THE LIBERTARIAN ENTERPRISE
Number 319, May 15, 2005
"The End of America"
Pulling the Rug Out
Special to TLE
In his 2004 campaign, and now in his first months of his second term of office, President George W. Bush is talking up his plans for Social Security. At the same time, politicians of every stripe are either defending the President's plans or castigating them. As is sadly all too typical with government, no matter how many viewpoints there may be, there seem to be none that are actually coming from any kind of a rational position.
The one thing that we can all agree on is that there does need to be something done about Social Security. Whatever your position on the program, there's no question whatsoever that it's going to run out of money in the relatively near future. Most also agree that, before it does, it will become an all but intolerable burden for those in the workforce near the end. There's little argument that we must do something if we don't want our children and our grandchildren to be faced with an even more unsurmountable problem The real debate comes in when we start talking about just what it is that we ought to do.
Many Democrats seem to think that we should pump more money into the program. The one thing that they're right about is that that would work. But what they're not discussing in any detail is where the "more money" would come from. Obviously, a lot of it would come from taxpayers like you and me. A lot more of it would come from business owners. And eventually, it's likely that some would come from cuts in the benefits of those who (in the opinion of the Democrats, of course) don't need it, and even more would eventually be somehow extorted from those considered wealthy (again, "wealth" will be determined by lines drawn by Democrats). The worst part of this "solution" is that Social Security would still fail someday anyway, but only after taxing the majority of Americans into poverty first.
Some Republicans agree with the President where bolstering Social Security with private retirement accounts is concerned. In fairness to them, this system has been shown to be quite effective in Chile and in three counties in the state of Texas. (The success of the latter may be where it was that President Bush, formerly the governor of Texas, got the idea in the first place.) But while promising some sort of a transition period that would see younger workers establish private accounts, and older workers keep their guaranteed Social Security pay-out, those workers in the middle-aged bracket would be left high and dry. Purely by virtue of their current age, they would be left with insufficient time to establish adequate private savings. At the same time, they'd suffer the virtual certainty that Social Security checks will be — at a minimum — reduced for their retirement years.
In both Republican and Democrat scenarios, workers would still be forced to save. Their paychecks would be garnished, and their employers forced to cough up matching funds no matter where the resulting money was eventually deposited. The government justifies this institutionalized theft because it's possible that some people wouldn't save if they weren't forced to do so. Those people would then, in turn, become wards of some type of welfare system or another after they became too old and/or infirm to work. By forcing people to save, the government can legitimately argue that it's saving taxpayer money in the long run. After all, with Social Security, current workers pay for retirees and the government merely administers the bank account (which may explain what causes so many problems in the first place).
There's a third group of politicians and philosophers, many Libertarians among them, who say that Social Security is just a giant Ponzi scheme (it is) and that it should be stopped (it ought to be). They suggest that people who don't have the good sense and reponsibility to save for their retirements should suffer the consequences for their failure to plan. The problem with this harsh solution, however, is that most of those people who've failed to save haven't failed to plan at all! That's because they've planned on having Social Security.
The numbers of those who have Social Security as their only "pension plan" are staggering. According to the Social Security Administration itself, about half of American workers today don't have the option of employer-related pension plans (which range from traditional pensions to 401(k) plans and the like). Chances are good they're counting on Social Security as their pension plan. And why not? They've contributed significant sums of their own money. Why shouldn't they get some of it or all of it back? Unfortunately, many workers don't realize that their money isn't, well, theirs. It's going to pay the Social Security benefits of those who are retired now. When they retire, they're going to be relying on money earned by other, younger workers to fund their benefits in turn.
Privatization remains easily the best and most sensible solution to retirement plans. But it's imperative that the transition to privitazation doesn't cause some of the same problems that Social Security was instituted to solve. Those who have planned on Social Security for their retirement and who are too close to retirement to establish an adequate nest egg should receive the Social Security benefits they've been promised. The Bush administration agrees with that assessment, but its determination of "close to retirement" is too close.
Under the preliminary plans floated by the administration, people in their 40's would likely be denied Social Security. These same people would have only about twenty years to build up alternative accounts. Even with much higher interest rates than we have today, that's not enough time to build enough equity in an account when we assume that many people will live another twenty years or so past retirement! Current calculations regarding Social Security suggest that the money will run out in 2041. We don't need too much more money (relatively speaking) in the program to ensure that today's 40 year-old will have Social Security when he or she is 65. Phasing out a program that's been around for 70 years will probably take about half that long to be done properly and humanely.
The government should also consider income from other sources for retirees. Those who have a significant and reliable income shouldn't receive Social Security during this transition period so as to keep more money in the Social Security fund. Is that fair? No. Unlike the government, I'm open to alternative suggestions. (Lest you ask, who defines "significant" income? The government. Now, wait a second, because there's more: Whatever number it comes up with should then be quintupled to result in the real income level where the line is drawn.)
After outcries from the Democrats against any form of privatization plan, the Bush administration has said that personal accounts will be voluntary. Those who want to have private accounts can do so; those who want to stay with Social Security are welcome. But that will erode the program's solvency even more quickly when younger workers opt for privatization and stop paying into Social Security all together. Of course, being Democrats, the likely suggestion will be to make up for the losses by increasing taxes elsewhere. But that will only start another vicious circle that will have to someday be broken, and we did say we wanted to actually fix the problem, didn't we?
Meanwhile, Libertarians often suggest that private charities can take up much of the slack when the government stops cutting checks. Ideally, they're right. But realistically, the private funding just doesn't exist for charities to fill a need quite so large. And families, who were traditionally responsible for the elder members many years ago, are no longer so tight knit in emotion or in physical location as they used to be, and so offer no widespread solutions, either.
The most socialistic of the Democrats aside, the rest of us are almost all convinced that drastic reform of Social Security is both needed and desirable. And most of the majority would agree that being in charge of our own lives is the freest and best way to plan and to live. But after so many years of the government's interference, we can't simply reach our goals by virtue of wishful thinking or good intentions, nor can we turn the proverbial ocean liner too quickly. The bad will have to continue as we gradually dilute it with the good, because the only thing worse than bad for many Americans would be nothing at all. And even the most rabid of politicians no matter his or her philsophy couldn't possibly (well, at least not openly) want that!
Once the transition is complete some years down the road, real responsibility will enter in. Those who fail to meet it — and there will be some — will likely be met with adequate charity. The majority who would be happy to be responsible if only the government would let them will be far better off with their private savings than they would have been receiving government checks. They may not necessarily get vastly more money. But, though the government seems to place little value on it, pride is priceless.
I'm not an economist nor a financial planner. I don't know what the best solution is. I do know, however, that the problem is real and imminent, and that the solutions proposed by the two major political parties will result in serious problems of their own. I personally believe that privatization and the free market are both the most reasonable and the most effective answer to the pending crisis. But whatever the answer proves to be, the single worst answer involves a continuation or an escalation of the socialist Ponzi scheme currently in place.
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