FUN WITH ALAN GREENSPAN….Well, no reason not to kick off the guest-blogging act with a long post on… Social Security. And yes, I realize Alan Greenspan-bashing was so last week, but surely it’s worth taking another shot, no? The subject today is the 1983 Greenspan Commission to “save” Social Security. As it turns out, things were not quite what they seemed here, and Greenspan comes out looking like more of a hack than we all thought.
Back in 1983, as the story goes, Social Security was only a hop, skip, and jump away from a crisis, so a commission chaired by Alan Greenspan stepped in to save the day. With Democrats and Republicans working oh-so-nicely together, Greenspan and Congress came up with a package of benefit cuts and tax hikes that not only saved Social Security, but created surplus revenue that was put into the Trust Fund we all know and love today. The Trust Fund, of course, was supposed to sock away enough cash to pay for the coming Baby Boomer retirement?and indeed, according to the CBO, thanks to the Trust Fund the program will pay out full benefits until at least 2052.
Like I said, that’s how the story is usually told. And today liberals call Greenspan a hack because he once tried to save Social Security in a sensible and rational fashion, whereas today he’s calling for phase-out. The Greenspan flip-flop, many believe, came about because Congress has raided the Trust Fund over the last 20 years to pay for fun things like income tax cuts for high-earners, and now Republicans don’t want to have to pay that money back for Social Security starting in 2018.
But here’s a question: What if Greenspan’s 1983 proposal was never meant to save Social Security? What if raiding the Trust Fund was his aim all along? These questions are raised (“begged” if I’m following house style) by Ravi Batra in a short passage of his soon-to-be-released book, Greenspan’s Fraud. Is there anything to this, or is it just kneejerk sniping? Let’s take a look.
Between 1975-81, Social Security had indeed been running small shortfalls totaling some $18 billion during that time. But in 1982, the general budget, thanks to the Reagan tax cuts, was borrowing a whopping $128 billion. The deficit was ballooning, interest rates were soaring, investors were grumbling, and something had to give. Greenspan, of course, had no intention of reversing the Reagan tax cuts, even if they were the primary reason for the deficits, and so he latched onto Social Security. In the end, his commission essentially raised taxes on low- and middle-earners far and above what was necessary to fix Social Security’s immediate shortfall so as to raise money to pay for the general budget deficit.
Sound conspiracy theory-ish? Well, sure. But notice: One of the unnoticed provisions of the eventual Social Security amendment was that, starting in 1993, the Trust Fund would be separated from the general budget?in essence, making sure that Congress couldn’t raid Social Security revenue. But why start only in 1993? Why let Congress pillage the Trust Fund for a full decade before putting it in a lockbox? Why, so Congress had revenue to clean up Reagan’s deficit mess, of course!
Many reporters spotted this at the time. Via Lexis-Nexis comes a 1983 Washington Post article reporting that one White House motive for the Greenspan compromise was “a desire to be able to factor into the forthcoming 1984 budget any reductions in net spending for Social Security and lower the federal deficit.” The Financial Times, meanwhile, called the Greenspan compromise a victory not for Social Security, but for [a]dvocates of lower budget deficits.” And in a 1988 New York Times op-ed, Sen. Daniel Moynihan, who served on the Greenspan commission, noted that the White House had whipped up “a scare campaign of vicious proportions” over Social Security, even though the real concern was the rising general budget deficits. This wasn’t about Social Security?it was entirely about preserving the Reagan tax cuts. The real scandal is that Democrats went along with it.
Batra notes that only three short months after the Social Security “fix” had been signed into law, Greenspan began stumping for further cuts in benefits, arguing for a price index. But why? Price-indexing is a steep cut. Why on earth would anyone have proposed this at a time when Social Security was running huge surpluses? Unless, of course, Greenspan needed even bigger surpluses to pay for Reagan’s mounting general budget deficit.
There’s a lot more to this story, and I’ll get to it later if people are interested. But the conventional view?that Greenspan was once an honorable man who only recently turned into a hack?is all wrong. He’s always been a hack. And sensible compromises to “save” Social Security aren’t always what they seem.