Undoing the New Deal

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The first resounding cannonade of George W. Bush's second-term campaign against Social Security was fired by a baby-faced aide to Karl Rove named Peter Wehner. On Jan. 3, 2005, as the New Year's Eve bunting was coming down around the nation's capital and the inauguration scaffolding was going up on the Capitol Mall, the 44-year-old Wehner drafted a bellicose memorandum to inform the administration's right-wing power base precisely where the privatization of Social Security fit in the White House's worldview.

"The debate about Social Security is going to be a monumental clash of ideas—and it's important for the conservative movement that we win both the battle of ideas and the legislation that will give those ideas life," Wehner wrote. "At the end of the day, we want to promote both an ownership society and advance the idea of limited government." The dismantling of Social Security would be the final unmaking of the New Deal: "For the first time in six decades, the Social Security battle is one we can win—and in doing so, we can help transform the political and philosophical landscape of the country. Increasingly the Democrat [sic] Party is the party of obstruction and opposition. It is the Party of the Past."

The GOP would emerge from this fray as the party of the future. "Greater opportunity, more freedom and more control for individuals over their own lives," Wehner wrote. "That is what the personal account debate is fundamentally about—and it is clearly the crucial new conservative idea in the history of the Social Security debate."

If there were any doubts that Bush's campaign against Social Security was not fiscal or economic but strictly ideological, Wehner's memo dispelled them in a stroke. But his words weren't meant for the public eye (although they were promptly leaked to the press). In its public language, the Bush campaign for Social Security reform has steered clear of the elemental ideological conflict, sticking instead to the language of economics. The magic of privatization, as President Bush would repeat often over the next few months, would save Social Security from impending bankruptcy; never was heard a single word about the goal of ensuring victory for the conservative movement in "the battle of ideas."

The White House assault on what may fairly be called the most successful federal program in U.S. history amounts to a domestic version of Operation Shock and Awe, the noisy pre-attack barrage designed to subdue the Iraqi army. As the persuader-in-chief, the president himself undertook to crisscross the country, reiterating at dozens of stage-managed events his sanctimonious regret at the obsolescence of the once grand and effective program and his determination to give it a 21st century polish.

White House front groups such as Progress for America, which claimed to represent the grass roots but was tightly linked to Rove, flexed muscles pumped up with the financial steroids of corporate donations. Progress for America signed up Thomas Saving, a pro-privatization economist who had been unaccountably appointed to the Social Security Board of Trustees by President Clinton, as a consultant and spokesman. "I already do an awful lot of speeches about Social Security and Medicare," he cheerily informed the Houston Chronicle. Perhaps wary of being thought stodgy, the organization also drafted Noah McCullough, a 9-year-old master of memorized presidential trivia, as a sort of curtain-raising act for the president's road show. ("What I want to tell people about Social Security is to not be afraid of the new plan," said young McCullough during an interview with the New York Times in February. "It may be a change, but it's a good change.")

Meanwhile, the privatization faithful converged on what one might consider the libertarian St. Peter's Basilica, the six-story postmodern Cato Institute headquarters in Washington, D.C.

On Social Security privatization, Cato is the center of the universe. For 25 years the rightist think tank has been a relentless promoter of private accounts and the fount of hundreds of white papers, book-length studies and op-eds driving the battle plan. During the second week of February this year, the institute convened a two-day conference on Social Security reform, Cato-style. "This conference isn't about 'should you privatize,' " Michael Tanner, the chairman of its Social Security task force, told me when, perhaps naively, I asked him why there wasn't a single privatization skeptic, much less an opponent (or a Democrat), listed among the more than two dozen speakers. "We wanted a discussion within the family about how to do it, not to get into another debate about whether we should do it."

Tanner is an earnest man with a receding hairline, a silver and black goatee and a jeweled stud glinting incongruously from his left earlobe. If there's a benign face of privatization, it's his. Tanner is most at ease making philosophical arguments, not engaging in ad hominem fisticuffs. One rarely finds him predicting the extermination of the Democratic Party, sliming the AARP (the senior citizens lobby that has been a tireless opponent of privatization) or engaging in any of the other White House dirty tricks that threaten to turn Social Security reform into another of Rove's scorched-earth crusades.

Tanner's role as Cato's Social Security spearhead dates to 1995. Cato had established its episcopate over privatization years earlier by publishing a series of tracts and strategy memos airing ideas for undermining public support for the program. For much of that period, it looked like an uphill battle. The program's staunchest supporters, the middle class and elderly, also were its most cohesive voting bloc. Then the weather began to change.

Tanner believes the turning point came about 1994, when an advisory council appointed by Clinton acknowledged, for the first time, that private retirement accounts carved out of the Social Security payroll tax might be worth considering. The panel was too fragmented to actually deliver a legislative proposal, but conservatives were encouraged that a majority of its members had endorsed, in principle, one or the other of the two private account solutions it had reviewed. Tanner is convinced that Clinton was about to propose individual accounts carved out of Social Security in 1998, until the Monica Lewinsky scandal knocked it off track.

"Why would that have had anything to do with it?" I asked him.

"He had to move to the left," he replied. In fact, there's no evidence that Clinton was preparing to propose anything like a diversion of payroll tax revenues to private accounts. The most Clinton is known to have considered was an add-on option granting tax deductions and possibly a federal subsidy for voluntary accounts designed to complement, not replace, Social Security.

The year 2001 brought grave disappointment to the privatization faithful. President Bush had appointed a reform commission, screening its members in advance to ensure that each one advocated private accounts. The goal was for it to issue a pro-privatization legislative blueprint for the following congressional session. But Sept. 11 intervened. When the commission issued its final report two months later, official Washington responded with almost total silence. Domestic policy was stricken from the president's agenda for the next three years.

Impelled by its own momentum but functioning in a vacuum, Cato continued to press the issue. In 2002, a year in which the Social Security debate was drowned out by the waging of one overseas war and preparations for another, Cato bravely soldiered on with 11 conferences and other events. From Tanner's descriptions I imagined desultory gatherings attended by a few true believers. The experience seemed to have marked him; he sounded like a general who, having had victory slip from his grasp many times before, finally sensed the prize within reach—but still feared that something might go wrong.

For the record, he assured me that the prospects for private accounts looked bright. The White House had signaled that Bush wasn't going to back off from Social Security reform this time—he was going to stump for privatization for two months straight, until the nation was behind him. Lobbying groups had announced plans to drum up as much as $100 million in cash for television advertising. "I'm stunned at the level at which they're treating this," Tanner said of the White House. "They're pulling out all the stops. It's going to be virtually like a presidential campaign." Cato, naturally, would be in the thick of it. "We see our role as providing intellectual ammunition for the debate," he said.

He also left no room for doubt that Cato, like Peter Wehner, saw the issue in terms of ideology, not economics—as a classic battle to promote libertarian ideals hostile to the very principle of social insurance. "In the end, this isn't a debate about the system's solvency in 2018 or 2042," he told me, mentioning the years in which, according to Social Security doomsayers, the system's fiscal health would start to ebb, then collapse. "It's about whether you think the government should be in control of your retirement or people should take ownership and responsibility. That's why the debate is so intense—why would anyone get so excited about transition costs? This is about whether we redefine a relationship between individuals and government that we've had since 1935. We say that what was done was wrong then, and it's wrong now. Our position is that people need to be responsible for their own lives."

The next morning, a chilly Tuesday in Washington, Edward H. Crane, Cato's burly founder and chairman, stepped to the podium in the institute's Frederick A. Hayek Auditorium (named for a hero of laissez-faire economics) to open the conference. The audience filled the 300-seat hall and overflowed into the foyer outside, where a bank of chairs was set up in front of a closed-circuit TV screen.

The conference program all but glowed with the light of a galaxy of privatization stars. The first day's keynote was delivered by Martin Feldstein, the academic patriarch of privatization. Five GOP lawmakers were to deliver a tag-team assessment of the prospects for legislation on Capitol Hill. A sixth Republican, Sen. Rick Santorum of Pennsylvania, was to deliver the second-day luncheon address, the obligatory tub-thumping attack on the Democratic Party, which he would describe as so wrong-headed in its determination to confound the public's wishes that it risked being hounded into extinction by an outraged electorate.

Crane's role was to give a succinct Dick-and-Jane preview of the next two days. He touched on several motifs that would recur often in the hours to come. A major talking point was the 1960 U.S. Supreme Court decision known as Flemming vs. Nestor, which stated that payroll tax contributions, unlike insurance policy premiums, don't give taxpayers a legal claim to any specific Social Security benefits upon retirement. To the privatization lobby, Flemming vs. Nestor is as close to a bill of indictment of Social Security as has ever existed. As Crane put it, the court ruled that "what you get back [from your payroll tax] is entirely up to the whim of 535 politicians" in the Senate and House of Representatives.

Crane didn't follow his own train of thought to ask what the chances might be that 535 politicians dependent on voters for their jobs (and habitually servile to the results of public opinion polls) would arbitrarily throttle Social Security or casually cut benefits by 30% or more. Nor did he bother to observe that Congress had never cut Social Security benefits for retirees, even once; indeed, one of Cato's chief objections to Social Security is that Congress has shown no compunction over the years about raising benefits. Nevertheless, for the Cato faithful, it was enough to know that Congress had the legal right to skin the working person; to libertarians conditioned to mistrust politicians even in the best of circumstances, Flemming vs. Nestor looked like a ticking time bomb.

This provided my first glimpse of the downside of the echo chamber approach to policymaking. Inconsistencies and contradictions that would be exposed through honest and vigorous debate get worked so deeply into the fabric of the ideology that they become invisible except to an outsider.

There would be many more examples of the echo chamber at work during the next two days. Leanne Abdnor, a former business lobbyist and Cato analyst, opened her panel on Social Security's supposed inequitable treatment of minorities by describing how thoroughly dependent on the program widows and divorced women were, then offered a prescription to sharply cut guaranteed benefits and replace them with the opportunity for a flyer in the stock market. (She also had been a member of the President's Commission to Strengthen Social Security, a panel handpicked by the White House to develop a privatization proposal in 2001.) William Shipman, a dapper former investment banker who is the high priest of the movement's stock-market-as-savior church, proposed a private account system that he called "basically a 401(k) plan," then described thusly:

"The Treasury receives the wire transfer and takes that amount that's for the employee, and immediately puts it over to the private sector in a custodial bank, which then immediately invests it in a dollar-priced money market fund in which you as the employee have personal property rights, even though at that moment it's not known who you are or how much you put in. By the way, this level we refer to as Level 1. Around June or July the following year, when the tax paid and the savings invested is reconciled to your name, you have units in this account, which add up to how much you put in plus an interest credit based on how much that account earned or all the accounts earned during that time period. Let's say it's $1,200. Those units now go down into what we call Level 2. Level 2 is three balanced funds, highly diversified portfolios invested in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds and cash. After the system is up and running for three to four years, you have an option to go down to Level 3. Level 3 is a retail platform—mutual fund companies, registered investment advisors, insurance companies.

"By the way, your savings still go back up into Level 1, and it can drop down to Level 2, then Level 3, or directly from Level 1 to Level 3, if you wish."

Shipman is a sincere believer in the power of the markets, but as I listened to his tortured precis and tried to imagine how 155 million Americans might keep track of the levels and platforms and units on which their retirement resources depended, I realized that he was proposing a private account system that only a stockbroker could love.

The conference closed with one last triumphal partisan outburst, a borderline paranoid tirade by Michael Barone, once a respected political analyst, now a familiar ranter on the Fox News Channel. Barone placed Social Security at the center of the culture war between left and right that has befouled American politics for nearly three decades. Opposition to private accounts arises from the Democrats' "hatred of George Bush," he said, with the "old media, the New York Times, ABC, CBS, NBC, the left-leaning old media … who did everything they could to defeat George W. Bush in the last election. They pulled out all the stops, used any tactics, including bogus stories, slanting of the news and so forth, and instead of defeating Bush they discredited themselves. We now have new media, talk radio, the Fox News Channel—No. 1 in cable news—the blogosphere."

I emerged from Cato's headquarters with my head spinning, trying to sort out fact from cant. I wondered if it could be true, as Barone had reassured his listeners, that the pendulum of American opinion was swinging inexorably away from traditional Social Security and the idea, established with Social Security's enactment in 1935, that society has a collective responsibility to care for the least fortunate among us, and that George Bush's powers of persuasion were convincing the American public that the program was dying and that the only hope was for each of us to look out for ourselves.

Then I saw that morning's newspapers, which featured the latest nationwide Gallup Poll. They reported that 55% of the poll sample considered private accounts coupled with a sharp cut in basic benefits—in other words, the Bush blueprint—a "bad idea." Only 30% of respondents believed that investing private accounts in stocks and bonds would provide them with better retirement benefits than traditional Social Security. Despite the president's remarkable powers of persuasion, the general opinion of privatization hadn't budged in months: People were against it.

When members of Congress returned to Washington in March 2005 from a mid-term break in their home districts, the Republicans seemed shaken. Those who had faced voters at public forums had gotten an earful. They learned that the voters still trusted Social Security and mistrusted Wall Street. Most people weren't confident that investing in stocks and bonds would invariably reward them with untold wealth, as Bill Shipman and his friends at Cato assured them. They might be intrigued by the potential yields of private accounts, but they weren't at all prepared to sacrifice Social Security to get them.

More polls showed the public acceptance of privatization to be sinking, as was President Bush's credibility on the subject. The administration backpedaled gingerly. The president allowed that he might accept lifting the wage cap on the payroll tax to increase Social Security revenues. Republican leaders in Congress began talking about debating reform for another year or two, rather than jamming a program through in a few months.

The first volley of shock and awe had drawn to a close, but it hadn't yet driven the program's supporters out of their bunkers. The White House had money, it had compliant right-wing acolytes in the media, and it had the president's earnest self-assurance that the system would soon be "flat broke." The first round was over, but the enemies of Social Security were preparing for a long war.

In March, Treasury Secretary John Snow launched a taxpayer-financed website designed to "provide up-to-date information on the problems facing Social Security and the administration's efforts to permanently fix the program through bipartisan reform." The openly partisan StrengtheningSocialSecurity.gov featured a new "Fact of the Day" on its home page every day ("The president's proposals will not change the Social Security system in any way for those born before 1950," and so forth). The only so-called solution mentioned anywhere on the site was the creation of private accounts. In a welcoming video, President Bush showed that he hadn't tempered his position on the future of Social Security or what he considered the most appropriate reform.

"Social Security was a great moral success of the 20th century," he said, hitting the last two words hard to suggest that the program's time had passed. "For younger workers, the government has made promises it cannot keep. That means Social Security is set to go broke just when you reach retirement."

A roster of familiar discredited claims about the system's fiscal health made their appearance on the video: the threat of "bankruptcy," the certainty of "drastically higher taxes or massive new borrowing or sudden and severe cuts in Social Security benefits … if steps are not taken." Bush closed with an earnest observation. "If we approach the Social Security debate with courage and honesty," he said, "we can succeed."

In the weeks and months that followed, more polls suggested that on the issue of Social Security, public doubts were rising, if not about President Bush's courage and honesty, then at least about his wisdom. A majority of Americans seemed unconvinced that it would be a good deal to replace the program's promise of lifetime inflation-adjusted retirement stipends with the highly uncertain fruits of investment in a stock market with a perverse will all its own. As summer of 2005 approached, the president's popularity rating was falling, and his Social Security campaign was taking much of the blame.

And yet he stuck to his guns. "I'm going to continue traveling our country talking about Social Security reform," he told a news conference on June 2. What he didn't mention was that the war chest, $100 million strong, was still available for deployment. He sounded as though the fight had not yet begun. And it was entirely possible that he was right.

*

This adapted excerpt is from Michael A. Hiltzik's new book, "The Plot Against Social Security: How the Bush Plan Is Endangering Our Financial Future." Copyright 2005 by Michael A. Hiltzik. Published by arrangement with HarperCollins.

Copyright © 2014, Los Angeles Times
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