The Maestro of Fraud

Bob Woodward called his biography of Alan Greenspan “Maestro” because the Federal Reserve chief is “a conductor, exquisitely attuned to every instrument in the political and economic orchestra,” according to the amazon.com review. But after Greenspan testified before Congress Feb. 25, proposing to cut Social Security benefits, Paul Krugman in the New York Times called him the “Maestro of Chutzpah.” (Chutzpah is Yiddish for “a lot of nerve.”)

I would be more blunt. Alan Greenspan is the maestro of fraud. Here’s why.

Social Security was always a pay-as-you go system. People working today pay, through their Social Security taxes, for the benefits of retired and disabled workers. In a larger sense, it was a social contract – active workers will collectively support their retired parents, with the security of knowing that the next generation will support them. This system started in the 1930s and worked well for almost 50 years.

In the 1980s, when President Reagan was leading the attack on workers’ living standards, the now-familiar problem of the baby boomers came up. The story told was, “when all the kids born in the 15 years after World War II retire, it will be impossible for the handful of workers still below retirement age to pay for the boomers’ benefits.”

In 1982, a bipartisan commission was appointed, which changed the way Social Security is financed. Payroll taxes were increased so that, in addition to paying for existing beneficiaries, money would be set aside to pay for the baby boomers’ retirement.

As a result, tax rates for workers went up, and the extra cash was used to fund tax cuts for the very rich and the largest corporations. New York Times reporter David Cay Johnston, one of the country’s best tax analysts, said that “people making $30,000 to $500,000 a year subsidize people who make millions of dollars.”

How much extra are we paying? Of every three dollars deducted from your paycheck for the Social Security tax, two dollars go to pay benefits. With the other dollar, the Social Security Trust Fund buys government bonds, which are supposed to be repaid by the government to finance future retirement benefits.

Greenspan’s testimony this February was his open declaration that he and Wall Street are prepared to go back on the deal. The working class has been, in effect, lending money to the wealthy for the last 21 years, and the wealthy don’t want to return it. Greenspan has advocated that the U.S. government repudiate part of its debt – the part owed to retiring workers.

Since the United States was founded over 200 years ago, a basic principle has always been that the U.S. government will pay its debts. Normally, if the government’s most powerful economist declared that the U.S. will not pay what it owes, it would shake financial markets from New York to Paris to Tokyo. It is only when the debt is owed to the working class that Greenspan thinks it’s okay to be a deadbeat, and Wall Street cheers.

Where does the fraud come in? The 1982 commission was headed by a prominent Republican economist from the Nixon and Ford administrations – none other than Alan Greenspan. The maestro himself was the author of the deal he now plans to tear up. When he calls for robbing future retirees of their benefits, Greenspan is admitting that he was the chief conspirator in a fraudulent scheme to bilk the working class out of trillions of dollars.

In his testimony, Greenspan openly said that cuts in Social Security, Medicare and all federal funding programs should be first on the chopping block to pay for the Bush tax cuts, which go mainly to the wealthy. President Bush not only refused to repudiate Greenspan’s remarks, but has campaigned for privatizing Social Security. If Bush is re-elected, our retirement security will be in grave danger.

The author can be reached at economics@cpusa.org.