Thursday, December 20, 2012

They Don’t Owe Us, We Owe Them

Whatever their actual motives, when Ronald Reagan and Tip O’Neil made their celebrated deal to save Social Security, what they actually set in motion was a slow motion raid on the nation’s pension system. The increase in the payroll tax did not pay for current benefits; instead, it kept the Federal budget afloat during an era of lower and lower tax rates on the higher brackets. The net effect was a transfer of wealth and income from bottom to top. The deal didn’t even safeguard the long term health of the system because those who have always despised it have never counted the Federal bonds the system have accumulated during the long period of surplus as a legitimate investment.  Now that we face the prospect that some of the accrued savings may actually have to be paid back at some point, we’re hearing anguished screams. Hence the calls for raising the retirement age and lowering benefits by fudging the inflation adjustment.

What’s going on is not so different from what often happens in the private sector when CEOs and CFOs figure out ways of getting their hands on pension funds and using them to finance enormous executive pay packages just before their companies go bankrupt. Or what is happening in many state and local government systems where pension benefits that were negotiated in lieu of pay hikes never get paid out, presumably because a deal's a deal doesn’t count when the deal’s with a labor union. The sanctity of contracts only applies between parties of comparable power: otherwise, a contract is just another treaty with the Indians.

The peculiar thing about the current proposals to weaken Social Security is that they don’t make economic sense, at least if, perhaps quaintly, you think that the point of economic policy is not merely to increase inequality.  Lowering the incomes of retirees is bad for the economy in a period of inadequate demand; and raising the retirement age has the effect of increasing the pool of unemployed people at just the wrong time, with the predictable effect of lowering wages—when Social Security was first proposed, one of the arguments in its favor was that it would take many people out of the labor pool. Far from representing an unsustainable fiscal indulgence, the current system is already stingy beyond reason. Wonky debates about the best way to make it even stingier simply reinforce the false premises upon which our politics are currently constructed.

Wednesday, December 19, 2012

Default and Defeat

You can and, indeed, must compromise with people who disagree with you about the best way to accomplish shared goals. The problem with accommodation comes when core principles are at issue. The current depressing debate about changing the way that inflation is accounted for in Social Security is a case in point. The argument here isn't about ways and means. Technocratic debates about econometrics are beside the point, though they wouldn’t be in a less polarized political situation. The plain fact is that Republicans want to destroy Social Security, and switching to chained CPI is simply an incremental step in that direction. A legitimate compromise would be between measures that make Social Security more generous and others that tend in the opposite direction. As it is, the only options on the table are more or less drastic ways to weaken the system and make it less popular. Under these circumstances, compromise is inevitably defeat.

Policy wonks often make the mistake of evaluating particular measures as if they existed in isolation and weren't part of a larger struggle. In the long run, what matters are values. So far the Republicans have been successful in framing the Social Security and Medicare debate as if these programs were embarrassing legacies from a bygone era instead of concrete embodiments of a national will to ensure a decent life for everybody who plays by the rules. The sad fact is that a great many establishment Democrats actually share the Republican view of things or have decided, as perhaps Obama has, that the majority of the Americans can't really have rights because they don't really have power.  Since the government hasn’t been of the people or by the people for quite a while now, it’s a little unrealistic to expect it to be for the people.

A Stretch?

According to Suetonius, the emperor Caligula wished that the Roman people had only one neck. I’m less demanding than “Little Boots.” Reading the latest news about how the Feds were fining UBS $1.5 billion for rate fixing, I found myself wishing that the corporations who crashed the economy had at least one neck. The regulators probably give each other high fives over the giant fines they impose, but the actual perpetrators escape responsibility when the fictional person of the corporation and the stock holders get flogged.  

The Occupy Wall Street folks bitch about corporatism, but it seems to me that this diagnosis is wrong. It isn’t the legal person of the corporation that commits the crimes; but the group of individuals who control corporations, usually the CEOs and their henchmen. The limited liability that the official owners of corporations enjoy is not the fundamental problem—the greatest malefactors don’t necessarily have much of a stake in the companies they rip off in the course of ripping us off.  Plutocracy and its abuses are not about fictional persons but about real persons with real necks.  The limited liability that keeps these necks safe is not a legal loophole, but the political and cultural power of wealth concentrated in a few absurdly rich families.

Sunday, December 16, 2012


The American system of checks and balances works best when inaction is not a bad thing, in other words, when the basic situation is not changing too quickly. All the committees, all the branches of government, the filibusters, the courts, and the rest prevent us from going off half cocked. When real emergencies arise, however, the bias towards stasis built into the Constitution hurts us. In fact, our system is so ill suited to dealing with new conditions that it even fails to deal with slowly developing trends. Inequality has been increasing for decades now, for example; but our tax laws and spending practices have, if anything, exacerbated what is now a highly toxic situation; and it’s hard to imagine the Republican party permitting measures that would seriously curb, let alone reverse, the relentless growth of privilege. The current Constitution gives even a relatively small minority the power of veto.

There is another problem with the design of our government. One would like to believe that the struggle between interests and points of view would lead to a compromise that is better than the original proposals of either side. At this point, however, it requires so drastic an effort to do anything whatsoever that compromises are likely to be worse than anything either side would have done had it the sole power to chose. When the economy needs stimulus, for example, what we get is likely to be heavily loaded with tax cuts because the Conservatives are determined to prevent government spending unless it is for weapons or subsidies to their wealth supporters. Unfortunately, we not only need stimulus, we badly need investments in infrastructure and schools and other things and we also need to preserve adequate sources of revenues for the legitimate functions of government. The cumulative effect of forty years of compromise, of dealing with everything by tax cuts has left us with fewer options and a dilapidated, downright shoddy nation. Similarly, we obviously have needed to renovate our health care system for a long time now, not only because health care costs will break the budget in the long run but because the huge inefficiency of our current system is making us less and less competitive with every other industrialized country. The intransigence of the Republicans makes a straightforward solution to this problem impossible. Ergo we find ourselves with the mare’s nest of Obamacare, a make-do that is not only unnecessarily complex and incomplete but has been loaded with absurd provisions that the other side insisted upon in the name of a compromise, though none of them voted for the final bill. Their whole point was always to sabotage the effort.

Another example: Out here in California, a desperate struggle is under way to prevent the building of a high-speed rail line between the Bay area and L.A. It’s not that you can’t come up with arguments against the line, though I personally think that such a project is worth it on the merits. I don’t doubt that there are many other transportation projects that are more important to undertake. In an era of rising gas prices, for example, the sorry state of transportation inside cities is truly deplorable. The critics of high-speed rail aren’t about to trade it in for better buses for politically irrelevant people, however. Like Polish noblemen, they just want to say no. If we’re going to do anything, it has to be something spectacular like bullet trains. Nothing incremental can move the seized-up machinery of state government.  As with the country as a whole, the options seem to be permanent constipation or explosive diarrhea.