Thursday, September 10, 1998

Rising crisis of financial inequality

By Molly Ivins

AUSTIN - Say, here's a dandy idea: Let's privatize Social Security and have everybody put their retirement money in the stock market, where it will be so safe and profitable, eh?

Just seems like a good moment to remind people why that never was a good idea and never will be a good idea. And to remind us who is pushing this scheme and why.

A combination of Wall Street fund managers and brokers (for whom such a plan would be an unending gusher of fees) and right-wing ideologues like our Sen. Phil Gramm have pushed privatization until even some Democrats, who should know better, have doodled around with at least partial privatization of the system. Suppose you were on the verge of retirement and watched 15 percent of the income you had counted on disappear since July?

Just a blip in the market? The market has been known to do more than blip. According to Dean Baker, an economist with the Economic Policy Institute, it lost more than 41 percent of its value between 1968 and 1975. Put that in your privatization pipe and smoke it. But don't try to retire on it.

Even with the grimmest of forecasts, Social Security will be just fine for the next 34 years, and with only the mildest adjustments, it will be just fine after that as well. The numbers are simple enough: According to Baker, from 1923 to 1998, the economy grew at an average rate of 3 percent a year. Even if we assume, as the Social Security trustees are wont to do, that it will grow at less than 1.5 percent during the next 75 years, the system is not in big trouble.

In the St. Louis Post-Dispatch, Baker observed: "If in the future the economy grows at less than half the rate it did in the past, how can the stock market provide the same return as it did in the past? The privatizers don't have an answer to this question.

"The projected slow growth of the economy means we can expect returns in the stock market, on average, of about 3.5 percent annually, not the 7 percent claimed by privatization advocates. This cuts their promised bonanza by nearly 60 percent. After subtracting administrative costs, the returns on private accounts compare poorly with Social Security, even before taking account of the stock market."

As long as our attention has been temporarily diverted toward the economy from the always-absorbing topic of the president's sex life, the Northwest Airlines strike offers us several instructive lessons. One useful hint to management: When you break promises to your workers, they are more likely to go on strike.

When Northwest was in financial trouble a few years ago, its pilots gave back $350 million in concessions to help keep it afloat. Northwest has now been running record profits for the last five years, but the pilots haven't gotten their cut. Instead, Northwest's former Co-chairman Al Checchi took enough out of the company to go to California and waste around $40 million of it in a bootless run for governor. Now, management folks, this is the kind of thing that will chap your workers.

Also, two years of talks in which you fail to come to an agreement do not build trust; that kind of leaves workers thinking they have no option but to strike. Also, current Northwest CEO John Dasburg sold more than $20 million in company stock this year at a time when Northwest was claiming it couldn't afford union demands. You do see, don't you, where this might create just a small bump of resentment?

All of which brings us to the larger issue of the great rise in inequality in America: the pay gap. James K. Galbraith of the University of Texas, who has been so right for so long that I don't see how he can restrain himself from saying, "I told you so" (but he's a better person than I am), wrote in the Boston Globe: "Some economists entertained the reassuring illusion that personal computers had caused rising wage inequality and that the condition would be self-correcting as diligent workers learned new skills. But in fact, inequality corrodes the work ethic and devalues the acquisition of real skills. A society where the rich are obsessed by stocks and everyone else by lotteries can never be a productive, progressive, happy place. It will not be a place where hard work is the main value or where people make sensible education choices.

"The great inequality crisis was brought on not by computers but by mass unemployment and high interest rates in the '70s and '80s. It has been slightly eased by full employment these last two years, but it would take many more years to undo the damage. Unless the Fed, the administration and Congress drop their illusions and act, we won't get them. Lower interest rates and a higher minimum wage are needed now."

What is suddenly conventional wisdom is just what Galbraith and the other liberals have been saying for years now: The problem is deflation, not inflation; demand, not supply; inequity, not capital gains taxes.

Unless you push the benefits of economic good times down toward the bottom, you wind up with a big mess.

Creators Syndicate, Inc.