Dems to the Right of Hayek
Social Security, Privatization and the New Enclosure
By ALAN NASSER
“TWO KINDS OF SECURITY
But there are two kinds of security: the certainty of a given minimum of sustenance for all and the security of a given standard of life, of the relative position which one person or group enjoys compared with others. There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision. It is planning for security of the second kind which has such an insidious effect on liberty. It is planning designed to protect individuals or groups against diminutions of their incomes.
Let a uniform minimum be secured to everybody by all means; but let us admit at the same time that all claims for a privileged security of particular classes must lapse
[T]here is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.
There can be no question that adequate security against severe privation will have to be one of our main goals of policy.”
Friedrich A. Hayek, The Road To Serfdom, University of Chicago Press, 1944, pp. 120, 121, 122
Ordinary Americans are considerably to the left of their alleged representatives in the Democratic Party on a good many of the Big Issues. Folks generally disapprove of the wars, and they overwhelmingly support New Deal-Great Society programs like Social Security, Medicare and Medicaid. No matter to the Party leadership, which has been galloping to the right since Jimmy Carter. The Clinton-Obama mania for “bipartisanship” harbors a conception of politics that acknowledges the rightward shift of the Democrats and accordingly excludes conflict and contestation, an oxymoron that rids politics of the political. One hears no loud and persistent Democratic voice in opposition to announced reductions in Social Security benefits.
Keeping the Consensus on Balance
Obama’s repeated pleas to the Republicans to acknowledge that both his and their strategic values and aims are and should be identical is an ironic confirmation of Nader’s campaign claim, repeatedly referenced and indignantly dismissed by the Democratic faithful, that there is no significant difference between the Democrats and the Republicans. The sneering citations of Nader’s remark are offered as a reductio ad absurdum of any kind of third-party politics: how could anyone worth listening to claim that there isn’t the teensiest difference between, say, Clinton and Bush?
But Nader held no such thing. On the contrary, he insisted that there is the teensiest difference between these similaria. Just not enough to make a difference to wars (Iraq, Afghanistan, Pakistan) and other military intrusions (Yugoslavia, the Iraq sanctions), the trashing of the legacy of the New Deal and Great Society, deference to the financial plutocracy, indifference or hostility to unions, insensibility to now-historic inequality, and the rest. Sure, they dispute among themselves, but Obama’s continuity-politics makes this look increasingly like a game played with a wink and a nod.
The show does occasionally get out of hand when, for example, far-right ideologues disrupt the procedings by hurling a monkey wrench into what should be standard legislative machinations. The political elite is expected to know better, but sometimes it needs to be reminded of the importance of business as usual. Obama has offered just such a reminder to his Republican cohorts.
On January 29 he delivered a televised speech to the House Republican caucus. Near the end of the talk he declared: “We’ve got to be careful about what we say about each other sometimes, because it boxes us in, in ways that make it difficult for us to work together, because our constituents start believing us. They don’t know sometimes this is just politics what you guys or folks on my side do sometimes.” Obama is reminding the Republicans of the function of apparent inter-Party conflict. Ritual mudslinging is “sometimes” merely a show, “just politics” -note the cynical conception of politics as a kind of con game- and is not to be taken seriously by the apparent contestants. The Republicans seemed to have forgotten this, and Obama worried that this threatened to de-legitimize the political system by making the patented congressional horse-trading difficult to sustain. It’s like “professional” wrestling. Were one of the wrestlers to launch an authentic assault on his opponent the whole point of the choreographed roughhouse would be lost.
Letting the Cat Out of the Bag: Social Security in the Bullseye
The depth of the Republocrat consensus is evident in the attack on so-called entitlement programs. Let’s focus on Social Security (SS), the most successful US program explicitly intended to reduce poverty. The first unambiguous admission that an attack on SS is on the agenda appeared in The New York Times’s report on Obama’s three-year domestic spending freeze. (January 26, 2010, “Obama to Seek Spending Freeze to Trim Deficits”, by Jackie Calmes) The article mentions cuts in “air traffic control, farm subsidies, education, nutrition and national parks.” We are assured there will be no reductions in the most extensive components of the social wage: “But [the freeze] would exempt… the entitlement programs that make up the biggest and fastest-growing part of the federal budget: Medicare, Medicaid and Social Security.” So no reductions in SS. Unless we read on.
The cuts are in discretionary spending, covering programs for which Congress allocates specific budgets each year. How could such relatively small cuts be thought to make a difference to the magnitude of the deficit? Could it be that these cuts are intended as a Trojan horse opening the door to reductions in, for example, SS? Yes it could. “[O]ne administration official said that limiting the much smaller discretionary domestic budget would have symbolic value. That spending includes lawmakers’ earmarks for parochial projects, and only when the public believes such perceived waste is being wrung out will they be willing to consider reductions in popular entitlement programs, the official said.”
There you have it - a frank admission that SS and other “popular” programs are on the chopping block. ‘“By helping to create a new atmosphere of fiscal discipline, it can actually also feed into debates over other components of the budget,” the official said, briefing reporters on the condition of anonymity.’
The elderly and infirm will be forced to pay for the bailout and the wars, the latter’s funding, incidentally, being the single biggest annual addition to the deficit.
The talk of cuts and reductions is in fact a follow-up Trojan horse. Finance capital, which is now squarely in the political driver’s seat, has long had as its wettest dream the privatization of SS. The 1990s saw a concerted putsch to “reform” SS by think tanks such as the Urban Institute, the Concord Coalition, Third Millennium, Citizens For A Sound Economy, the Cato Institute and the National Center for Policy Analysis. Most of these institutions were heavily funded by Wall Street. They produced a barrage of studies and statistics designed to undermine SS. The basic message was that, in the words of a 1998 report by the Heritage Foundation, "the Social Security system is bankrupt."
From the perspective of finance capital, SS funds are a pot of gold, vast sums sitting idle, reinforcing working people’s sense of entitlement, and not doing the work that enormous agglomerations of cash are supposed to do, namely multiply themselves like rabbits. Money is to be sure also a medium of exchange, but great sums of money under capitalism are to be invested, put to use to make more of the same. Accumulate, accumulate, that is Goldman and the profits.
The Press Hypes the Scare: The New York Times on Baker and Wiesbrot
During the 1990s the press was transmitting Wall Street’s line as fact. Typical of media reporting was Katharine Q. Seelye’s May 14, 2000 article in The New York Times warning that Social Security "will begin paying out more than it takes in by 2015." Seelye apparently thought that what Social Security "takes in," i.e., its income, is exhausted by payroll taxes. This is either inexcusable ignorance or deliberate deception. It should be common journalistic knowledge that an additional component of Social Security's annual income is the interest on the Treasury bonds it holds, which at the time accounted for the 270-billion-dollar surplus the system was officially projected to have in 2015. In fact, this surplus was planned precisely in order to cover the anticipated shortfall. Seelye added insult to injury when she further claimed that "without a major fix, the system could go broke by 2037."
This kind of argument, common in the mainstream press, was addressed in microdetail by Dean Baker and Mark Weisbrot in their book Social Security: The Phony Crisis (University of Chicago, 2000), a response to the ongoing propaganda blitz to scare the public into fearing for the future of SS. They used the same statistical sources employed by the privatizers to show that slapstick mathematics and plain ignorance concealed the health of SS. Baker and Weisbrot showed that the benefits paid out by Social Security were projected to slightly exceed taxes received by 2014. This is irrelevant to the viability of SS. The privatizers know full well that the funds borrowed from Social Security by the US Treasury are to be paid back, as they have been since the system's inception, with interest. Accordingly, the system's total income consists of payroll taxes plus interest income. Baker and Weisbrot showed that the contribution from interest payments made it possible [at the time Seelye wrote the May 2000 article] for the system to pay all benefits out of its income until 2022. From then until 2037, it will draw on the principal in the trust fund to maintain full benefit payments. Does it follow, as Seelye claimed, that after 2037 SS is destined to “go broke”? Not at all. These payments could be further extended through 2074 with a mere 2.07 percent payroll tax increase, about 1 percent each for employer and employee.
It is not as if there are absolutely no references in the press to the facts of the matter or to the surreptitous privatization agenda. It's just that the relatively few citations of serious scholarship have no net effect on the overall impression communicated by the media. What follows is a paradigm case.
Op-eds based on the Baker-Weisbrot book appeared in a number of mainstream sources, but getting the issue straight was not so easy. In early 1996, Robert Pear of The New York Times wrote a major story discussing Dean Baker's position on SS, which was run intact by the Pittsburgh Post-Gazette. But when it appeared in the Times, Baker's criticism of the case for privatization had been cut. The Times did publish an article critical of the scare-mongers by one of its own editors, Fred Brock, titled "Save Social Security? From What?" in its Business section (November 1, 1998, p. 12), which favorably quoted Baker. Brock went on to attribute the hysteria of the privatizers to "hidden agendas…..Wall Street would love to get its hands on at least some of the billions of dollars in the Social Security trust fund . . . But knowing that the idea [of full privatization] won't fly politically, [politicians] are pushing for partial privatization, in which individuals would invest a portion of their contribution in the stock market, all in the name of rescuing the system."
Here was a frank admission, in the Newspaper of Record no less, that the save-SS crowd’s real objective was privatization. Still, in the very same issue, the lead editorial claimed that "The next Congress will have to deal with nothing less than . . . devising a plan to save Social Security in the next generation" (p. 14) You can’t win.
Twelve years later, we find exactly the same New York Times doublespeak. On March 24 the Times ran a front-page article titled “Social Security to See Payout Exceed Payin This Year”, by Mary Williams Walsh, calling this “an important threshold [SS] was not expected to cross until 2016…” In the same article Stephen C. Goss, the chief actuary of the Social Security Administration, is quoted as confirming that this “threshold” makes no difference whatever to SS since its government bonds exceed $2.5 trillion. In fact, the system will be able to pay full benefits without a tax increase until 2037, the same year indicated by Weisbrot and Baker in their book.
No matter to Walsh, who informs us that “analysts” regard the “threshold…as a tipping point – the first step of a long, slow march to insolvency..” Walsh approvingly cites Alan Greenspan’s prescription: “When the level of the trust fund gets to zero, you have to cut benefits.”
(You still can’t win.) Nowhere in the article is there so much as a hint that less draconian alternatives are entirely feasible economically: the payroll tax could be progressively calculated, rather than at the same rate for all income levels, employers could pay a higher portion of the payroll tax than is currently required (50%), the cap on income subject to the FICA tax could be raised or lifted altogether and investment income could be FICA-taxed. Each of these alternatives is based on the same principles of fairness underlying any system of progressive taxation. They place a greater responsibility for financing the system on the better-off. This kind of tax structure should be familiar to Americans – something like it was in place from the end of the Second World War up to the Reagan era.
The fairer options are indeed economically workable, but it’s the politics that counts. The politics of The New York Times, Wall Street and the entire neoliberal consensus is single-mindedly indifferent to fairness, if that means legislating in the interests of those most vulnerable to the current depredations of finance capitalism.
The Bipartisan Panel to Reduce the Federal Deficit
It’s been remarked that only a Republican could have opened dreaded Communist China to US trade, investment and tourism. Nixon’s anti-communist credentials were unimpeachable. Similarly, only a Democrat could do away with “welfare as we know it”, the sixty-year-old federal income guarantee for poor families. Clinton remained ambiguous on SS. Gutting Aid To Families With Dependent Children was a tall enough order – let the next guy take care of SS. George W. Bush was perceived by no one as a friend of the working stiff. Even he was not foolish enough to persist in making a major issue of his privatization agenda after the stock-market debacle attending the bursting of the dot.com bubble. Given the popular and sacrosanct nature of SS, prepping the public for a hitherto-unheard-of assault on the program would require the credentials of an uncommonly popular Democrat.
In his books and interviews Obama had claimed that his most admired postwar president was Reagan, and he repeatedly trashed the residual supporters of the New Deal and the Great Society.
His vehicle for initiating the hatchet job on SS is the bipartisan panel charged with planning the reduction of the federal deficit. It is an open non-secret that the panel will recommend reductions in SS, Medicare and Medicaid benefits. The day before his appointment as co-chair of the panel, retired Wyoming Republican Senator Alan Simpson said in an interview with the Washington Post: “How did we get to a point in America where you get to a certain age in life, regardless of net worth or income, and you’re ‘entitled’? The word itself is killing us.” (Feb. 17, 2010)
Simpson had for a time chaired the Senate subcommittee that overseas the SS program. During that time he favored cutting SS spending by raising the age of eligibility for retirement and reducing benefit levels.
Obama chose as the Democratic co-chair Erskine Bowles, a Wall Street banker and former White House chief of staff under Clinton. He is currently on the board of directors of Morgan Stanley and was a director of General Motors from 2005 until its 2009 bankruptcy. It happens that these two companies were among the primary beneficiaries of Obama’s financial bailouts. Bowles also served as chairman of the compensation committees of both companies, a position he still holds at Morgan Stanley. It was the compensation committees that awarded eight-figure bonuses and salaries to GM and Morgan Stanley executives.
Everyone knows what the bipartisan panel will recommend. Or so claims Erskine Simpson, in a February 17 interview with the New York Times: “There isn’t a single sitting member of Congress – not one – that doesn’t know exactly where we’re headed.” The Times responded with the suggestion that the panel’s recommendations would not be able to be implemented “unless Mr. Obama breaks his campaign promise not to raise taxes for households making less than $250,000.” The overwhelming majority of these households are working class. There will be SS cuts and tax increases, but not on the plutocracy.
Looting Social Security As Resumption of the Historic Enclosures
It is a truism that capitalism is about both discovering and creating as many profit opportunities as possible. The idea is to commodify as much of what was hitherto not a commodity as one can get away with. This is nothing less than a generalized systemic tendency to privatize everything that one can get away with privatizing. As The Old Man pointed out, the original act of capital accumulation was the original large-scale privatization, namely the enclosure movement.
From the late fourteenth to the eighteenth century vast areas of land held in common by local communities and used by villagers on a shared basis were enclosed by landlords and turned into private property. Fences were erected and the courts were given the function of issuing title deeds. This was the first large-scale and systemic abolition of social security.
The tradition of the commons was as old as humanity itself, and was not done away with with an instant wave of the economic wand. All that is solid melts away over a very long period of time. The original forced enclosures were succeeded by "Parliamentary enclosure," when acts of Parliament formally reconstituted common resources as private property. Indeed, the history of enclosure in England from the late fourteenth to the late eighteenth century might be termed the "primitive privatization," the historical progenitor of the contemporary neoliberal project to privatize and deregulate everything.
The Parliamentary enclosures transformed what had originated as a wave of coerced expulsions into a political process, the legally sanctioned removal of any obstacles to the ongoing and limitless accumulation of capitalist wealth.
This secular tendency of capital to universally privatize was temporarily offset toward the middle of the twentieth century by the emergence of the New Deal in the United States and Social Democracy in Europe. But even these meager provisions of non-market benefits proved to be too radical for capital. Born-again capitalism is now the order of the day, and social security is once again, as it was way back then, perceived as a principal obstacle to profitability. The struggle of large English landowners to privatize historically common land finds a contemporary counterpart in the campaign of big banks and Wall Street brokerage houses to put to private, profitable use resources currently earmarked for workers in need. Just as the social costs of the transition to capitalism were borne by the working population, so will the attempted transition back to pre-Keynesian capitalism be borne by the same class.
When Libertarians Sound Like Marxists
The passage at the head of this article from Friedrich A. Hayek’s best known book is overlooked in every treatment of Hayek’s thought I have found. The Road to Serfdom is one of the most influential books of our time and stands to libertarianism as Capital does to socialism. It was identified by Milton Friedman as one of the most important influences on his own thinking. But capitalism’s acolytes have read the book selectively. The main thrust of the cited passage would have been supported by Karl Marx.
The section from which the passage is taken deals with libertarianism’s conception of security, with an eye toward determining whether a commitment to individual liberty is compatible with a political guarantee of material security. When the book was published in 1944 it was generally recognized by Europeans that socialists and communists were at the forefront of resistance movements there and that the Soviets were a formidable threat to Hitler’s forces. It was thought that Greece and Italy might emerge from the war as socialist or communist states. Hayek felt the need to come to terms with Marxian-inspired notions. And keep in mind that Hayek was quite familiar with the social insurance programs, dating back to the nineteenth century, of his native Austria. He had no bone to pick with these kinds of program, which underwrite “the certainty of a given minimum of sustenance for all”.
Hayek makes it clear that what is anathema to libertarianism is redistribution of privately earned income. Liberty prohibits the state from guaranteeing “the security of a given standard of life, of the relative position which one person or group enjoys compared with others..” One has an unqualified right to one’s private wage or salary; redistribution violates this right by robbing Peter to pay Paul in order to secure the “privileged security of particular classes”. The rise or fall of one’s private income is to be determined by the market alone. Hence, the state must not engage in planning designed to protect individuals or groups against diminutions of their incomes by changing anyone’s “relative position” in society. Keynesian measures are out.
Hayek asserts, on the other hand, that state “planning” designed to provide the same basic measure of material security to everyone is entirely compatible with the prohibition of redistribution favoring one group against another. Hence, security is of two kinds. The first is the type Hayek grew up with, the second redistributionist. Hayek not only approves of the first kind, he seems to think that citizenship of a wealthy society includes an individual right to that kind of security, a minimal level of subsistence possible only through “a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision”: “There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health….There can be no question that adequate security against severe privation will have to be one of our main goals of policy.”
Who would have thought? Hayek’s ungrudging concession is more radical than the Social Security program, which guarantees minimal security only after retirement. Hayek’s system would be available to all for a lifetime. On this issue, Hayek stands far to the left of anyone on Capitol Hill. For shame.
Alan Nasser is Professor emeritus of Political Economy and Philosophy at The Evergreen State College. His book, The “New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to email@example.com
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