Thursday, August 19, 2010

Privatization Possibility

The Hill reports that at a small town-hall gathering in Columbus, Ohio, the President stated

Social Security is not in crisis. We're going to have to make some modest adjustments in order to strengthen it.

That is necessary because, he claimed, "the population is getting older."

Though undeniable, the aging of the population has resulted in large measure because of the sharp decline in infant mortality rates, suggesting that while there are more old Americans than in the past, there also are more individuals who live into, and through, their prime earning years.

Hopefully, the President's statement on the aging of the population is no more misleading than his comment

I have been adamant that Social Security should not be privatized, and it will not be privatized as long as I am president.

We are meant to be assured that Social Security will remain an insurance program, guaranteed to provide benefits without exposing it to the giant casino of Wall Street. And in fact, when then-President Bush proposed that workers should be permitted to divert one-third of their payroll tax or 4% of their earnings into a privatization account, Democrats- justifiably- attacked it as "privatization," in part because it might have succumbed to the slippery slope of eventual control by Wall Street. Nevertheless, when President Obama pledges that Social Security "will not be privatized as long as I am president," he he does not say that the system will not be partially privatized while he is president.

Perhaps this is mere semantics, a matter what the meaning of "is" is. But consider a portion of President Obama's approach to financial reform, as laid out by Matt Taibbi. Taibbi explains that, responding to apparent populist anger supposedly embodied by the election to the U.S. Senate of Scott Brown, the President "pulled a 180 and announced his support for the (Paul) Volcker rule," which was "designed to restore the firewall between investment houses and commercial banks." Later, the Merkley-Levin amendment, whose focus was enactment of the Volcker rule, was emasculated by the insertion of a "de minimis" exemption. Senator Brown had pushed the change (to benefit Massachusetts banks. But "the driving force behind the exemption," Taibbi explains, "was not Scott Brown, but the Obama administration itself."

This would not be Anderson Cooper, but Barack Obama (by way of Treasury Secretary Geithner), doing a 360. Against effective financial regulation, then for, then against.

This strategy of acquiescing to powerful financial institutions may be repeated when the President considers the "reforms" likely to be proposed by the deficit reduction/entitlement evisceration commission he established. Consider that Obama has effectively cut income taxes for 90% of non-wealthy Americans and wants to reinstate Bush-era taxes at least for the middle class, prompting the GOP to charge him with wanting to enact a massive tax increase. It's nearly impossible, then, to imagine the six Commission members who are GOP Congressmen- Representatives Paul D. Ryan, Dave Camp, and Jeb Hensarling and Senators Judd Gregg, Michael D. Crapo, and Tom Coburn- supporting elimination of the cap on Social Security taxation or any other means to increase revenues. They will, however, consider privatization, an issue which is, Marshall Auerback notes

germane when one considers the members of the Commission approved by the President. There are questions of possible conflicts of interest. As James Galbraith has noted, the Commission has accepted support from Peter G. Peterson, a man who has been one of the leading campaigners to cut Social Security and Medicare. It is co-chaired by Erskine Bowles, a current Director at North Carolina Life Insurance Co (annuity products are a competitor to Social Security and would almost certainly be beneficiaries of the partial privatization). Mr. Bowles’ wife, Crandall Close Bowles, is on the Board of JP Morgan, and she is also on the “Business Council,” a 27 member group whose members include Dick Fuld, Jeff Immelt, Jamie Dimon and a plethora of other Wall Streeters.

At the very least, these kinds of ties raise questions in regard to proposals for dealing with Social Security. Many members of the Commission stand to become clear direct and indirect beneficiaries of the privatization that the President is now warning against.

Warning against, absolutely. Expecting- possibly.



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