Ending Social Security:  why and its consequences

There is a problem with our President’s sales pitch for Social Security Privatization.  The American economy is aging, and those big gains are history, long gone. Because our Social Security insurance payments purchase Treasury bills, our Social Security trust fund is, in effect, a giant bet on the U.S. economy. Our "profits" on this investment in ourselves, cautions Krugman, are "equal only to the rate of economic growth" in the USA. Think of the total value of all investments in the USA. Slice it any way you want—into stocks, bonds and Treasury bills held in private accounts or public accounts. Change the size of the slices or rename them from "public" to "private"—you can't increase the ultimate size of the America pie.

But then, who says Mr. Bush expects us to invest in America?

Remember: There is no America, Mr. Beale. It is the international sys­tem of currency that determines the totality of life on this planet.

The USA's economy grows by 4% in a very good year. But China is rising at 9% per year, twice as fast as America. There is one flaw in Krugman's calculations. Krugman's one error is that he's a patriot, and therefore cannot understand our rulers' cold agenda. As professor Joseph White of Case Western Reserve University explained to me:

Social Security privatization is the realization that America's economic growth is at a plateau, on a flat line—whereas China and India and Malaysia are taking off—providing market returns twice that of U.S.-based industry.

In other words, Social Security privatization is about moving our capital from a dying economy (America) to rising economies, like

China.

The money flows out, it flows back in, then it flows out again.

There is nothing new in this process of national abandonment. In the twentieth century, the elites of Argentina and other Third World nations sold their plantations and mines and infrastructure to foreign (i.e., American) multinational corporations. Argentina's "ricos" cashed out and moved to Miami. In the twenty-first century, it is America's elite that is cashing out, abandoning ship. They will maintain their condos in New York, but their capital will live abroad. Your Social Security funds will subsidize their escape, leveraging their foreign ventures.

But what do we do with the old folk? While some of our Social Se­curity tax goes to buy Treasury bills, most still goes to pay today's re­tirees. This is America's "pay-as-you-go" system. How do we keep up payments to those already retired, who've paid their insurance over a lifetime, if we withhold our money for private accounts? We can't. The privatizers in the Administration call this potential for disastrous collapse of old-age pensions a "transition issue." In fact, it's a debt of up to $3 trillion to current retirees. We must get it by borrowing or by cutting benefits or by taxation (in other words, a Social Security tax to replace the Social Security tax). There's only one way around this "transition" conundrum: The Soylent Green solution. I've heard the White House is carefully studying the transition method used in that old sci-fi classic: The elderly can be turned into a cheap source of protein.

Level Field: China & India for all

My own sequel to Network has an odd and unbelievable opening. The new Mr. Beale flies business class from Frankfurt, Germany, to Banga­lore, India. On arrival, he is whisked off in an air-conditioned limo by a fabulously rich Indian dot-corn CEO to a golf course. On the greens, Beale's replacement, "Thomas Friedman," has an epiphany: These eighteen holes on the Arabian Sea are just like the links in Stamford, Connecticut, which are just like the back nine in Palm Beach which are similar to the greens in Singapore. "The world is flat!" he declares, one large economic fairway, smooth and wide and freshly mowed, with no obstacles, no mountains to cross, no borders or fences between you and the flag sticking out of the hole. And every man and woman on the course is equal, an international brother­hood, at the tee-off.

Friedman imagines that, through some high-tech Internet abra­cadabra, all the greens will one day connect across the planet into one giant economic fairway. In his future, you will be able to play straight through from Bangalore to Boston to Bangkok to Berlin. But first, there will have to be some radical changes in the way business is done: Obsolete trade barriers between nations will have to come down, stodgy public industries must be sold into private entrepre­neurial hands, the entangling weeds of business regulation must be slashed, the sand traps of nitpicky bureaucracies abolished, the ob­structions of selfish labor union contracts cleared away and— presto!—prosperity and peace shall reign forever and ever. Fore!

Frighteningly Network's sequel is not a movie. Thomas Friedman really did (he writes) fly business class to Bangalore, India, played eighteen holes with an olive-skinned CEO and on those links had the geomorphically suspect vision that led him to write The World Is Flat.

Friedman has spoken with people of all colors and genders around the world: the Chairman of Intel, the dictator of Malaysia, sweatshop owners, currency speculators and Silicon Valley magnates. And everyone in business class agrees that this brave new prosperity will at first require some sacrifices. Friedman announces who should do the sacrificing:

Europe can no longer sustain its 35-hour workweeks and lavish welfare states because of the rising competition from low-wage, high-aspiration China, as well as from In­dia and Eastern Europe.

And thus, Friedman concludes, China will snuff the torch of "European socialism." It's simple arithmetic, according to Friedman. Europeans can't "preserve a 35-hour workweek in a world where In­dian engineers are ready to "work a 35-hour day."

What he need not add is that if a 35-hour week is a frivolous lux­ury for the French, then the 40-hour week in U.S. law is hardly less extravagant. Luckily for us, it too will soon go. (See "The Grinch That Stole Overtime" in Chapter 5.)

Just as Europe's 35-hour week cannot survive global competi­tion, and America's 40-hour week cannot survive, neither can India maintain a 50-hour week. The very month that Friedman's The World Is Flat hit the bestseller list, India's government lifted the limit on the workweek in textile sweatshops from 50 hours a week to 60. After all, Indians too have to compete against China. China's workweek? The clothes in Wal-Mart with the chilling label "New Order" are manufac­tured by the People's Liberation Army. What are the work hours of Chinese conscripts? If you know what's good for you, you won't ask.

Someone who did ask was Harry Wu, the only man I've ever met who broke into a prison. Born in China, jailed there, then exiled to America, Wu returned to his homeland and snuck into his former jail compound to document the brutal work conditions in China's prison factories, the world's largest pool of enslaved labor for hire. Wal-Mart, by the way, prohibits its Chinese suppliers from using shackled labor. However, the retailer can't inspect prisons and there­fore, notes Wu, can't possibly know where all its goods come from. Little matter, all of China is a prison economy. Any Chinese citizen who challenges, as Wu did, working conditions have "high aspira­tions" beaten into them.

Like Thomas Friedman, I've also flown to Bangalore, admittedly not business class. And to tell the truth, I didn't even know there was a golf course there. Most Indians don't know that either. But that's nitpicking, I suppose. Friedman is correct in that I also found Indians willing to work a 35-hour day. And he could have added that, in Karnataka State, which includes Bangalore, Indian families are ready to sell their children as "temple dancers"—sex slaves—just to survive.

Friedman praises the New India, deregulated, privatized and freed of the shackles of Old India's socialist welfare state. I've seen the New India: Nearly a billion people in shacks supporting a teeny minority's right to shop in air-conditioned malls. It is a Fritz Lang film in Hindi. Just look at the numbers. India's productivity has exploded, tripling in two decades to the world's fourth largest in purchasing power. But not many Indians are doing the purchasing. The average Indian can't even manage eighteen holes on the weekend—79.9% of the population still makes under $2 a day. India's government could have addressed this imbalance with a progressive income tax. But that's so New Deal, so Round World. Rather, to the applause of the In­ternational Monetary Fund, India's free-market-mad central govern­ment figured out how to make the unequal distribution of wealth even less equal. The government now taxes those wages of $2 a day through a regressive sales tax, the VAT ("value-added tax").

The new "flat earthers" might say the two-bucks-a-day wage is a vestige of the Old India, of rural villages with oxen-plowed fields. What about the New India, the new manufacturing colossus that lifted India's gross domestic output by 48% per worker in just six years (1997-2003). In that same six years, wages in this modernized manufacturing sector went from 25 cents an hour to ... 23 cents. Who got the gap? That is, who pocketed the value of the extra out­put, which, obviously, didn't go into wages? One hundred percent of the value of the new manufacturing output went to India's richest one percent, the new pashas of sub-continental industry, who've dou­bled their slice of the nation's income over the past decade.

The avalanche of publicity about America's I.T. outsourcing to In­dia features images of futuristic uplink satellite dishes shuttling code to Seattle. But the high tech sector employs barely one million Indi­ans, about one-third of one percent of the workforce. Indian's Blakean Dark Satanic textile mills employ 38 million.

Doubtless, a new "middle" class of technocrats has profited. Yet, many of India's educated now find themselves, just like programmers in Palo Alto, in a murderous intercontinental competition to cut their wages in hopes of buying themselves a job in the new digital sweat­shops.

As it is in India, so it is in China, parts of South America and most of Europe.

The world may be "flat," Mr. Friedman, but it is tilted. India's wealth, Europe's wealth, China's wealth, the entire planet's wealth, with precious few exceptions, is flowing from those who have a little to those who have a lot. Here are the stats:

•  Since the fall of The Wall, Russia, formerly of the Soviet Union, has gone from zero billionaires to 36. What's wrong with that? Answer: There's no such thing as a free lunch—or a free billionaire. The transfer of wealth was paid for by demolition of the health care sys­tem. Spending on medicine and hospital care fell by two-thirds af­ter  the  Soviet  Union became  Russia,  and,  according  to  the International Union for the Scientific Study of Population (Paris), "about half the [remaining] money spent on health care benefits an elite medical network that serves only the best connected 1%" of Russia's population. As a result, according to the Center for Dis­ease Control in Atlanta, Russian life expectancy has fallen by 4 years. Unless you're an oligarch, you die young. Now that's pen­sion reform.

•  Poland, following free-market Pied Pipers after the implosion of the Soviet Union, had, by 2005, successfully unemployed 18% of its workforce. That's the official number, which would have been higher, except that herds of Poland's skilled workers have been sent to rove Western Europe. The desperate droves of Polish work­ers were used as a tool for bending Germany's workforce into sub­mission. From 1995 to 2003, the average German's pay was cut 4.7%.

• China, Mr. Friedman's heartthrob, is, he tells us, our future. How looks it out there in The Future? In a single year, 2005, China's richest forty businessmen saw their net worth rise by 44% to $26 billion. That's in U.S. dollars—obtained from U.S. pockets. And they aren't sharing. Employees in their new entrepreneurial private companies earn an average 8,033 yuan ($994) a year. Those work­ers stuck in the "past"—the old state enterprises—earn nearly twice as much: 14,577 yuan ($1,803) a year. The pay cut has slid into the pockets of "entrepreneurs," the new factory owners, who take home twenty-five times their average worker's pay.

Regulatory success

The new Mr. Beale describes the latest fashion craze:

The golden straight jacket is the defining political eco­nomic garment of globalization . . . tailored by Margaret Thatcher. Ronald Reagan sewed on the buttons.

And what does one have to do to shimmy into this attractive mad­house couture? Deregulate industry, drop trade barriers, free curren­cies, cut government spending, de-unionize, cut pensions, welfare and subsidies, and make government whimper at the feet of the en­trepreneurial gods and obey them.

But there's resistance. Not all the inmates want to be buckled into the latest design, and Friedman/Beale just can't stand it:  This is a bad time for France and friends to lose their ap­petite for hard work.

The Danes in particular have made sloth a policy. Blithely unaware that Indians are working 35 hours a day, the Danes average 22 hours

a week. Partly that's the result of the "laziness" written into law: em­ployers must provide a minimum of five weeks paid vacation. The of­ficial week is 37 hours, but non-vacation weeks average 28. Worse, there's paid maternity leave! The Danish minimum wage is $10 and health care is free. By Beale/Friedman economics, Danes should be falling off the edge of the flat world. But look at this: Danes earned an average $26 an hour in 2001, a solid 61% more than Americans. By 2006, the difference became even more embarrassing. And with a workforce 80% unionized, the nation is regulated to a fare-thee-well. Yet they do fare quite well.

Norwegians do even better than their Danish brothers. The work­force is wealthier, the wealthiest in the world. You could say that's be­cause Norway has oil. But so does Russia, so does Nigeria, and so, for that matter, does the USA. But whose oil is it? In Norway, it's the Nor­wegians'—that is, the oil company is state-owned and its profits shared.  One has to ask why the Thomas Friedmans and Milton Friedmans want us to follow the goose-stepping example of Pinochet's Chile or the Darwinian horror show of China as economic guiding lights. Why imitate India and Poland, where more and more is produced by those making less and less, when far more successful examples shine under the midnight sun?

How did the Scandinavians get so rich? Norway and Denmark are, with Sweden, the least economically polarized nations on the planet: Almost no one's very rich and almost no one poor. The official inter­national standard of economic inequality is called a "GINI" index. The Scandinavians are all at a low (i.e., very equal) 25. India is 33 and China a feudal 45. The USA lies uncomfortably close to China at 41.

The Organisation for Economic Co-operation and Development, OECD, which gathers these statistics, explains that Scandinavia's low hours and lots of rules produce big paychecks. In these nations, em­ployers are forced to make their profits by investing more per worker to hike productivity. This is the opposite of the Chinese/Indian/Rea-ganized American model of making profits by cutting wages.

No wonder Scandinavians are in no mood to slip on Ronald Reagan's straightjacket. Other Western Europeans, from France to Holland, not so far behind Scandinavia, are also resisting.

Here's the problem for the owning class of this planet. The lack­adaisical Danes and Swedes have the highest pay, best health care, longest vacations, and safest pensions anywhere on earth, and the French, Luxemburgians and other Europeans were, for decades, not far behind. How do you persuade the well-cared-for Europeans to give it all up?

Answer: Grab them by their currencies.

THE EURO DOLLAR, THE WEDGE THAT SPLLITS THE LOG OF WORKERS BENEFITS

One vast and immense, interwoven, interacting, multi-variate, multinational dominion of dollars! Petro-dollars. Electro-dollars. Multi-dollars, Mr. Beale.

"Multi-dollars"?

In 1999, Europe first adopted the "euro"—the multinational cur­rency designed, as the movie Network predicted, to replace national coins: German deutsch marks, French francs, Spanish pesetas, Dan­ish krone and the rest.

But the euro wasn't invented in Europe—it was created in the good old USA, in New York, by Robert Mundell.* Mundell, called the God­father of the Euro, won a Nobel Prize for it.

Who is this Mundell? The “golden straightjacket” is Thomas Friedman’s madhouse fashion metaphor for “Reaganomics,” the free-market, free-trade, government-free, dog-eat-dog economic free-for-all that also goes under the alias “supply-side economics.” The inventor of Reaganomics, Thatcher-nomics and “supply-side” eco­nomics? Robert Mundell.

“Ronald Reagan would not have been elected President without Mundell’s influence,” wrote The Wall Street Journal’s Jude Wanniski. Mundell was the guy whose brain stayed awake flattening the world while Reagan napped.

In the eighties, excepting Margaret Thatcher’s Britain, Western Eu­ropeans saw no reason to make a mad dash to deregulate their economies. And this drove Mundell just crazy. It started with his toi­let, Mundell told me. In a long chat we had in 2000, he told me about the travails of owning a castle in Tuscany. (Like many “flat world” supply-side economists, Mundell created prosperity—for himself.)

“They won’t even let me have a toilet!” he said, which seemed like a mighty uncomfortable and unfair rule. His problem was that, to pre­serve the ancient structure, local officials wouldn’t let him simply rip out a couple of walls to ‘put in a tub and water closet. He concluded, “Europe is over-regulated.” And he was going to do something about it.

He had other complaints. “It’s very hard to fire workers in Europe,” he said.

To solve the problems of putting toilets where you want them and firing workers when you don’t want them, and in sum, to rip down the entire structure of employee protections enjoyed on the continent (minimum wage, lazy workweeks and all), he invented the euro. The euro is designed to be the battering ram to break down the entire ed­ifice of worker protection rules and taxes on businesses that support the welfare state. The euro and free-market economics are as insepa­rable as flies and feces.

The Godfather of the Euro explained how it will work: “Monetary discipline forces fiscal discipline on the politicians as well.” What he means is that every Euro nation must adhere to strict limits on bor­rowing (no more than 60% of GDP) and on deficits (no more than 3% of the government budgets). Furthermore, nations will no longer have their own central banks printing money. That’s all quite extraor­dinary, really. No congress of a European nation may call on the key tools used to pull a nation out of a recession (increased government spending to create jobs, lowering interest rates to boost investment, printing more money to create demand through more liquidity).

National parliaments are castrated—their powers to affect their na­tion’s economic destinies cut off. Isn’t that a bit, uh, un-democratic? Forget it: There is no democracy, Mr. Beale.

If a nation can’t control its own interest rates, borrowing, or money supply, how can it keep up employment? Answer: by stealing the jobs from their Euro neighbors, luring industry away by cutting out rules and slashing business taxes. Mundell foresees a Europe unburdened of unemployment compensation, minimum wages, chemical safety regulations and government medical insurance. Out they will go, as well as rules barring the landlord class from Euronating wherever the hell they like.

The Little Red Book of Chairman Rob

Denmark resisted the trend. It voted down the euro and held fast to its krone coins and its chill workweek. But for how long? The new Mr. Beale of the Flat World is warning them:

I believe history will record that it was Chinese capitalism that ended European socialism.

Now we’re getting to the real point of the New Order. The shorter workweeks, unemployment insurance, all that stuff that the French call “Le New Deal”—it’s all got to go, Pierre.

Friedman’s language is a bit odd, no? He defines “socialist” states as those with workweek limits, unemployment compensation and union work rules. The “capitalist” state, China, is the one where the state owns and controls what Marx, Lenin and Mao called, “the means of production.” I’m sorry, you can call China a chicken but that won’t fly. If China is now a capitalist free-market state, then I’m Paris Hilton.

The truth is that China’s economy soared because it stubbornly re­fused the Friedman free-market mumbo-jumbo that government should stop owning, regulating and controlling industry. Its new ine­quality is not the engine of its success but the measure of the power of a thin elite that is sopping up the productivity gains.

China isn’t buying Free Markets Uber Alles. Its markets are no freer than its press. The truth is that regulation and state control are its economic locomotives. For example, China’s announcement that it would “revalue” the yuan covered over a more important notice that China would henceforth bar foreign ownership of its steel sector. Chin has built a powerhouse steel industry larger than America’s or Europe’ by directing the funding, output, location and ownership of all factories. And rather than freeing industry through opening its borders to foreign competition, the Chinese, for steel and every other product have shut out in-bound trade except as it suits China’s own needs.

China won’t join NAFTA or CAFTA or any of those free-trade clubs, and joined the WTO only on the sotto voce condition it could ignore all of the rules. In China, Chinese industry comes first. And it still the People’s republic, where the state and army own an unknown number of Wal-Mart’s 4,800 suppliers. In an interview just before he won the Nobel Prize in economics, Joseph Stiglitz explained to me the China’s huge financial surge of 9.5% per year began with the government’s funding and nurturing rural cooperatives while protecting fledgling industry behind high, high trade barriers.

It is true that China’s growth also got a boost from ending the blood-soaked self-flagellating madness of Mao’s Cultural Revolution And China, when it chooses, makes use of markets and market pricing to distribute resources efficiently. However, Chinese markets are as free as my kids: They can do whatever they want unless I say the can’t.

Yes, China is adopting select elements of “capitalism.” That’s the ugly part. Chinese capitalism appears to be limited to real estate speculation in Shanghai, making millionaires of Communist party boss’ relatives and to bank shenanigans worthy of a Neil Bush. But it is n< the Shanghai skyscraper bubble that is allowing China to sell us $2C billion more goods a year than we sell them. By rejecting free-market fundamentalism, China’s government can easily conquer America ^markets where protection is now deemed assé.

Am I praising China? Forget it. China is Stalinist in governance capitalist in sales pitches and feudalist in the division of wealth and power. This is one rank dictatorship that brutalizes, terrorizes and tortures. All must kowtow to the wishes of Chairman Rob—Wal-Mart chief Robson Walton.

Can this planet imitate Chinese success without Chinese autoc­racy? Yes, there is another way. I found it in an India not visible from Bangalore’s golf courses.

In 1995, I dropped in on a fishing village in Kerala,* a jarring but stunning day-long railway journey from Bangalore. Most of the vil­lage’s fishermen worked from motorless dug-out log boats. Their lan­guage is Malayalam, but a large banner slung between two coconut trees announced in English, “WordPerfect applications class today.” After they brought in the catch, the locals practiced programming on cardboard replicas of keyboards.

What made all this possible was not capitalist competitive driv_e (there was no corporate “entrepreneur” in sight), but the state’s in­vestment in universal education and the village’s commitment to de­veloping opportunities, not for a lucky few, but for the entire community. The village was 100% literate, 100% unionized, and 100% committed to sharing resources through a sophisticated credit union finance system.

This was the community welfare state at its best. Microsoft did not build the schools for programmers—the corporation only harvested what the socialist communities sowed.

The economist Amartya Sen won the Nobel Prize in 1998 for pre­dicting that Southern India, with its strong social welfare state, would lead the economic advance of South Asia—and do so without the Thatcherite sleight of hand of pretending that riches for the few equates to progress for the many.

* Robert Mundell, (1932, Canada), economics professor at Columbia University, Mundell is best known for both his support of supply side economics and his papers on international exchange rates.  These papers influenced the development of the Euro.  After wining the Nobel Prize in 1999, he has made several appearances on television. 

*   Kerala is an independent state in Southwest coastal India with a GDP of 12,000 Rupees, and a social service structure similar to the Scandinavian countries. 

California Skeptics has gathered a set of articles. On globalization.

BLOG—jk

FUNDAMENTAL MYTHS PERPATRATED BY BIG BUSINESS

1.      That free trade will bring increased prosperity to the developed world.

2.      That free trade will on an average bring increased prosperity to the underdeveloped world (as compared to a more regulated road with conscientious government regulations)

3.      That unions make for a sluggish economy, higher prices, and an inability to compete with foreign goods--thus the need for a protective tariffs.

Skeptics ought to be cautious of conspiracy theories.  Often they are far-fetched—such as Francis Bacon writing Shakespeare and that the Negroes developed a high culture, which included being the pharaohs of Egypt.  Others like someone besides Lee Harvey Oswald assassinating Kennedy are plausible on the face of it.  Still others have overwhelming evidence in their support.  One which we subscribe to is that the banking community and big business have an agenda of globalization.   These consequences are much different than what their media portrays.