In his second term, President Bush continues to try and spend the “political capital” that he claims to have earned by defeating Sen. John Kerry last year. And who better to help the president than Alan Greenspan, chairman of the Federal Reserve Bank? Officially, he now backs Bush’s plan for younger workers to invest, voluntarily, about two-thirds of their Social Security payroll taxes in private accounts.
Consider one pundit’s take on what the nation’s top central banker said about private accounts for Social Security. “This week, Mr. Greenspan offered no excuse for supporting privatization,” economist Paul Krugman wrote in the Feb. 18 edition of the NY Times. Well, not quite. Greenspan said privatizing Social Security would be a step towards more equity in U.S. society. Presumably, the opportunity to invest in private accounts can help working America narrow its widening income inequality with the upper class.
Concerning the creation of private accounts, Greenspan testified on Wednesday to the Senate Banking Committee: “I’ve been concerned about the concentration of income and wealth in this nation … and this, in my judgment, is one way in which you can address this particular question.” Is his view of private accounts and class equity to be believed?
For that answer we first turn to the last decade. Greenspan’s monetary policies were widely credited for the rise of wealth spurred by financial markets. The richest five percent of U.S. households saw their income grow between 1990 and 2000. At the same time, the household income of the bottom 60 percent of U.S. households fell.
Why? One part of the answer is job insecurity, as commercial pacts such as the North American Free Trade Agreement sucked high-paying factory work to low-wage nations. Lower-paying service employment, typically nonunion, replaced such employment in the U.S.
Earning wages is how the majority of Americans survive. When labor market conditions favor employers, employees tend to moderate their demands for higher pay. It is better to have a low-wage job than none at all under capitalism.
Greenspan is well aware of that trend. In the 1990s, he “began to speak to his colleagues within the Fed about the ‘traumatized worker’—someone who felt job insecurity in the changing economy and so was accepting smaller wage increases” writes Michael Perelman, professor of economics at CSU, Chico, in Manufacturing Discontent: The Trap of Individualism in a Corporate Society (Pluto Press, 2005). Fear of being jobless -- the starvation factor -- is a key issue for employees. For their employers, such fear can and does boost profitability. In late January 1997 before the Senate Budget Committee, Greenspan said: “As I see it, heightened job insecurity explains a significant part of the restraint on compensation.”
Greenspan has huge credibility on Wall Street and in Washington, DC. But how will his comments on private accounts to preserve Social Security play on Main St., as the president and Vice President Cheney say that the popular program is not safe for future generations? Well, Bush’s proposed plan is losing steam, according to recent public opinion polls. That outcome is due partially to the president’s recent multi-state tour to try and sell his Social Security privatization proposal to an increasingly critical and skeptical American public. Clearly, the U.S. population is growing uneasy about Bush’s plan to revamp Social Security and thereby enhance workers’ golden years.
On that note, Greenspan’s claim to be concerned about social equity is questionable. Simply, his talk does not match his walk. His recent backing of private Social Security accounts comes four years after supporting Bush’s tax cuts. They are mainly helping investors, not wage earners.
When Wall St. pays less taxes, Main St. pays more taxes and/or gets cuts in non-military (health, schools, etc.) spending. In sum, this describes Bush’s fiscal 2006 federal budget proposal. Meanwhile, real wages, what working people can actually buy with their pay, declined in 2004. Main St. is losing ground at work.
What of the increase in federal debt that creating voluntary private accounts for Social Security would trigger? That debt trap would fall mainly on the hard-working backs of Main St. On one hand, Greenspan has noted the potential for federal debt expansion. On the other hand, he sidestepped its impact on the working class. Instead, Greenspan warned about the mood of markets, elected by nobody but having extreme political power, on the future growth in federal debt.
He talks about helping Main St. but has helped Wall St. at the expense of working America. What reason is there to think that Greenspan’s devotion to the upper class will improve social equity via Bush’s plan to privatize Social Security?
Seth Sandronsky is a member of Peace Action and co-editor with Because People Matter, Sacramento’s progressive paper. He can be reached at: firstname.lastname@example.org.
Security and Bush’s War Budget by Joel Wendland
Other Recent Articles by Seth Sandronsky
Bush, Market Opportunity, and Personal Responsibility