January 24, 2005
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EDITORIAL
A Bridge to Sell
ne of the main talking points in the administration’s drive to privatize Social Security is that retirees have nothing to fear. “If you’re a senior receiving your Social Security check, nothing is going to change,” President Bush said recently. Mr. Bush seems to presume that older Americans are indifferent to the future retirement security of their children and grandchildren. But even taken on its face, the argument does not hold up.
The president promises that under a private retirement scheme, anyone age 55 or older would continue to receive full Social Security benefits. What he repeatedly fails to mention is that privatization would require some $2 trillion in new borrowing over the next 10 years and an additional $4.5 trillion in the decade thereafter. That’s on top of the trillions that need to be found to cover the costs of Medicare and Medicaid and – if the president gets his way – to make this decade’s tax cuts permanent. It’s foolhardy to assume that the government could continue to meet all of its obligations, including the payment of Social Security benefits, under such a mountain of debt.
All told, by 2030, when today’s 55-year-olds turn 80, the national debt would be as big as the economy itself, according to a calculation by the Center on Budget and Policy Priorities that uses data from Social Security and the Congressional Budget Office. To compare, consider that in the last 50 years, national debt has equaled only 38 percent of the economy on average, and that percentage includes the tremendous overhang of debt from World War II.
Large and virtually permanent fiscal imbalances could create severe hardship. At the least, big and ongoing deficits erode living standards because they reduce the money available for investment in the economy. At worst, enormous and endless deficits could provoke a loss of investor confidence, leading to higher interest rates and inflation, lower stock and bond prices, less household wealth, less government spending and slower economic growth.
If Congress faced that kind of crisis, it’s safe to assume that everything would be on the table, including Social Security retirement benefits. This would be especially true if the crisis was provoked by privatization. The reason: diverting a portion of payroll taxes into private accounts – the centerpiece of Mr. Bush’s privatization scheme – would greatly accelerate the exhaustion of the Social Security trust fund, unless the government made huge transfusions of other tax revenue into the fund. It could be difficult to justify such transfers with an economy in dire straits. A dwindling trust fund, in turn, could create a political dynamic for benefit cuts that would be hard to resist.
Even if Congress managed to keep the commitment to continued funding of full Social Security benefits for today’s retirement-age population, senior citizens could find that their other sources of retirement income, especially stocks and bonds, had taken a hit. Their adult children would probably not be able to provide a safety net. Indeed, a country in fiscal crisis is one in which adults are more likely to turn to their elderly parents for help.
Despite the risks to their own economic well-being in retirement, some older Americans might be willing to support Social Security privatization if it would ensure a stable retirement for their children and grandchildren. But it wouldn’t. Privatization would require potentially debilitating borrowing up front, in exchange for a drastically reduced benefit later on, no matter how well, or poorly, private accounts performed. So there’s no reason for senior citizens to support it and plenty of reasons to oppose it. Mr. Bush is wily, and wrong, when he tries to dismiss older Americans from the debate.
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NEWS ANALYSIS
F.C.C. Faces a New Set of Challenges After Powell
By STEPHEN LABATON
ASHINGTON, Jan. 23 – The departure of Michael K. Powell from the Federal Communications Commission in a few weeks will lead to profound and subtle policy and personality changes for an agency at the center of the transformation of the telecommunications and media industries.
During Mr. Powell’s four years as head of the agency, regional Bells have largely prevailed against long-distance companies and their smaller rivals. And media conglomerates have mostly been foiled in their efforts to relax limitations that have prevented them from expanding into markets and lines of business.
Now, new challenges are arising. The telephone companies face competition from less-regulated cable companies, and have responded by beginning to offer their own video services. The biggest phone companies are scampering to adapt to the nascent Internet telephone services and hope to employ their own versions.
The media companies, meanwhile, have begun to face an assault on their standards by groups that have pressured the agency to issue a record number and amount of fines for violations of indecency rules. The fines have not put any significant dent on the earnings of the companies. But they have had an effect on programming – prompting some stations to refuse to broadcast programs, including the movie “Saving Private Ryan,” and others, like public stations, to revise scenes from “Masterpiece Theatre” shows to avoid sanctions.
Under Mr. Powell, the agency has a number of unresolved issues. It has not responded to a federal appeals court decision last June that ordered it to rethink rules Mr. Powell advanced that would ease the way for conglomerates to buy TV affiliates and run newspapers and broadcast stations in the same cities.
By all accounts, the most vexing rulemaking facing the commission is sorting through proposed changes to the complicated rules governing how much phone companies pay one another to begin and complete calls, and the regulations governing the financing of programs that provide universal telephone service to underserved areas.
“The big hairy ugly issues left for the next commission are intercarrier compensation and universal service,” said Scott C. Cleland, a telecom analyst at the Precursor Group. “It’s a spaghetti bowl level of complexity. It makes your head spin.”
Many of the telephone-access fee regulations will expire this summer, and industry lawyers have failed to come up with new rules. Compounding the complexity is that the Bell companies, traditionally the largest recipients of the access fees, are swiftly moving into new businesses, like long-distance and broadband data transmission, forcing them to take different positions in the debate. What is more, cable companies and computer application concerns are also offering telephone services.
Analysts said that the answers to the intercarrier compensation and universal service issues would determine market winners and losers and resolve the most important regulatory issues facing the new Internet telephone services.
In addition, major political changes in Washington are certain to alter the debate over the access and universal service fees. Foremost among these is the new leadership at the Senate Commerce Committee, which was headed by Senator John McCain, Republican of Arizona. It now falls under the control of Senator Ted Stevens, Republican of Alaska, and Senator Daniel K. Inouye, Democrat of Hawaii.
The two men will play the most important roles in overseeing the commission and drafting any telecommunications legislation. They have a close working relationship and an abiding interest, by virtue of their constituency, in promoting the universal service program. They are seen as tilting in favor of rivals of the Bell companies.
Mr. Powell, who did not respond to a request for an interview, vowed when he became chairman that he would run a more collegial and efficient agency, saying that he had learned valuable lessons after three years as a Republican commissioner at the agency during the time it was led by Democrats.
But he often led a bitter and partisan F.C.C., which at pivotal moments he could not control. His allies complained that they found him mercurial and unpredictable, while his opponents said they were shut out from the process.
When one member of the commission voted against the chairman after they failed to reach a compromise, Mr. Powell eliminated the commissioner’s budget for international travel, officials said. And throughout his tenure, the agency’s two Democrats repeatedly said that if they had been included in the process, deals would have been reached on regulations that would have been able to withstand court challenges.
Mr. Powell also promised at the outset to bring what he called “rigorous economic analysis” to changes in rules. But the agency’s analysis on critical telephone and media company rules was sharply attacked by the courts for being “arbitrary and capricious.”
Kevin J. Martin and Becky A. Klein, the top two candidates for Mr. Powell’s job, have earned reputations as regulators for being more conciliatory and less partisan and ideological than Mr. Powell. Mr. Martin, a Republican commissioner and former White House aide, angered some of the Bell companies two years ago when he broke ranks with Mr. Powell and voted with the agency’s two Democrats to leave in place rules that were meant to foster local telephone competition by requiring the four regional Bell companies to lease their local networks to their rivals at low prices set by state regulators.
But Mr. Martin has taken steps to mend relations, and senior executives at two Bell companies said he was their preferred candidate.
Ms. Klein, a former head of the Texas Public Utility Commission and top adviser to Mr. Bush when he was the state’s governor, was known for taking a bipartisan approach to regulation.
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EDITORIAL
Another Powell Departs
ichael Powell, the Federal Communications Commission chairman who rarely met a media merger he didn’t like or an off-color broadcast he did, announced last week that he would resign. Mr. Powell’s disappointing reign will be remembered for the extremes to which he went to punish what he called indecency, and for his abdication of responsibility for regulating the businesses that came before him. When President Bush appoints a new chairman, he should look for someone who can bring the commission to a more moderate position on both of these issues.
As chairman of the F.C.C., one of the government’s most important regulatory bodies, Mr. Powell should have been an advocate for reasonable regulations that protect consumers and promote competition. Instead, he brought to his position an extreme commitment to deregulation that seemed to serve big business’s interests most of all. One high-profile example was his attempt to remove regulations on the Baby Bells that were designed to make local telephone service more competitive. Although Republicans had a majority on the commission, Mr. Powell was unable to get his colleagues to back this particular antiregulatory crusade.
The other main cause Mr. Powell championed was the commission’s misguided campaign against on-air indecency. The broadcasts that the F.C.C. targeted were too often innocuous, such as the singer Bono’s use of a single expletive after he won a Golden Globe award, and the fines excessive, most notably the $550,000 imposed on Viacom for Janet Jackson’s “wardrobe malfunction” at last year’s Super Bowl. Media companies and artists have complained, with good reason, that the commission’s indecency standards are so vague that they are being discouraged from engaging in constitutionally protected speech.
The two people being mentioned most prominently as possible successors to Mr. Powell come with some demerits. Kevin Martin, currently a Republican commissioner, has shown a welcome willingness to break with his party. But he has taken an even more extreme line on indecency than Mr. Powell. Becky Klein, a former chairwoman of the Texas Public Utility Commission, is coming off an unsuccessful run for Congress in which she accepted large contributions from telecommunications companies that seemed to be betting she might end up at the F.C.C. Ms. Klein’s record underscores the third important job qualification, along with reasonable positions on media concentration and indecency: a demonstrated record of independence from the industries the F.C.C. regulates.
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