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Monday, May 23, 2005

Stiglitz: Bush Capitalism Undermines Fiscal Solvency and Social Security

Joseph Stiglitz, a professor at Columbia University and Nobel Prize winner in economics in 2001 is not happy with the Bush administration:

No Old-Age Security in the Private Sector Either, By Joseph E. Stiglitz, LA Times: President Bush's plan to reform Social Security requires that we trust the private sector, which isn't all that easy to do given its inability to honor its obligations in pensions or to provide adequate health plans. The recent court decision allowing United Airlines to turn over its pension system to the federal Pension Benefit Guaranty Corp. is likely to raise anxieties still further among Americans already worried about their old-age security. There is a certain irony to what's going on: As the president tries to turn over responsibility for retirement to the private sector, the private sector is simultaneously turning to the government for help. … This apparently is part of the new form of Bush capitalism, involving the nationalization of private liabilities. The bonds of GM and Ford, once bastions of American capitalism, have been downgraded to junk status … Is it only a matter of time before they too turn to the government?

… The problems in the private sector are, in many cases, a combination of bad accounting, greed and lax government regulation that allowed corporations not only to put insufficient pension funds aside in the first place but to raid corporate pension funds they claimed were over-funded. The parallel to what has occurred on the public side is uncanny. A combination of bad accounting and political greed allowed the administration to claim that huge surpluses justified a huge tax cut. The accounting was a mirage; the surpluses soon disappeared, and fiscal solvency of the United States was undermined.

If but a fraction of the money spent on the tax cuts had been devoted to Social Security, the fiscal solvency of the program would have been ensured for 75 years, even using conservative projections. America is the richest country in the world. We should have the ingenuity and means to design retirement programs that insures Americans against stock market volatility and inflation. Social Security is the only program that does this for most Americans. United's experience shows that private pension programs cannot be counted on. Private accounts would be subject to the vagaries of the market. And no private program would insulate against inflation. We should be focusing our attention on making our private system work better. Certainly we should do that before we begin Bush's risky path of beginning to dismantle our public one.

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