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[This essay is excerpted from CounterPunch’s hot new book, Dime’s Worth of Difference.]

Had it not been for Monica’s captivating smile and first inviting snap of that famous thong, President Bill Clinton would have consummated the politics of triangulation, heeding the counsel of a secret White House team and deputy treasury secretary Larry Summers. Late in 1998 or in the State of the Union message of 1999 a solemn Clinton would have told Congress and the nation that, just like welfare, Social Security was near-broke, had to be “reformed” and its immense pool of capital tendered in part to the mutual funds industry. The itinerary mapped out for Clinton by the Democratic Leadership Committee would have been complete.

It was a desperately close run thing. On the account of members of Clinton’s secret White House team, mandated to map out the privatization path for Social Security, they had got as far down the road as fine-tuning the account numbers for Social Security accounts now released to the captious mercies of Wall Street. But in 1998 the Lewinsky scandal burst upon the President, and as the months sped by and impeachment swelled from a remote specter to a looming reality, Clinton’s polls told him that his only hope was to nourish the widespread popular dislike for the hoity-toity elites intoning Clinton’s death warrant.

In an instant Clinton spun on the dime and became Social Security’s mighty champion, coining the slogan “Save Social Security First”.

Let us now reconstruct the plot in greater detail.

In the mid-1990s pessimism about the future of Social Security was rife in seminars, conferences, op-eds and learned papers by which elite consensus is fashioned. The media lent an eager ear to charlatanry from outfits like the Third Millennium, which ventriloquized a supposed consensus amongst youth that the program would not be there for them when they came to retire ­ and that consequently their best bet was to take their FICA payments and put them in a private share account in soar-away Wall Street. Third Millennium released artfully contrived polls claiming to show that, for example, more young Americans believed in UFOs than in the future of Social Security. In fact the poll had no question linking the two propositions but this didn’t stop lazy columnists and editorialists from picking it up and kindred ‘findings’ such as that General Hospital would outlast the program or that a bet on the Super Bowl was a more rational use of money.

Third Millennium was, of course, a front for the privatization lobby. But it did tap into a vein of public anxiety and skepticism concerning Social Security finances and, with the stock market soaring upward, its Wall Street connections were an asset not a liability. Whatever the exaggerations of the privatizers, the claim that an aging society would have to meet rising costs was not in itself wrong. The idea that “something must be done” was widespread and many expected that Clinton would follow up his capitulation to Republicans on welfare with a deal on Social Security. But he didn’t, thanks to the zaftig young woman in a blue dress who caught his eye in 1995.

We have this on the authority of high-ranking members of the Clinton Treasury who gathered in Harvard in the summer of 2001 to mull over the lessons of the 1990s. At that conclave it was revealed that on Clinton’s orders a top secret White House working party had been established to study in detail the basis for a bipartisan policy on Social Security that would splice individual accounts into the program. Such was the delicacy of this exercise that meetings of the group were flagged under the innocent rubric “Special Issues” on the White House agenda.

What was in fact being prepared for the President was precisely that second dose of welfare reform, this time targeted on the very citadel of the New Deal, the Social Security program Roosevelt himself established.

The “Special Issues” secret team was set up by then-Deputy Treasury Secretary Larry Summers (later elevated to Treasury Secretary and now President of Harvard) and Gene Sperling, the head of the Council of Economic Advisers. The Deputy Treasury Secretary’s fondness for schemes to privatize Social Security comes as no surprise. As Chief Economist of the World Bank in the early 1990s Summers had commissioned a notorious report, “Averting the Old Age Crisis”, that argued that Merrill Lynch and Fidelity would be better at pension provision than any government. In fact governments should offer only a safety net and farm out their power to tax payrolls to private financial concerns, which would run mandatory funded pensions on the Chilean model. The task of the Special Issues group was to find an installment of privatization that could reconcile realistic Republicans and Democrats, and be sold as still honoring most existing entitlements.

Participants at the Harvard conference conceded that severe technical problems beset efforts to introduce commercial practices. The existing program has low administration costs whereas running tens of millions of small investment accounts would be expensive. The secret White House team sought to finesse the problem by pooling individual funds and stripping down the element of choice or customer service. But Summers was unhappy: as one Team member now recalls it, “Deputy Secretary Summers was fond of saying that we had to guard against the risk of setting up the Post Office when people were used to dealing with Federal Express”. And pooled funds were also to be avoided because they would risk government control of business.

Some members of the team also worried that allowing employees the option of setting up their own accounts would soon turn into a “slippery slope”, since the defection of the richest five or ten per cent of employees would soon undermine the program’s ability to honor its commitments to existing retirees.

Nevertheless, under Summers’ guidance, the secret team pushed forward. There were high hopes that the President would embrace what had by now had become a detailed blueprint: “The working group’s estimates were at the level of detail that it was determined how many digits an ID number would have to be for each fund and how many key strokes would therefore be required to enter all of the ID numbers each year.”

Clinton was kept up to date with briefings every few weeks and in July 1998 attended one of the “Special Issues” meetings himself. But in that same month he was served with a grand jury subpoena. A month later he finally acknowledged a sexual relationship with Monica.

By the end of 1998 the secret team concluded with heavy hearts that the escalating Lewinsky affair might well doom all their efforts. The President was desirous to be seen doing something dramatic for Social Security, but not anything risky. It could be controversial, but controversial in the direction of doing more for the program, not endangering it. As one team member put it this summer in the Harvard conclave: “Toward the end of 1998, as the possibility that the President would be impeached came clearly into view, the policy dynamic of the Social Security debate changed dramatically and it became clear to the White House that this was not the time to take risks on the scale that would be necessary to achieve a deal on an issue as contentious as Social Security reform.”

Clinton was so desperate for an approach that would prove popular that he was even prepared to disappoint Wall Street. “The President decided to follow a strategy of trying to unite the Democrats around a plan that would strengthen Social Security by transferring budget surpluses to Social Security and investing a portion in equities.”

In his 1999 State of the Union address Clinton seized the initiative from the privatizers with a bold new plan that gave substance to the “Save Social Security First” slogan. He proposed that 62 per cent of the budget surplus should be used to build up the Social Security trust fund. He promised to veto any attempt to divert Social Security funds to other uses, and he urged that 15 per cent of the trust fund should be invested in the stock market, not by individuals but by the Social Security Administration.

Part of the cunning of this approach was that it stole a Republican theme. While rejecting individualization it insisted that Social Security funds should not be spent on other programs or on tax cuts. Republicans had urged that Social Security taxes be placed in a “lock box” and soon Clinton himself was using the term. Not content with this Clinton also offered public subsidies to Universal Savings Accounts that would be set up outside Social Security and not at its expense. This was a residue of the commercializing approach but it won few plaudits from the privatizers as it was a voluntary add-on to a strengthened public program.

Federal Reserve chairman Alan Greenspan was willing to see the budget surplus pledged to Social Security but he denounced the plan to invest the trust fund in equities on the grounds that it would lead to government interference in business. A writer in the New York Times, January 25, 1999, warned that if the trust fund was allowed to invest in stocks and shares it would be impossible to prevent the politicization of investment: “The danger is that Congress will meddle, for example, steering funds into environmentally-friendly companies rather than, say, tobacco companies.”

The next day Milton Friedman contributed an excited piece to the Wall Street Journal warning that Clinton was embarked on a different type of slippery slope to that pondered by his secret team: “I have often speculated that an ingenious way for a socialist to achieve his objective would be to persuade Congress, in the name of fiscal responsibility, to (1) fully fund obligations under Social Security and (2) invest the accumulated reserves in the capital market by purchasing equity interests in domestic corporations.” Clinton had promised that the trust fund would be insulated from political pressure and that only 15 per cent of the trust fund would be invested, but Friedman was not at all convinced.

Clinton was also attacked for “double counting” when he pledged the budget surplus for Social Security. But accounts at the Harvard conference make clear that this concerned the pledge about the surplus aimed at separating the trust fund from the rest of the Federal budget. The proposal to allow the trust to hold a range of assets, not simply Treasury IOUs, would not only give Social Security real assets but would also create a powerful new lever on economic policy, something that Greenspan was jealously aware of.

Despite such attacks the Clinton plan as a whole went down very well with the American people. Republicans were swiftly moved to insist that they too would give priority to Social Security. Pessimism about the future of the program was replaced by a growing consensus that the program must be ­ and could be ­ saved. All that was needed was the will and a determination not to squander the trust fund.

Under the lash of the Lewinsky crisis, a President had issued a full-throated endorsement of the Social Security system. It was a terrible blow to a spectrum of opinion that stretched from the Cato Institute and Third Millennium to many New Democrats, including Senator Joseph Lieberman, who has proclaimed the need for individual accounts in the name of “choice”. In his presidential campaign Al Gore, we should note, publicly opposed the idea of the Social Security trust find holding a range of assets.

Even the Republic leadership sheepishly rallied to the notion that the surplus on the Social Security fund should be spent on nothing else. Just four days before the election Governor Bush told a crowd in Saginaw, Michigan, that protecting the Social Security trust fund was going to be one of his top priorities. The employee’s Social Security taxes, he promised, were “only going to be spent on one thing ­ what they’re meant for ­ Social Security. We’re not going to let Congress touch them for any other reason.” Less than a year later the Congressional Budget Office forecast that the administration would need $9 billion from the Social Security Trust Fund to balance its budget and much more next, even as Bush reassured Democratic Senate Majority leader Tom Daschle that he wouldn’t raid the famous Social Security lock-box.

Bush’s predicament over the trust fund was the more edgy because he wanted to introduce individual accounts into Social Security and has set up his own Commission to work out the best way to deliver this taste of privatization. The Bush White House web site featured an explanation of the promised “reform” which fulsomely insisted that all Social Security must be respected and that the private accounts would not be allowed to jeopardize them in any way.

The Democrats can blame the President for creating the budget problem by an unwise tax cut. If they had the guts the Democrats could have found a strategy for economic recovery by revisiting the Social Security debate of the late nineties, when Clinton not only coined the slogan now giving grief to his successor ­ ‘Save Social Security First’ ­ but also boldly proposed separating the trust fund from the Federal budget, allowing the trustees to pursue an investment strategy of its own.

The logic of Social Security was once memorably explained and defended by Larry Summers’ brilliant uncle, the Nobel laureate Paul Samuelson. Compulsory social arrangements of this sort were, he explained, a necessary defense against greedy and short-sighted “free riders”; “if all but one obey, the one may gain selfish advantage by disobeying – which is where the sheriff comes in: we politically invoke force on ourselves. Once social coercion or contracting is admitted into the picture the problem (of free riders) disappears.” Samuelson was impelled to show that individualism needs collectivism: “That the Protestant ethic should have been instrumental in creating individualistic capitalism one may accept: but that it should stop there is not necessarily plausible. What made Jeremy Bentham a Benthamite in 1800, one suspects, might in 1900 have made him a Fabian (and do we not see a lot in common in the personalities of James Mill and Friedrich Engels?) Let mankind enter into a Hobbes-Rousseau social contract in which the young are assured of their retirement subsistence if they will today support the aged, such assurance to be guaranteed by a draft on the yet unborn.” (This passage is to be found in Samuelson’s paper, “An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money”, Journal of Political Economy, December 1958.)

But by 1998 Samuelson’s nephew, Larry Summers, was busy undermining the social contract between the generations and, as we have seen, it took young Lewinsky to give it extra breathing space. In the process the Clinton White House, mired in scandal as it was, found itself exploring ideas of collective funding that went beyond the pay-as-you-go principles that Samuelson enunciated. If generations are of unequal size, and if the aging of the population gives rise to increased retirement or medical costs, then it becomes wise to introduce an element of pre-funding. Clinton and Gore eventually settled on a strategy of using such a fund to pay down the public debt and invoking the “lock box”. But the papers at that Harvard conference showed that sooner or later pre-funding could not be confined to paying down the public debt, partly because surpluses might swallow it up in a few years and partly because it might not be feasible or advisable to do so.

The Harvard papers were not the only evidence of new thinking on Social Security in the wake of the impeachment crisis. In another part of the Clinton White House an aide called Peter Orszag was working with Joseph Stiglitz, then Chief Economist at the World Bank, on a paper entitled “Rethinking Pension Reform: Ten Myths about Social Security Systems”. This constituted a powerful critique of the earlier World Bank report commissioned by Summers. The paper, originally delivered in September 1999, was later published in a book edited by Robert Holzman and Stiglitz, entitled New Ideas About Old Age Security. Its whole thrust is to defend public provision and to explore forms of pre-funding that would assist this. Indeed the paper, several of whose points are born out by the difficulties encountered by Clinton’s secret team, now give the opponents of privatization a potent weapon.

The collapse of the markets at the end of the Nineties bubble also meant that Bush and his Commission had a much harder task ahead of them, before the focus of terrorism changed the whole focus of Bush’s agenda. Flawed as it is, the case for privatization was superficially appealing during the heady days of the late-1990s bull market. Indeed its defeat at that time could turn out to have been decisive. On the other hand the economic downturn makes more relevant than ever the other prong of the original Clinton strategy, namely the idea that the Trust Fund should acquire its own assets. In a recession-hit economy these could include public bonds linked to investment in education or urban renewal, or they could involve injecting funds into sectors downcast by post-bubble blues. This would, it is true, be to go further than Clinton ever suggested ­ but it would be fully in the spirit of many left proponents of the original trust fund when it was added to the program in 1939 and it would be very well received by many sections of organized labor, such as the folks at the Heartland Alliance.

In his famous tract “What is History?” E.H. Carr debated the influence on history exercised by Cleopatra’s nose. Future historians of Social Security will be able to intersperse their explanation of the intricacies of COLAS, bend points and IPEs with at least a paragraph on the political and intellectual consequences of Monica’s beguiling smile. She saved the day.

ROBIN BLACKBURN, a frequent contributor to CounterPunch, is the former editor of The New Left Review and author of the excellent history of the slave trade, The Making of New World Slavery and the new book from Verso Banking on Death: the Future of Pensions.