Writing in The Guardian, economist Dean Baker suggests that President Obama can help to restore public confidence in the American economy by reaffirming support for Social Security:
Stimulus II: Reaffirm Support for Social Security
By Dean Baker
February 16, 2009, The Guardian Unlimited
The stimulus bill approved by Congress last week was a very good
first step toward slowing the economy's decline, but it clearly is
not large enough to accomplish the job. The economy will be seeing a
loss of close to $2.6 trillion in demand over this year and next due
to the collapse of housing and commercial real estate bubbles.
To counteract this collapse, Congress gave President Obama just over
$700 billion in real stimulus. President Obama will have to make
further requests from Congress to close the gap between what the
economy needs and the stimulus package approved last week.
However, there is one step that President Obama can take to boost the
economy without going through Congress: he can reaffirm his support
for Social Security and assure the baby boomers nearing retirement
that he will not allow their benefits to be cut. If this huge cohort
in their late 40s, 50s, and early 60s knows that they can count on
getting their promised benefits, they will feel more comfortable
spending and supporting the economy at a time when it badly needs a
boost.
The impact of Social Security on boosting consumption has long been
touted by economists, most importantly Harvard Professor Martin
Feldstein, who had been Ronald Reagan's chief economist and is now an
advisor to President Obama. (We will ignore the fact that his early
results on this topic were driven by a programming error and that his
later results disappeared with government data revisions.)
Feldstein claimed that workers spent more money during their working
years than they would have otherwise because they expected to receive
Social Security benefits when they retired. Therefore they had less
need to save for retirement.
However, many workers may not be expecting to receive their Social
Security benefits because there has been a concerted effort over the
last quarter century to undermine confidence in the program and to
cut the level of benefits. If workers question whether they will get
the Social Security benefits they have paid for, they will feel more
need to save rather than spend.
Workers are likely to be especially fearful about the prospects of
getting their Social Security benefits now due to an all out assault
on the program financed by billionaire banker Peter Peterson.
Peterson has spent much of the last two decades trying to cut Social
Security, Medicare, and other benefits for the elderly. He recently
contributed a billion dollars to a foundation bearing his name that
is primarily committed to this goal.
Peterson's investment has paid off both in exposure from the media
and more importantly attention from many members of Congress and
their staffers. There are now dozens of senators, congress people,
and staffers running around Capitol Hill crafting creative new ways
to cut Social Security. Baby boomers are right to fear that Peterson
and his crew will take away their benefits.
While the idea of taking away benefits for which workers had already
paid was always outrageous, it is especially outrageous at a time
when these workers have just seen much of the wealth in their homes
and their retirement savings disappear in the housing crash and the
collapse of the stock market. Making matters even worse is that fact
that Peterson's friends in the financial industry, along with many of
the economists who would like to cut Social Security, were the
primary culprits in this disaster story.
But President Obama can quickly get us beyond this attempted heist to
the benefit of both older workers and the economy. He can simply
assure the baby boomers that he will not allow the Peter Petersons of
the world to attack their benefits.
In fact, he should assure the baby boom cohorts that their Social
Security benefits are safer than having money in the banks (even the
government insured ones) and that they can plan accordingly. This may
not lead to a huge burst of new spending, but baby boomers will spend
more confidently through time knowing that they can count on getting
the Social Security benefits they earned.
President Obama will clearly have to take other steps to get the
economy fully back on its feet, but a simple speech assuring baby
boomers that Social Security is safe will be an important step in the
right direction. This speech also has the additional advantage that,
unlike other forms of stimulus, it doesn't cost anything. As we all
know, talk is cheap.
http://www.guardian.co.uk/commentisfree/cifamerica/2009/feb/16/obama-
social-security-economy
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