “the world crisis in social security”. I was joined by others who could tell of deficiencies in the pension systems of France, of Germany, and the public system of the US itself.

After decades of this propaganda, it is not surprising that most people are convinced that there is indeed a world crisis in social security. It is like having a surveyor continually crawling over your house. Once every defect has been pointed out, repeatedly, even the most robust of occupiers will believe their home is on the point of collapse.

The distasteful aspect of this campaign is not its effect on public debate. Politicians and policy analysts ought to be able to distinguish substance from puffery, and reality from misinformation, although there is a marked tendency for them to see only facts and figures to which they are ideologically predisposed. But the endless talk of crisis undermines the confidence of ordinary people in their security in old age and, most of all, in the ability of government to provide it. People who talk of the crisis in social security help create that very crisis. And, despicably, that is what some of these people intend.

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