Economic Update: Social Security, Ohio Derailment, Puerto Rican Poverty - US Capitalism Provokes

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In this week’s show, Prof. Wolff focuses on the struggle over Social Security- real versus false alternatives- and the East Palestine, Ohio, derailment tragedy. In the second half of the show, Wolff interviews Alexis Colón about the colonial status of Puerto Rico and Puerto Ricans fighting against it.


00:00 - 01:01 - Intro
01:02 - 10:06 - Social Security
10:07 - 14:33 - Ohio Train Derailment
14:34 - 15:45 - Announcements
14:46 - 29:50 - Interview with Alexis Colón

Transcript has been edited for clarity

Welcome friends to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives and those of our children. I'm your host Richard Wolff. Today we're going to have two segments, one on the Social Security system and the mess that it's in and the second one on that train derailment in East Palestine, Ohio, which demands much more analysis than it's gotten. Then we’ll turn to the way the United States deals with its colony in Puerto Rico. We have a graduate of the University of Puerto Rico here to discuss with us what all that means.

So let's get to it. The Social Security system is like a window on to US capitalism and it's a window we should look through because it'll teach us a lot about how this system works. You may have noticed that President Biden in his State of the Union message accused Republicans of wanting to cut Social Security benefits which traditionally the Republican party has tried to do. He is saying that he will defend it and that's what the Democrats usually say and we're going to see whether any of that is true but the fight has been going on for a long time. Many young people in America rightly worry or suspect that that program won’t be there when they get old enough to be qualified for it. You know—the whole idea of Social Security which was won by the American working class during the Great Depression, yeah at a time, when the government had a lot less money going for it than it has now, we were able as a nation to say we could and we would honor the people who have given a lifetime of work at the job using their brains and muscles to produce what the country needed at home, raising families and maintaining households. Yeah, we thought if you've done that for 30 or 40 years, the minimum respect owed to you is to not make you either destitute as an elderly retired person or a burden on your children’s families. So we created Social Security but the people who pay for it— which I’m going to explain in a moment—have a problem.

The system was set up in a particular way. It’s called pay-as-you-go and here’s what it means—a tax is applied to businesses and individuals to raise the money and then that money is used to pay out the claims—mostly of elderly retired working people after a lifetime of work, collecting their monthly social security check. They set it up that way knowing full well that the situation might arise where the amount of money being put into the system—the tax on working people and their employers—might not be enough to pay all the claims of the people who have a right to claim it and then some adjustments would have to be made.

The problem is basically, as happened so often in our society, that corporations, employers in particular, don't want to pay and rich people, in particular, don’t want to pay because they're corporations—they don’t have a retirement age and because they're rich—they don't need government support and so they don’t want to pay for anybody else to have them. You know that mentality…we encounter it a lot. It depends on being ignorant. Ignorant of the fact that all taxes go into the government to produce services that some of us use more than others. We have a fire department for the whole community. We don't charge people according to the number of trips the fire department makes to their neighborhood or the…fill in the blank. We maintain the air for everybody even though some of us deep breathe more deeply than others. We maintain the beaches even though some of us go there more often than others. You get the picture. We give huge amounts of money to defense industries even though we don’t all use the aircraft carrier in quite the same way, do we?

Social Security is just the same. All kinds of people make all kinds of different claims. Let me just make it clear to everybody if you die early you will have spent a lifetime putting money into the system but because you die say at age 65, you'll never get a penny back. You’ll be dead. Somebody else who lives to 100 will collect for all those years. Do we want to somehow try to discriminate between them? It's ugly. We don't do it. How is Social Security in trouble?…only if you are a liar. Here's the explanation—it is a fee. Social Security tax—6.2 percent—is taken out of your wages and an equal 6.2 percent is paid by the employer together it's 12.4 percent. That's what goes into the Social Security system and what comes out is what you're entitled to when you retire. So, to say that the system is somehow in trouble is to say that there's not enough coming in to cover everything that's going out, and depending on how you account for it and project—that’s supposed to happen sometime around between 2028 and 2035 depending on the numbers. So, people are getting excited already.

Here’s the fear of corporations and the rich—that they will be taxed more than they already are to cover the extra payments that may be needed by our older people. Our population is getting older so there's no surprise there. They don't want to…so they tell us—GOP and Democrats alike…most of the Democrats… the centrist ones in particular—that there's a crisis. We either have to raise the taxes or we have to cut the benefits. In other words, we’re going to hurt the mass of people one way or another. They like to pose issues that way because that avoids facing what the alternatives are and there really are alternatives. Let me explain. The only money going into Social Security is money out of wages and salaries—6.2% of that. If you earned income by interest you don't pay anything into Social Security on that. If you earn income by dividends on shares of stock, no 6.2 % is taken out for that, if you earn capital gains by buying shares at one price and selling them at a higher, no 6.2% is taken out of that. If we did take 6.2% out of the rich people's income because it’s rich people who get interest dividends and capital gains the Social Security System would be overflowing with extra money.

Here’s an even grosser number. The limit on applying the 6.2% is $147,000 a year. Everybody up to $147,000 a year pays 6.2 % of their wages into Social Security but a millionaire who gets a million dollars a year—he only pays up to the $147,000. All the rest of it—no charge from Social Security. That's a gift to rich people—that's all it ever was and that's what it is now. Social Security is a flat rate of 6.2% on wages—6.2 percent—no effort to charge people taxes according to their ability to pay. The way we handle income tax…that's why the income tax has come down as part of our government's revenue and Social Security has come up, because one of them is a progressive tax system—income tax and one of them is the opposite—a regressive tax system…that’s Social Security. That tells you who runs this society…who organizes and controls the tax system…it’s for the few—like everything else—and not for the many.

There is no crisis of the Social Security system. It's an easy solution. If you tax those most able to pay—which is already the principle of our income tax—and if it were added to the Social Security tax—all of us would have a secure retirement instead of terrifying the American people by the thought that they will be deprived of it. Shame on the Republicans and the Democrats who lie by telling us, “You either have to tax everybody more or you have to take away the benefits.” Not true now, never was…

I turn now to the horrible accident—derailment as they call it—of the railway Norfolk Southern in East Palestine, Ohio. I don't want to add to the details the 45,000 animals that have died from the toxic fumes, the illnesses the people there have suffered—and will continue—as the consequences flow. The horrible failure of that railroad to be safe in what it does and the failure of the government regulators to catch and prevent what the private railroads were doing…the failures are everywhere but there is a crucial lesson. Let me do it this way and I don’t mean to be flip, but I want to drive the point home. Railroads, airlines, all kinds of companies like that that provide services, like to have slogans that go something like this, “Safety is our number one priority.” Very nice phrase, except it's never true. Let me say that again so that there's no misunderstanding. It's never true and you know why I know that because the leaders of all those companies say so. They will say to investors…I’ve been at those meetings…and they will say to potential buyers of their shares, “We’re a profit-driven company. We maximize profits. We control our costs to maximize profits.” I have no reason to disbelieve them. That's what business schools teach the executives as young people before they run things like Norfolk Southern Railway through East Palestine. You know something? You can have two number one priorities. If it's profits—that's one thing, if it’s safety—it's another. What the derailments on our rail system—which happen every day—the numbers coming out now about derailments are stunning—how often they occur…you know what they are? Proof that when you're choosing between what's most profitable and what's safest…what's most profitable wins the day. That's not because people are mean, nasty, or bad—that’s the way the system works. You get rewarded if you maximize your profit. No official at the railroad got a reward because he or she was the safest one around—if even it could be measured. No. Our problem is a system that puts profit first…that says profit is what you get rewarded for and if you don’t make profits that's what you get punished for…. Of course, regulations then become just another obstacle for the executives to get around…just like a supply chain disruption…just like agitated workers…just like another tax. It’s something to evade, to avoid, to minimize, to get around and all the studies showing what the folks at Norfolk Southern did show you what length they went to to abort the safety regulations…to get around them, to suspend them. It never stops but it’s important to understand that's because of a system that in fact puts profits first.

The only way to solve these problems is not another regulation for the executives to get around—it's to change the system. Railroads could and should be run by a combination of the workers who work there and the citizens affected by the railroad as its customers and as the people living where the tracks run. If they together managed, they'd make sure safety was taken care of because safety would in fact be their number one priority and not profits, which is what capitalism arranges as the system focus. That's the problem—no one should mistake it for being anything else when considering what happened in East Palestine…the tragedy of that place.

We’ve come to the end of the first half of today's program, please stay with us. We’ll be right back with an important interview with Alexis Colón.

Before we move on, I want to remind everyone that Economic Update is produced by Democracy at Work, a small donor-funded, non-profit media organization celebrating 10 years of producing critical system analysis and visions of a more equitable and democratic world through a variety of media—like the long-form lecture series I host called Global Capitalism— designed to help others understand current economic events and trends so they can explain the impact and effects capitalism creates across the globe to others. Global capitalism is available on our website democracyatwork.info there you can also learn more about everything we produce, sign up for our mailing list, follow us on social media, and support the work we do. Please stay with us. We will be right back.

Welcome back friends to the second half of today's Economic Update. You know, it has often been said, and with good reason, that countries that maintain colonies can often be judged by how they behave in relationship to those they have colonized. That may be a hint as to why colonies are now relatively rare when once they were so widespread and so common. It’s in the spirit of understanding colonialism–whether it's officially named that or not—that we have asked Alexis Colón to join us today.

Alexis graduated from the University of Puerto Rico with a bachelor's degree in Natural Science and he also studied economics at the graduate school of the University of Puerto Rico at Río Piedras. His areas of Interest are political economy and geopolitics. Recently he's been researching the origins of the huge debt crisis that plagues Puerto Rico.

RDW: So first of all welcome Alexis. Thank you very much for joining us.

AC: Thank you for having me.

RDW: Okay, let's jump right in here…Is it your view—having lived, grown up, and devoted yourself to understanding the political economy of Puerto Rico—is Puerto Rico a colony of the United States?…and if you think so, what is the evidence you use to get you to that conclusion?

AC: Yes, I believe Puerto Rico is a colony of the United States. To begin with, the US Congress has what has been termed by politicians, historians, and lawyers as [extraordinary] powers over Puerto Rico—meaning that Congress has complete control over Puerto Rico. Puerto Ricans cannot vote in federal elections and economic conditions are considerably worse in the colony than they are in the metropolis. The poverty rate, for example, in Puerto Rico is 44% which is twice as high as Mississippi in the poorest US state. The Gini Coefficient measuring economic inequality is 0.55—which is higher than any U.S state. That is to say, the colony is both poorer and more unequal than any US state.

To further examine whether Puerto Rico is a colony of the US Empire, we first begin by defining imperialism, which according to Michael Parenti is called, “the process whereby the dominant political-economic interests of one nation expropriate for their own enrichment the land, labor, raw materials and markets of another people.” This is exactly the process that has been unfolding in Puerto Rico since the US invasion of 1898. As Nelson Denis wrote in his book, War Against All Puerto Ricans, Puerto Rico passed into the hands of the US in1898, as “the spoils of victory in the Spanish-American War.” He further states that, ”the following year, the United States outlawed all Puerto Rican currency and declared the island’s peso with a global value equal to the US dollar to be worth only 60 American cents. Every Puerto Rican lost 40 percent of their savings overnight.” So the combined effects of a divided currency, a colonial land tax, and hurricanes destroying crops, was that the incipient bourgeoisie was rendered unable to meet its obligations, and the US banks foreclosed on them.

The banks then proceeded to turn the diversified Puerto Rican agriculture into one yard and sugarcane plantation which was more profitable to them at the time. Thus, Puerto Rico lost its ability to feed itself, to in turn feed the pockets of absentee landlords as Denis recounts, “by 1934 every sugar cane farm in Puerto Rico belonged to 141 syndicates—80 percent of which were US owned. So, the people of Puerto Rico have had their land, labor, raw materials, and markets expropriated by the US capitalist class. The Puerto Rican Independence movement has endured a brutal history of repression for independence activists have been systematically persecuted, arrested, tortured, and murdered. These repressive measures have delivered a huge blow to the Puerto Rican Independence movement, which is in turn, the reason why Puerto Rico is ruled today by two major pro-US parties. So, we don't have an independent movement—we are owned by intermittent governments. Excuse me, we are owned by Congress and we don't have voting representation in Congress. Our president is the US president and yet we cannot vote in presidential elections. So, to me, all of this is evidence that we are indeed a colony of the United States of America.

RDW: Yeah, it sure would sound like it in terms of the history of colonialism in general. It also means that over the 120 years, roughly, that Puerto Rico has been a property of the United States, that the results—if you're going to measure the experience—is pretty pathetic. If you are twice the poverty rate… if you are twice the inequality, or worse even, compared to the poorest US state, it's clear that having been a colony has denied— or 120 years—has denied to Puerto Rico the kinds of economic development that were distributed across the mainland, if you like, of the United States.

Let me pursue it by asking you…I’ve wondered and I think many have…why is the word commonwealth used?…in other words it's called the Commonwealth of Puerto Rico. The origins of the term commonwealth are exactly what the words mean—a situation in which the wealth of a community is owned or held in common. What you've just described is pretty much the opposite of that, so what does the word actually mean?

AC: Well, for Puerto Rico, they were a commonwealth in this case…really just a euphemism for colony. It is akin to the US Department of War re-branding itself as the Department of Defense basically.

RDW: Good answer. All right, next question…one of the things Puerto Ricans have been able to do—as part of their ownership by the mainland—has been to migrate. Give us, if you can, a sense of what migration by people from Puerto Rico…what it looks like and what it means given its enormous size and importance.

AC: Well the imposition of the US citizenship in Puerto Rico in the early 20th century has served as a sort of escape valve during times of economic hardship in the archipelago. There had been several migration waves from Puerto Rico to the United States to the point that now around twice as many Puerto Ricans live in the US mainland than they do in the archipelago. There was a great exodus of Puerto Ricans—of about half a million of us—into the United States from the 1950s to the 1960s. More recently there has been another great exodus during this last decade, which saw a record 133,000 Puerto Ricans moved to the mainland in 2018 alone. A particular feature of this latest migration wave is what has been termed a brain drain, which references the fact that there are many young professionals leaving. In fact, the probability of someone migrating from Puerto Rico who has a graduate degree is twice as high as someone residing on the island. Essentially, we are spending resources educating young professionals to go work in the US labor market and this portends catastrophic consequences for the economy in Puerto Rico.

Chief among those consequences is a reduction in the tax base. As the population continues to decline, so does the tax base and therefore the state’s coffers, further hampering the ability of the government to pay the debt. You now have a shrinking workforce supporting an increasing number of retirees which is unsustainable. Puerto Rico is faced with an aging population that increasingly cannot be provided for. La Junta has already put pension cuts on the table as part of their austerity measures so, therefore, I believe that the impact of migration has been mostly negative for the island. Furthermore, I would add that there were migrations doesn't do it justice. The reality is that Puerto Ricans are being violently displaced by austerity measures…by privatization…by crippling poverty and by creeping inequality. It is the crushing economic conditions that are behind the great exodus of Puerto Ricans into the United States.

RDW: Yeah, you know, it's common in my own studies that this word migration has been kind of hijacked into suggesting that it is some kind of casual choice of people who want even better other than they already have. Most of the time migration is a terribly difficult thing for human beings to do…ripped away from their communities of origin…their families, their localities, their language, their cuisine, their churches… all the parts of life…to go to a place where they cannot speak the language—where they have to learn everything from scratch… where they are often confronting hostile relationships with the police and with their neighbors. People do not do that usually—unless they are desperate. So, the real question is to ask what are the conditions that provoke an emigration? Before you attach some kind of notion of casual choice to this matter and—especially if you have any morality at all—if you face the privation that drives migration then you'd have a different attitude. You couldn't possibly treat immigrants the way, for example, the United States is now famous for at its southern border.

Okay, I don't want to leave people with all of just the negatives. I know enough to know that in Puerto Rico there are people who understand what you have explained to us…who see the situation. What are the movements for change in Puerto Rico? Are there movements for independence? Are there movements for a different economic system? Tell us a little bit about how Puerto Ricans are reacting to the very story you've told.

AC: Well, I believe that in Puerto Rico the labor movement has suffered a bit of a setback with the privatization of the power company—because they are one of the strongest unions in the country which is still active but less powerful now with the privatization drive. I think that undoubtedly the Independence Party has the most worker-oriented platform. However it's not a Socialist Party. It remains to be seen whether that party can rise to the occasion as a sort of vanguard party that will galvanize this working-class discontent brewing in Puerto Rico. Despite the absence of that organizational structure that working-class discontent is powerfully manifesting in protests and movements across the island. For instance, in the summer of 2019, as many as 1 million Puerto Ricans hit the streets to demand the resignation of former Governor Ricardo Rosselló. That was after a leaked telegram chat with members of his cabinet on top aides exposed them using misogynous and homophobic slurs. There are also…there also have been huge marches on May Day with workers repudiating the Junta and the banks. There are ongoing rehabilitation projects of abandoned buildings by the Colectiva Feminista which is a feminist and anti-capitalist organization that is fighting against displacement in Puerto Rico. You also have the Se Acabaron Las Promesas, another anti-capitalist group that has been protesting against the Junta. You also have conservationist groups that are actively organizing protests to defend natural resources and protect land across the country. Recently, in one of those protests, a private security guard opened fire against a crowd of protesters and shot one on the leg. I believe that those bullets fired into the crowd of protesters are a physical and violent manifestation of the class warfare being waged against all Puerto Ricans. But these violent acts are helping the people gain awareness of that class warfare. There is now a working-class consciousness in embryo that I believe will give birth to a free and independent Puerto Rico.

RDW: All right. Alexis, it’s very good that you end up our interview. I wish we had more time, but you have described both the conditions and the human reactions to those conditions. It's clear that anti-colonialism is as alive as the colonialism that provokes it. I want to thank you and I want to say to all of my audience, as always, I look forward to speaking with you all again next week.

Transcript by Barbara Bartlett

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About our guest: Alexis Colón graduated from the University of Puerto Rico at Mayagüez with a bachelor’s degree in natural science and studied economics at the graduate school of the University of Puerto Rico at Río Piedras. His areas of interest are political economy and geopolitics. Recently, he’s been researching the origins of the debt crisis in Puerto Rico.

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Showing 1 comment

  • Edward Dodson
    commented 2023-03-15 13:05:31 -0400
    On Social Security …

    It is important to remember that when the system was introduced, eligibility for benefits was far less generous that has evolved. Demographics also kept the system solvent because life expectancy was much lower than is now the case. Over the decades, our population has aged. Thus, the huge number of children born during the so-called “baby boom” decades are now seniors. They and their offspring have had fewer and fewer children, so that other than by immigration we have reached replacement level. The potential for the collection of revenue from those who are working has become unrealistic without considerable increases in payroll deductions combined with contributions based on much higher incomes being subject to contributions.

    My solution: progressive income taxation that collects a much higher amount of revenue from higher levels of income. End the distinction between ordinary income (i.e., wages and salaries) and income derived from ownership of financial assets. Combine this with tax simplification. All individual incomes up to the national median would be exempt from taxation. All other exemptions and deduction would be eliminated. Above the exempt amount, impose a higher rate of taxation on higher ranges of income — up to whatever rate is required to raise enough revenue to balance the federal budget, including whatever cash flow needs arise for Social Security benefits.

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