William D. Novelli, the well-paid CEO ($689,000) of the largest U.S. lobbying group for the elderly, AARP, has come out against President Bush’s “private accounts” plan for reforming social security.

This has raised cries from conservatives that AARP is nothing more than a front for the Democratic Party.

However, a few years back, AARP supported Bush’s plan for Medicare reform and was attacked from the left for having “sold out to the Republicans”. Which is it?

Whatever the outcome of the fight over social security reform, long-term U.S. capital flows will be effected and this is important for Capital Flow Analysis. To understand the motivation for AARP’s position is therefore material.

Hyperbole and Exaggeration

It is easy to see why the AARP could be accused of being on the side of the Democratic Party when one considers that AARP has said that “private accounts that drain money out of social security will cut its guaranteed benefits, increase the debt, and pass the bill on to future generations.”

Since there is no real “social security fund”, the claim that private accounts “drain funds” from anywhere is preposterous. Furthermore, since “private accounts”, as proposed, are purely voluntary, there is no way that they could “cut guaranteed benefits”.

In any case, social security benefits are in no way “guaranteed”, citizens have no constitutional claim on social security payments, and future legislators may withdraw these “entitlements” at any time. Rather than increasing the debt and passing the bill on to future generations, private accounts would do just the opposite.

In other words, AARP, rather than providing cogent arguments against private accounts, has resorted to false accusations, misleading statements, and hyperbole.

The AARP sounds just like the Democratic Party, and it is easy to understand why conservatives might perceive AARP as part of a “vast left-wing conspiracy”.

The AARP’s Real Interests

Without being privy to discussions at the senior levels of AARP, we can’t know, of course, the real motivations of the organization. However, if we look at what the AARP really is, it is not that hard to guess why it acts as it does.

AARP is, above all, a giant business whose main revenue is from royalties received from endorsing the goods and services that other businesses sell to senior citizens.

AARP’s total income in 2002 was $635 million. Insurance and investment products, hotels and travel services, medicines, automobile clubs, car rentals, legal services, entertainment, gifts, flowers, general merchandise, home security, do-it-yourself supplies, and communication services all generate income for AARP.

Furthermore, AARP collects “dues” from retirees for the privilege of receiving a card that gives “discounts” from the sellers of the same goods and services that are paying royalties to the organization, plus a magazine in which AARP sells advertising pushing products to the elderly.

A Matter of Good PR

William D. Novelli, AARP’s CEO, is by profession a public relations man and therefore it is understandable why his attacks on “private accounts” have more than a hint of over-statement and puffery.

He also is paid well to keep the very substantial income and profits of AARP strong and growing.

To the average American, AARP is a non-profit, non-partisan group of serious minded people dedicated to furthering and lobbying for the interests of the elderly, and a benefactor that provides discounts on hundreds of things, all in exchange for a annual fee of only $12.50. AARP’s more than half a billion dollar annual cash flow is dependent upon its image as defender of the rights of the elderly.

Mr. Novelli, like any good PR man, can read polls and research and would know that the average American (1) doesn’t really understand that social security is not a “guaranteed right” and is not “funded”; (2) is fearful of any change in social security and hostile to anyone who would take away a retiree’s perceived “rights”; and (3) that half of the population is represented by Democrats who oppose anything suggested by President Bush, while many of Republicans also have doubts, legitimate or otherwise, about “private accounts”.

When President Bush proposed “private accounts” as part of his plan for social security reform, this became a matter of such importance to retirees that it was essential from a business point of view for AARP, as defender of the elderly, to take a highly visible stand, for or against the measure.

Playing to the Masses

It is obvious that AARP’s position would make headlines and would generate immense publicity for its business.

If AARP were to side with President Bush, with more than half the country either opposed or skeptical about “private accounts”, the organization would run the risk of being on the losing side of an unpopular position.

On the other hand, if AARP opposed President Bush, and “private accounts” were nevertheless approved by Congress, the wisdom of the plan would not be discernible for decades, while AARP would still have the immediate PR benefit of having appeared to be on the side of the elderly.

In other words, AARP’s position against “private accounts” could be merely a smart business decision for a firm that has hundreds of millions of dollars of income each year riding on its reputation as protector of the elderly.

In the case of Bush’s Medicare reform (which promised discounts on drugs) AARP came out in favor, despite the opposition of many Democrats, because AARP was already pushing programs offering discounts on pharmaceuticals and the benefits to the elderly were obvious. With “private accounts”, this is not the case.

We don’t know, of course, if this was really AARP’s motivation. There are plenty of legitimate reasons to question the wisdom of “private accounts”, but for AARP to justify an expensive ad campaign against the measure, it would seem reasonable that there must have been a palpable business interest lurking behind the high-minded talk.

No one is particularly surprised when General Motors spends millions of dollars lobbying for its business interests because everyone knows that General Motors is a business.

However, millions of Americans simply don’t know that AARP is really a massive commercial operation, because it masquerades as a non-profit, do-good organization, with a hundred thousand selfless “volunteers”, a charitable subsidiary, and high-minded leaders, appearing to lobby and toil in the interests of senior citizens — all for only $12.50 a year.