News Release

Claims for Privatizing Social Security Called


WASHINGTON — While a prominent think tank claimed Monday that privatizing Social Security would help American women, a past president of the American Economic Association called the conclusions “preposterous.” Robert Eisner said the plan would actually harm women and severely damage Social Security as a system of social insurance.

The Cato Institute — whose major contributors include American Express, the Chase Manhattan Bank, Citicorp, Fidelity Investments and other private firms — asserted that women would be better off under a system of privately owned retirement accounts. But a number of specialists quickly disputed the claim and said that privatization would undermine Social Security as a dependable source of economic security.

Among those available for interviews are:

Eisner, a former president of the American Economic Association, responded to the Cato Institute’s call for Social Security privatization Monday. “The conclusions strike me as preposterous,” Eisner said. “In the first place, they quite ignore the fact that current Social Security is a system of social insurance which insures that people get a minimum benefit that hopefully keeps many out of poverty. It is set up so that those at the bottom get in retirement a much larger proportion of their earnings while they were working than those at the top.”

But, Eisner said, “if you have private investment, those who are earning a lot and investing a lot will get much more and those who have little to invest will get much less. And women actually earn much less, on the average — so, to begin with, since they’re investing much less, they’ll get much less.”

In addition, Eisner said, “when you invest privately, all you get at some point is a lump sum. Then you have the problem of getting an annuity that will last you the rest of your life. The private companies don’t give you actuarially fair annuities. And in a private system, you don’t get an automatic cost-of-living adjustment, which Social Security automatically provides.”

“It is hard to imagine that any but the highest-paid women workers could benefit at all from fully or partially privatized Social Security,” said Mink, author of the 1998 book Welfare’s End and a professor of politics at the University of California at Santa Cruz. “Most women are not highly paid; in fact, women’s incomes are disproportionately low. If Social Security were partially privatized, its funding base would be depleted. This would eliminate `security’ in Social Security and leave low- income workers who must depend on public benefits extremely vulnerable in retirement.”

Mink added: “Fully privatized Social Security might be a boondoggle for brokerages and investment counselors, but it will leave low-income workers in an even more precarious position — preyed upon by bad investment tips and unprotected against the vagaries of the stock market. Social Security is supposed to provide a safety net for the elderly, not an opportunity for the rich to get richer and the poor to have even less to fall back on. While there are gender inequities in the benefits structure of Social Security, it nevertheless provides important basic guarantees for women. We should improve Social Security, not destroy it.”

A scholar whose books include Regulating the Poor and The Politics of Turmoil, Piven responded to Monday’s pronouncements by Cato this way: “‘Data’ is being thrown in our eyes like sand. A study that looks only at a boom period in the financial markets doesn’t tell us what happens to privatized pensions when the markets go down. It also ignores the huge transition costs entailed by diverting money into private plans, or the costs of providing retirement security to at-risk groups like the disabled.”

Piven, who is Distinguished Professor of Political Science and Sociology at the Graduate School and University Center of the City University of New York, added: “In fact, the Social Security program is an example of successful — and popular — government, and conservatives are determined to demolish it. Cato is no doubt inspired by the crazed conviction that markets should control everything. Perhaps it is also influenced by the exciting prospect that Wall Street could soon be raking in the profits yielded by millions and millions of private pension accounts?”

Zuckerman, director of research and policy analysis for the Institute for Women’s Policy Research, said: “Virtually all of the privatization proposals that are under consideration include cuts in benefits that would pay for the costs of changing to a privatized system. Those cuts tend to be disproportionately harmful for women retirees…. By correctly describing the reasons that women are more dependent on Social Security, and then painting rosy forecasts that are apparently totally removed from the fiscal realities of policy making, the Cato reports do a tremendous disservice to women retirees.”

For more information, contact: Theresa Caldwell or Sam Husseini at the Institute for Public Accuracy, (202) 347-0020.