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The Private Interest
By:
Paul
Krugman
New York Times, July 26, 2002
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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