The Public Sector Is A Milk Cow For Private Enterprise

Social Security and Medicare are under attack from Wall Street, conservatives, and free market economists. The claims are that these programs are unaffordable and that the programs can be run more efficiently and at less cost if privatized.

The programs are disparaged as "entitlements." The word has come to imply that entitled people are getting something at great cost to everyone else. Indeed, entitlements have become conflated with welfare.

In fact, Social Security and Medicare are financed by an earmarked payroll tax paid by employees. (Economists regard the part of the payroll tax that is paid by employers as part of the employee's wage.)

According to the Social Security and Medicare trustees, Social Security as presently configured can pay full promised benefits for the next two decades and with current payroll tax and demographic trends can pay 75% of benefits thereafter. Medicare can pay full benefits for 12 more years and 90% of promised benefits thereafter.

It makes sense to look ahead -- something that democracies seldom do -- but there is no current crisis.

The Carter administration did look ahead and put in place a series of future increases in the payroll tax sufficient to keep the programs in the black for several decades into the future. Shortly thereafter in 1981, there was a claim that there was a short-term financing problem. The National Commission on Social Security Reform was created. Alan Greenspan was appointed chairman, and the commission is known as the Greenspan Commission.

What the commission did was to accelerate in time the payroll tax increases that were already in place. In my opinion, this was done in order to reduce projected federal budget deficits that concerned Wall Street and Republicans. The consequence of the accelerated payroll tax increases is that over the next decades the programs accrued large surpluses in the trillions of dollars that the federal government spent on other programs, substituting for the surplus payroll revenues non-marketable Treasury IOUs to Social Security and Medicare. Far from entitlements worsening the federal deficit, entitlement surpluses have reduced it.

The real Social Security crisis is that the government does not have the money to redeem its IOUs.

The government, of course, will print money to bail out the banks' uncovered casino bets, but not to bail out the elderly from the theft of their funds.

The government has wasted trillions of dollars on wars that have enriched the military/security complex by killing, maiming, and displacing millions of peoples in seven countries, but Washington "cannot afford" Social Security and Medicare. Representing the people is not something "our" representatives do. They are too busy representing a handful of private interest groups such as the financial sector, the military/security complex, and agribusiness.

According to the propaganda, the problem faced by Social Security and Medicare is demographic. There are fewer workers per retiree to carry the burden of an "intergenerational transfer." I have often wondered how this claim fits with the claim that the US is being overrun with illegal aliens who have numerous children. We constantly hear about how Texas, California, and other states are being taken back by Mexico.

As most employers of illegals deduct and pay the payroll tax and as illegals, being illegal, do not file for income tax refunds or stand to collect the "entitlements," it is unclear that the demographic conclusion is correct.

Whatever the problem demographics pose to entitlement funding, the greatest problem has come from the offshoring of US high-value-added middle class jobs. The millions of US manufacturing, industrial, and professional service jobs such as software engineering that have been moved abroad in order to increase the personal incomes of corporate owners and managers have left a huge gap in the payroll tax base.

Few if any laid-off workers have found comparable employment, and millions have found no employment. In recent years new university graduates have also found their employment prospects limited by jobs offshoring.

To understand the real problem, all you have to do is to look at the official information on real median family incomes. There has been no growth for decades. The population is growing, but not median incomes, and the lack of jobs has resulted in a declining labor force participation rate. If incomes were growing, a higher payroll tax could be paid out of income gains.