Social Security
Younger workers and Social Security: Privatization of the program undermines their future
By Seth Sandronsky
Online Journal Contributing Writer

Apr 12, 2005, 23:02

These are tough time for many younger workers in the U.S. Real wages, what they can actually buy with their pay, are falling. The costs of gas, health care and shelter are climbing. Student loans to attend college are fueling debt for younger workers.

Meanwhile, workers age 20 to 24 got about 4 percent of the new jobs created in the year ended March 2005 versus 42 percent for workers over age 55. Squeezed from many directions, some younger workers fear that Social Security will not be around for their retirements. The Bush administration is playing on that fear. It is fed by some reporting in mass media.

A Washington Post article said younger workers �have the most to gain� from George W. Bush�s plan to create private accounts to fund Social Security (3�15�05). A Christian Science Monitor article said a change to private accounts from the current system of payroll taxes would �sweeten the system for younger workers� (3�3�05).

Both articles are incorrect on private accounts for younger workers. How? The private accounts invested in the stock market would pay, barely, for the administrative costs of such investments. Thus there is no net gain for younger workers. For more information, see the Accurate Benefit Calculator.

For a preview of retirement funded by the stock market, younger workers should look to workers over age 55. They are flooding into the job market because their 401(k) retirement plans in the stock market have dropped in value. That factor helps explain why older workers took roughly half of the new jobs created in the U.S. for the past year, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC.

Retirements for American workers have not always been so shaky. �Between 1979 and 1997, the share of employees with defined benefit plans�meaning that the plan promised a specific level of support�fell from 87 percent to 50 percent (The State of Working America, 2002), writes Michael Perelman, author and economics professor at CSU Chico. �Today, about 85 percent of private contributions are for defined contribution plans in which individuals decide how much to contribute, how to invest their assets in the plan, and how and when to withdraw money from the plan (Poterba, Venti, and Wise). The level of support that the plan provides for individual workers depends upon their success in investing. These plans appeal to employers because they shift the risk onto the employee. Because appreciation of stock prices helped to fund the defined benefit plans, the collapse of the stock market bubble in 2000 accelerated the transition to the defined contribution plans� (Manufacturing Discontent: The Trap of Individualism in a Corporate Society, 2005).

Currently, workers can�t outlive their Social Security benefits. These benefits are their lifelong source of income. By contrast, younger workers can certainly outlive the cash built up in the private accounts that the Bush White House is pitching. When their private accounts in the stock market run out of cash, younger workers will have to seek other retirement income.

Why is there such a difference between private accounts and Social Security? Social Security is a program of social insurance. It is not an investment program. As such, Social Security is funded by a payroll tax paid equally by employees and employers. Workers contribute 6.2 percent of their wages to Social Security, with their bosses making the same contribution). That payroll tax goes to current recipients�retirees, the disabled and survivors. Social Security is a pay-as-you-go system of social insurance.

Carving out private accounts from the payroll tax would weaken Social Security, Comptroller General David Walker told the House Ways and Means Committee on March 9. The private accounts would suck funds from Social Security. Plus, private accounts would be subject to the administrative costs of Wall St. financial firms, and the shaky stock market. �Young people would likely face the largest benefit cuts from privatization,� Baker adds.

Beginning in March, President Bush, Vice President Cheney and Treasury Secretary John W. Snow have been traveling the U.S. to tell people that the popular program faces a funding crisis. They canvassed the nation from the Atlantic to the Pacific for 60 days in 29 states to spread the idea of revamping Social Security with private accounts as a way to save the program from bankruptcy.

"I think it is clear that the solvency concern is taking root,� said Representative Jim Leach of Iowa (New York Times, 4�3�05). It would have been helpful if this article reported that Social Security is on sound financial ground to pay full benefits through mid-century. That is the view of the Social Security trustees and the Congressional Budget Office.

There is no Social Security funding crisis. Its future bankruptcy is pure fiction. Government programs do not run short of money. Think about it. Where is the shortage of U.S. tax dollars for the Iraq occupation? When has the Pentagon held cookie sales for a new weapons system due to a cash shortfall? The financing of Social Security is a political�not an economic�issue.

The program has from its birth in the mid-1930s been under attack by the U.S. upper class. For them, the �crisis� of Social Security is that it protects working people from living in poverty. Friedrich Hayek has a section on "The Crisis of Social Security" in The Constitution of Liberty (1960). It lays out the privatization program that U.S. workers face now, according to John Bellamy Foster, editor of Monthly Review.

Climate change is a crisis. Privatizing Social Security will cause a crisis for younger workers when they retire. They don�t need that. It is in their class interests to fight Bush�s privatization of Social Security.

Seth Sandronsky is a member of Sacramento Area Peace Action and a co-editor with Because People Matter, Sacramento�s progressive paper. He can be reached at:

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