Benefits

Benefits

by digby

As the President's spooky deficit commission meets behind closed doors today, and Pete Peterson and his minions continue to work themselves into a frenzy, it's probably worth asking --- cui bono? What are these people getting out of all this? MTMB made a connection:

[A]s always, one must follow the money, since Peterson's 'charity' [The Peterson Institute] seems rather self-interested--and not in the sense of 'healthy children are good for all of us' (italics mine):
...we can get a sense of what is on the table by looking at the earlier agenda of Peterson's Commission on Budget Reform. The Peterson/Walker plan would have slashed social security entitlements at a time when Wall Street has destroyed the home equity and private retirement accounts of potential retirees. Worse, it would have increased the Social Security tax, disguised as a "mandatory savings tax." This added tax would be automatically withdrawn from your paycheck and deposited to a "Guaranteed Retirement Account" managed by the Social Security Administration. Since the savings would be "mandatory," you could not withdraw your money without stiff penalties; and rather than enjoying an earlier retirement paid out of your increased savings, a later retirement date was being called for. In the meantime, your "mandatory savings" would just be fattening the investment pool of the Wall Street bankers managing the funds.

But, perhaps Peterson et alia are just fucking morons who suck at public policy? Let's follow the money some more (italics mine):

Political analyst Jim Capo discusses a slide show presentation given by Walker after the "I.O.USA." premier [a movie backed by the Peterson Foundation about how our debt makes us DOOMED!], in which a mandatory savings plan was proposed that would be modeled on the Federal Thrift Savings Plan (FSP). Capo comments:
"The FSP, available for federal employees like congressional staff workers, has over $200 billion of assets (on paper anyway). About half these assets are in special non-negotiable US Treasury notes issued especially for the FSP scheme. The other half are invested in stocks, bonds and other securities.... The nearly $100 billion in [this] half of the plan is managed by Blackrock Financial. And, yes, shock, Blackrock Financial is a creation of Mr. Peterson's Blackstone Group. In fact, the FSP and Blackstone were birthed almost as a matched set. It's tough to fail when you form an investment management company at the same time you can gain the contract that directs a percentage of the Federal government payroll into your hands."
To put this in context, currently the annual Social Security revenues are over $700 billion. If, between rerouting money and increasing payroll taxes (cat food for all!), $350 billion could easily be diverted to firms like Blackrock.

Nice little business.

By coincidence, today Brad DeLong makes the point that Democrats should be willing to do something like this as a way to shore up social security over the long haul. He thinks this is an easier way to make retirement funds secure in 2042 or so than raising taxes. (Evidently, he thinks people will be more willing to be mandated to pay Pete Peterson money than the government. And maybe he's right.) Anyway, here's his argument:

Some of the Social Security trust fund will be invested in the stock market in hope of getting a higher rate of return--but the Treasury will guarantee to make the Social Security trust fund whole if and when its stock market investments ever turn out to be net losses.

Congress also raises Social Security taxes--only it calls them "contributions" to "private accounts."

Social Security taxpayers get some choice as to how to invest their "private account" "contributions"--accepting more risk in the hope of higher return, or not.

Any gains or losses from investments in "private accounts" stay with the taxpayer in whose name the investments were made.

This deal would allow (1) Democrats to say that they have no allowed the diversion of a single dollar of Social Security taxes away from the current system; (2) Democrats to say that they have strengthened the Social Security system as a whole by reinforcing its finances and raising its financial resources; (3) Republicans to say that they have kept the Democrats from throwing more money down the well that is the unsustainable and outmoded twentieth-century Social Security system; (4) Republicans to say that they have created private accounts for every American.

It seems to me that this position would be a fine place to wind up--but that it is not a bargaining position from which Democrats should start. This is, in fact, where I envisioned and hoped we were going in 2005: with private accounts as an "add on, not a carve-out" to the Social Security system as it currently exists.

One from column A and one from column B --- and the profits go to Mr. P.

Depending on the details about how these accounts would be handled, it would be a fine place to wind up --- except that t is extremely likely that it will wind up with a bunch of Masters of the Universe getting to play with the American people's retirement money with the full guarantee of the government and making a profit at it. None of that has worked out very well for us in the past.

The Republicans might be expected to go along with this for obvious reasons, but I suspect they will hold out for something better. They have time. Getting "mandatory private accounts" on the menu, especially at the hands of Democrats, would be a huge coup and they will be willing to let that settle among the people in the hopes of a better deal down the road. (Not to mention allowing the unpleasant memories of Lloyd Blankfein and Jamie Dimond to fade from their minds.) It seems strange to think in this "too big to fail" era that anyone would agree to what amounts to another mandate to pay private industry directly, but maybe over time we'll all get used to the idea that the taxpayers must hire middlemen to do the government's job and pay them a premium for the privilege. It's the ultimate privatization of government and a beautiful scam for the private sector which bears no risk since the taxpayers will always be on the hook. All those years of right wing anti-government propaganda will have finally paid off.

I respect DeLong, but I think this is the wrong approach and the Democrats should not even entertain this idea. Watching what's happening in Greece right now, where pensioners are having their minimal checks cut in half because the government engaged in crazy financial schemes and the rest of Europe is now demanding austerity, reinforces my belief that we should not make any decisions right now about social security. This is a shock doctrine moment and the best thing to do is keep the existing safety net completely off the agenda.

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