This is one of the reasons that we need to revamp our election laws making
them more equitible and send the Private Enterprisers to a class on
morality, in spite of their constant protests about outright piracy.
REH
July 26, 2002
The Private Interest
By PAUL KRUGMAN
ince the early months of 2000, the Nasdaq has fallen about 75 percent, the
broader S.&P. 500 more than 40 percent. These aren't mere paper losses; they
translate into disappointment and even hardship for millions of Americans.
Now more than ever we need institutions that provide a safety net for the
middle class.
Yet George W. Bush still wants to party like it's 1999. On Wednesday he
insisted that he continued to favor partially privatizing Social Security.
Bear in mind that ordinary Americans are already more vulnerable to stock
market fluctuations than ever before. Twenty years ago most workers had
"defined benefit" pension plans: their employers promised them a certain
amount per year. During the long bull market, however, such plans were
largely replaced with 401(k)'s - "defined contribution" plans whose payoff
depends on the market. This sounded great when stocks were rising. But now
many will find either that they can't retire, or that they will have to get
by with much less than they expected. For some, Social Security will be all
that's left.
Mr. Bush first proposed privatizing Social Security back when people still
believed that stocks only go up. Even then his proposal made no sense; as
I've explained before, it was based on the claim that 2-1=4, that you can
divert the payroll taxes of younger workers into personal accounts and still
pay promised benefits to older workers. But now even the nonsensical promise
that individual accounts would earn stock market returns looks pretty
unappealing. So why does he keep pushing the idea?
One reason is ideology: hard-line conservatives are determined to build a
bridge back to the 1920's. Another is Mr. Bush's infallibility complex: to
back off on privatization would be to admit, at least implicitly, to a
mistake - and this administration never, ever does that.
But there may be a third reason. Ask yourself: Who would benefit directly
from the creation of "personal accounts" under Social Security?
Those personal accounts won't be like personal stock portfolios. The Social
Security Administration can't and won't become a stockbroker for 130 million
clients, most of them with quite small accounts. Instead it's likely that a
privatization scheme would require individuals to invest with one of a
handful of designated private investment funds.
That would mean enormous commissions for the managers of those funds. And
those who would be likely to benefit showed their appreciation, in advance:
During the 2000 election, according to opensecrets.org, campaign
contributors in the two categories labeled "securities and investment" and
"miscellaneous finance" (basically individual wheeler-dealers) gave Mr. Bush
almost six times as much as they gave Al Gore.
Here, too, Mr. Bush's past is prologue. I reported in an earlier column the
story of Utimco, the University of Texas fund that, while Mr. Bush was
governor and the current secretary of commerce, Donald Evans, headed the
U.T. regents, placed more than $1 billion with private funds, many with
close business or political ties to Mr. Bush himself. Among the
beneficiaries were the Wyly brothers, who later financed a crucial smear
campaign against John McCain. ("Bush reveals his poisonous colors" was the
headline of a piece about that campaign, written by the online pundit Andrew
Sullivan.)
Could America's retirement savings really be used to reward the
administration's friends? Ask the teachers of Texas. In one of many odd
deals during Mr. Bush's time as governor, the Texas teachers' retirement
system sold several buildings without open bids, taking a $70 million loss,
to a company controlled by Richard Rainwater, a prime mover behind Mr.
Bush's rise to wealth.
In an Aug. 16, 1998, article in The Houston Chronicle - which should be
required reading for anyone trying to understand the Bush administration -
the reporter, R. G. Ratcliffe, matter-of-factly summarized this and many
other unusual deals thus: "A pattern emerges: When a Bush is in power,
Bush's business associates benefit."
Of course, personal Social Security accounts would have to be managed by
nationally reputable institutions. Mr. Bush couldn't give the business to
his old Texas cronies - could he?
When a politician won't let go of a proposal that, by any normal
calculation, should be completely off the table, you have to wonder.
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