‘J is for Junk Economics’: Michael Hudson on TRNN (5/5)
Economist Michael Hudson explains why social security does not need to be ‘pre-funded’ by its beneficiaries
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
I’m speaking with Michael Hudson about his new book “J Is For Junk Economics: A Guide to Reality in the Age of Deception”.
Thanks for joining me again, Michael.
MICHAEL HUDSON: Good to be here.
SHARMINI PERIES: So, Michael, on page 260 of your book you deal with the issue of social security and it’s a myth that social security should be pre-funded by its beneficiaries. Progressive economic taxes should be abolished in favor of a flat tax. Just one tax rate for everyone you say. We talked about this earlier but let’s apply what this actually means when it comes to Social Security.
MICHAEL HUDSON: The mythology is to try to convince people that after all, if they’re the beneficiaries of social security, it should be pre-funded. Well, that’s like saying that you’re the beneficiary of an education, you have to pay for the schooling. You’re the beneficiary of healthcare, you have to pay for that. You’re the beneficiary of America’s military spending, that keeps us from being invaded next week by Russia, you have to spend for all that.
Where do you draw the line? Nobody really anticipated in the 19th century that people would have to pay for their own retirement. This was viewed as an obligation of society and you had the first pension social security program in Germany under Bismarck. And the whole idea is social security is a public obligation. There are certain rights of citizens and the rights should be after your working life you deserve a retirement. And you have to be able to afford this retirement and not have to beg in the street for money. So the wool that’s been pulled over people’s eyes is to imagine that because they’re the beneficiaries of social security they have to actually pay for it.
And this was Alan Greenspan, a trick that he pulled basically in the 1980s when he was head of the Greenspan Commission. He said, “Let’s achieve what we need to do in America. We need to traumatize the workers. We need to squeeze them so much that they will never have the courage to strike. Never have the courage to ask for better working conditions. Let’s really squeeze them and the best way to do it is to very sharply increase their taxation. But we won’t call it a tax. Of course it’s a tax, but we will say it’s not a tax, it’s your contribution to your social security.” And now this is 15.4% of everybody’s pay check. It comes right off the top. What Greenspan did was say, “Let’s make the wage earners, as a whole, pay this FICA cut out of their pay check every month, let’s lend it to the government and now with all of this huge surplus that we’re squeezing out of the wage earners there’s a cut-off point now.” The cut-off is around 120,000. Rich people don’t have to pay for the social security funding, only the wage earner class has to. This is lent to the government to actually enable the government to say, “We have so much extra money in our budget pouring in from social security that now we can afford to cut taxes on the rich.”
So the sharp increase in social security tax for the wage earners went hand-in-hand with the sharp reduction in the taxes on real estate, on finance and on the … TA(?) part of society. The people who live on economic rent, not by working, not by producing goods and services but by making more money on their real estate, on their stocks and bonds in their sleep. And that’s how the five percent have basically been able to make their money.
So the whole idea that social security has to be funded by the beneficiaries has all been a setup for them to claim now, we can’t afford to pay any of the money because the budget doesn’t have enough money. Social security’s running a budget and after running a surplus since 1933, for 70 years, now we have to begin paying it out, that’s the deficit, that’s the disaster, we have to begin cutting back social security. What Donald Trump is saying we want wage earners to have to starve in the street after they retire.
The federal reserve has just published statistics saying the average American families, 55 and 60 years old, only has about $14,000 worth of savings. This isn’t enough. The whole idea is there’s been a vast looting of pension funds, very largely by Wall Street and that’s why the investment banks have had to pay tens of billions of dollars of penalties for cheating the pension funds. The current rate of return risk-free is 0.1% on government bonds so the pension funds don’t have enough money to pay pensions. So the idea is that what people thought there was going to be available for their retirement, all of a sudden isn’t.
There are so many corporate pension funds that are going bankrupt that the Pension Fund Guarantee Corporation doesn’t have enough money to bail it out. It’s in deficit. And if you’re going to be a corporate raider, if you’re going to be a Governor Romney or whatever and you take over a company, you do what Sam Zell did with the Chicago Tribune, you loot the pension funds, you empty it out to pay the bond-holders that have lent you the money to buy out the company and you say, “I’m sorry there is nothing there. It’s wiped out.” Half of the employee stock ownership programs have gone bankrupt. That was already a critique made in the 1950s and the 1960s.
In Chile, the Chicago boys, who really developed this program, University of Chicago economists, made it possible for the Chilean who privatized and who privatized the social security system, to set aside a pension fund managed by the company, mostly they invested in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella then leave the company with the pension fund to go bankrupt having already emptied out all of the pension fund and a loan to be a corporate shell.
So it’s all a shell game basically for this. And there’s no social security problem whatsoever. Of course, the government has enough money to pay social security. That’s what the tax system is all about. But if you do what Donald Trump does and you say we’re not going to tax the rich and if you do what Alan Greenspan did and we’re not going to make rich people even contribute to the social security system, then, of course, it’s going to show a deficit. It’s supposed to show a deficit when people retired. It was always intended to show a deficit but now that the government actually isn’t using social security surpluses to make the pretense that you can afford in the budget to cut taxes on the rich, now they’re baiting and switching. So it’s basically part of the shell game and explaining that myth is partly what I tried to do in my book.
SHARMINI PERIES: And if the rich people don’t have to contribute to the social security base, are they able to draw on it?
MICHAEL HUDSON: They will draw social security up to the given wage that they didn’t pay social security on, which is up to $120,000 these days. So yes, they will get the little bit but all of the real wealth, the people that make more than $120,000, all that is completely exempt from the social security system. What they have done are the rich people who run the corporations give themselves golden parachutes.
And even for the companies that have engaged in massive financial fraud, the large banks, City Bank, Western Union — all of these have golden parachutes. They still are getting enormous pensions for the rest of their lives. And they’re talking as if, well, the pensions are in deficit, corporate pensions, but that’s because the corporate pensions, for the leading officers, are quite different from the pensions to the blue-collar workers and the wage earners as a whole, so again, there’s a whole kind of fictitious economic statistics that are used in the dictionary is mathy-ness(?). The idea that if you can put a number on something it’s somehow is scientific and the number you put on is realistic when it really is the product of corporate accountants and lobbyists reclassifying income in a way that it doesn’t appear to be income.
And somehow taking money out and giving it to the richest 5% and making it appear as if all this deficit is the problem of the 95%, that’s blame the victim economics. And you could say that’s the way that the economic accounts are being presented by congress to the American people is a blame the victim economics. That it’s your fault social security’s going bankrupt and it’s all a mythology of saying we should not treat retirement as a public obligation just as we should not treat healthcare as a public obligation. We should have the highest healthcare costs in the world so that out of your pay check, which is not increasing, you’re going to have to pay more and more for FICA withholding for social security, more and more for healthcare for the pharmaceutical monopoly and the health insurance monopoly. More and more to use public services for transportation to get to work because the state is not funding that anymore because we’ve cut taxes on the rich and so we don’t have the money to do it. And you’re going to privatize the roads so now you’re going to have to pay to use the road to drive to work if you don’t have public transportation.
So you’re turning the economy really into what used to be called feudalism. Except we don’t have serfdom, people can live wherever they want, but they all have to pay to this new sort of hereditary financial real estate public enterprise class that is transforming the economy.
SHARMINI PERIES All right, Michael. Many, many, many things to learn from your great book, “J Is For Junk Economics: A Guide to Reality in the Age of Deception”. Michael is actually on the road promoting the book. So if you have an opportunity to see him at one of the places he’s going to be speaking you should check out his website, michaelhudson.com
And so I thank you so much for joining us today, Michael. And, as most of you know, Michael Hudson is also a regular guest on The Real News Network and we’ll be unpacking his book and some of the concepts in it on an ongoing basis. So please continue to stay tuned for those interviews.
Thank you so much for joining us today, Michael.
MICHAEL HUDSON: Pleasure.
SHARMINI PERIES: And thank you for joining us on The Real News Network.