When Senator Elizabeth Warren came out for increasing Social Security last month it set in motion a remarkable turn of events. For over a decade the only discussion of Social Security by the Washington power types was over how much to cut it and when. The extreme left position was that current spending was about right.
Senator Warren changed the debate when she endorsed a bill proposed by Iowa Senator Tom Harkin that would index retirees' benefits to an index that more closely tracks the cost-of-living of seniors. The bill also would raise benefits by roughly $70 a month. As a result of Warren's prominence in national politics, and the fact that raising Social Security benefits is actually quite popular, the Washington insider types were forced to take the idea seriously.
As was predictable, she was quickly denounced by the usual suspects, most notably the ostensibly center-left group Third Way. Third Way is one of the many Wall Street funded groups that manage to get credibility in policy circles almost entirely by virtue of their funding. They have no real political following and rarely produce anything resembling original thinking or research. But in Washington, money commands attention.
Third Way is one of a long list of organizations that have received Wall Street funding to go after Social Security and Medicare under the guise of protecting the young from their greedy parents and grandparents. This list includes Lead or Leave, the Concord Coalition, The Committee for a Responsible Federal Budget, America Speaks, Fix the Debt and the Can Kicks Back.
At a time when we are seeing the largest upward redistribution in the history of the world these organizations have attempted to divert attention from the class war on the nation's middle class and poor. Instead they are trying to convince young people that their financial difficulties stem from the size of their parents' Social Security checks.
The Wall Street crew also has allies in this effort in the media and academia. The Washington Post stands out in the former category, using both its news and opinion pages to push for cuts to Social Security and Medicare. There is also considerable funding for academics who want to do work showing how the young are losing out to the elderly.
For these reasons, Warren's call for raising Social Security benefits could mark a real turning point. It could mean that we get a public debate which looks at the program with open eyes, recognizing that it is a large and growing portion of workers' retirement income.
While Social Security does keep most seniors out of poverty, the $1,300 average monthly benefit is certainly not enough for a comfortable retirement for people who lack another source of support. A modest increase in benefits to retirees in the bottom half of the income distribution would make a big difference in their standard of living at relatively little cost to the program.
What is most desperately needed for middle income workers is a new retirement system to replace the failed 401(k) system. There has been much work on this issue over the last two decades at both the state and federal level. The outlines of such a new system are clear.
It needs to have low administrative costs so workers can maximize the amount that they earn relative to financial intermediaries. It has to be portable so workers can keep the same plan when they change jobs. It should be simple and ideally offer something like a cash balance system where workers can be guaranteed a minimal return. And it should allow for easy, if not automatic, conversions to annuities in retirement.
There would be lots of support for this sort of system from across the political spectrum. And it could be set up at the state of level, as activists in Washington State and elsewhere have tried to do. The only real obstacle are those firms in the financial industry that currently make a fortune from fees managing 401(k)s. But this has been enough to prevent any plan from moving forward to date.
Anyhow, Warren's support for raising Social Security benefits could be exactly what we need to move the discussion of retirement income in a positive direction. As far as the pain suffered by the young, it is very real but the main causes are the high unemployment budgets coming out of Congress and the over-valued exchange rates.
The young are biggest victims of unemployment, not only because they are more likely to be unemployed, but because they are also likely to see their hours cut and get lower pay when they do work. We know how to reverse these policies, but it means confronting Wall Street, not beating up our parents and grandparents.