Privatizing Social Sercurity

[southpaw]

Privatizing Social Security: Part II
Thomas Sowell (archive)

September 29, 2004 | printer friendly version Print | email to a friend Send

Current Senate hearings on "mandatory retirement" may have more than a little relevance to the huge question of how to "save" Social Security. Unfortunately, there is far too little attention being paid to the question of why Social Security requires saving in the first place.

The key problem with Social Security is that it has never taken in enough to cover all the pensions it promised to pay. Promises win votes but collecting enough money to pay for them does not.

Should we be surprised that politicians take the easy way out by promising a lot and leaving it to future politicians to figure out how to pay for what was promised -- or how to disguise their welshing on those promises?

We hear a lot about how changing demographics have created a problem for Social Security, since people now live longer, changing the ratio of people paying into the system compared to people getting money out of the system.

But you don't see insurance companies wringing their hands about how they can't pay out the pensions they promised when they sold annuities.

That is because each generation's premiums were invested to create additional future wealth to pay for that generation's pensions, regardless of whether the next generation is large or small. The big difference between private annuities and Social Security is that private investment creates future wealth for the country as a whole and Social Security does not.

More total wealth through privatization offers some hope of solving the problem of inadequate wealth to pay the pensions that Social Security promised to the baby boomers. Otherwise, the government will have to welsh on its promises, because the amount of tax increase needed exceeds what is politically feasible.

That is where so-called "mandatory retirement" comes in. That concept is as fraudulent as calling Social Security "insurance" when it has in fact always been a pyramid scheme, where each generation depends on the next generation to pay its pensions.

There has never been any such thing as mandatory retirement. By contract or custom, employers have had a general practice of no longer employing people after they reached a certain age. But there has been no requirement that those people retire. Many -- if not most -- have in fact continued working elsewhere, often while drawing a pension.

By passing laws forbidding "mandatory retirement," the government reduced the number of older people who would otherwise have retired and begun drawing Social Security pensions. This self-serving transfer of billions of dollars in financial liabilities from the government to private employers was thus presented as a virtuous rescue of older workers from unfair discrimination.

Never mind that the Constitution forbids the government from changing the terms of private contracts. Never mind that younger workers find their upward path blocked by older workers whom the employer cannot get rid of without legal hassles.

All of this is washed down with lofty rhetoric about how age need not mean a decline in efficiency, about how our senior citizens still have much to contribute, about how older Americans are "breaking the silver ceiling," in the words of Senator John Breaux at recent Senate hearings.

In other words, the assumption is that individual employers looking directly at individual workers, whose work they are already familiar with, are not smart enough to make as good a judgment as distant politicians talking in generalities.

Even in the past, when a particular employer's obligation to employ workers expired at a certain age, there was nothing to prevent a mutual agreement for particular workers to continue working when the employer saw that the particular worker's productivity made this advisable and the worker wanted to continue on.

In short, neither Senate hearings nor "expert" witnesses were necessary. Much of this is a charade to allow the government to raise or eliminate remaining retirement ages, in order to escape from the impossible situation that politicians created when they designed Social Security as a pyramid scheme.

[Lemmy]

At Bush's so-called economic summit, which was more like a valley, he did what he does best: instill fear about a false threat.


And he made clear who his constituency is: the financial markets.


Even before the gathering of rightwing economists began, Bush set the tone in his weekend radio address when he said, "The system is headed toward bankruptcy down the road. If we do not act soon, Social Security will not be there for our children and grandchildren."


This is the worst kind of hype.


The Social Security trust fund is solvent until the year 2042, according to its trustees, or the year 2052, according to the General Accounting Office. After that, there still will be enough money to pay everyone 75 percent of their benefits. And with a modest reform here or there, those benefits could be covered at 100 percent.


One such possibility is to raise the ceiling on payroll taxes. Right now, Social Security taxes are taken out of only the first $87,900 of income. So Bill Gates pays the exact same amount in Social Security taxes as a middle manager making $87,900. Let Gates and his cohorts kick in all the way, and the Social Security shortfall four decades from now virtually vanishes.


But Bush doesn't want to do that. He wants us all to be afraid, very afraid. So afraid that we don't bother to think, and we just let him get away with his privatization scheme, which is going to bust the bank on Social Security.


It would withdraw $2 trillion over the next ten years from Social Security, and that money is supposed to be paying the benefits of the elderly and the disabled already in the system.


As a result, Bush would either have to borrow more money or cut benefits, or both. And he definitely plans on cutting benefits for younger people. "The benefits now scheduled for future generations under current law are not sustainable," said N. Gregory Mankiw, Bush's head of the Council of Economic Advisers recently. He called the benefits "empty promises."


Meanwhile, Wall Street would make out like bandits, hauling away about $75 billion a year in investment fees.


Bush has it exactly backwards.


Social Security is not going bust any time soon, and under his plan, Social Security won't be there for your children or your grandchildren.

-- Matthew Rothschild

[El-Moldo]

Why should Gates chip in more when he's really never going to need it? Why should Gates pay for other people?

[El-Moldo]

Tell me something. Does Bill Gates own a company? Does he have employees? How much do you think he pays each year into the Social Security fund by MATCHING his employees SS contributions? At 7.3% of the wages he pays, he puts ONE HECK of a lot of money into the system. Be thankful guys like him exist!!!!!!!

[voncap]

I believe Bedford County's officials would have found the loop hole if they would have been privy to the 20/20 hindsight that is so prevelant in today's society.

That aside I would still be curious to see how those counties are doing today. To say the market boom of the time didn't effect their projections is unrealistic. The article itself says based on current interest rates. Go back and tell me what interest rates were in 1996 and what they are now. I can tell you they are considerably lower. This absolutely effects the rate of return which directly effects the monthly pension. Their numbers may still project better than the SS system, but without additional contributions or unfunded liabilities by the plan sponsor there is no way those numbers are as high as they were in 1996

Is the SS system really that bad off? The money I am contributing is helping provide my parents and some of my older friends with a monthly retirement check. It is also giving them an affordable health care program and for these things I am glad we have the current system. Just take a moment and think where the US economy and society as a whole would be if medicare wasn't available. Does the SS program have some problems? Certainly, but to revamp a system that has been around and survived for as long as it has is a collossal change.

[southpaw]

Just think your parents, yourself, and your children would be better off if the system was fixed with better rates of return. The market goes up and down but in the long run the gains are always positive! Historically much better than the pitiful returns in the current system.

[southpaw]

BTW......Matthew Rothschild writes for the left wing "Progressive" Magazine who opinion should be considered unbiased. Yeah right!

[once a runner]

I agree we would all be better off with a larger rate of return. However, I'm unsure as to whether the stock market will follow the same pattern it has over the last 70 years. One terrorist attack and the markets took over 3 years to get back to where they were. I would feel better with a guaranteed lower rate than a slightly riskier higher rate.

Maybe the solution is to let each citizen decide. They could even play it both ways....send half to SS and half to a private account. Of course their SS checks would be smaller and based what they put into it. The catch is there is no crying about the choice you made when you retire.

[voncap]

It is a no brainer that everyone would be better off with a higher rate of return, but find me any investment/financial person that will guarantee you a higher rate of return and I'll find you a crook especially after what has transpired in the stock market the last five years.

Yes, the market in the long run will have its ups and downs and for the most part will return a positive gain, but what happens to the people who's time it is to retire when the market is on the down swing? Not everyone will be retiring when the market is in a boom cycle.

What I find curious is that it appears to be the conservatives who are suggesting the SS system be "fixed". One would expect a radical idea like that to come from the liberals.

[LionPride]

Liberals are never going to be for less government control of your life - that's a fact.

As long as they have a chance to use money that doesn't belong to them, they're happy. Privatizing SS takes away some of the cookies in their cookie jar.