Social "Security"

In discussing Social Security, one point must be made very clearly up front: no government anywhere has money that has not been provided by, or vouched for, by the People. Governments can get money by printing it, borrowing it, or through taxation. There are no other ways. I say this, since much magical thinking attends this issue, in the form of "the government should take care of its people." The government is us. It uses our money; even when it borrows it, it borrows it on our behalf, and it can never have more money than the collected wealth of the nation. Now, Social Security was primarily intended to be what amounted to a government sponsored pension for the old, and as a source of unemployment benefits for the unemployed. As such, both were intended to be self sustaining. The programs have evolved over the years, and I won't cover Unemployment here. As things stand today, you are required by law to contribute a portion of every check to the Social Security Administration. That percentage is 6.2%, which must be matched by your employer, so that 12.4% of every paycheck goes to fund this system (your employer's 6.2% otherwise would have been paid to you). When first passed, the Supreme Court threatened to rule it unconstitutional, but some significant bullying by FDR, including his famous court packing scheme (where he threatened to get Congress to give him the right fire Justices who were old and "mentally infirm"-which was patently contrary to the intent of the Constitution; and to increase the total number of justices, so that he could appoint sympathetic ones who would back his program), caused them eventually to rule in his favor. Recalling the first paragraph of this piece, consider the following quote from Justice Cardozo (with respect to the context of the Great Depression): "The fact developed quickly that the states were unable to give the requisite relief. The problem had become national in area and dimensions. There was need of help from the nation if the people were not to starve. It is too late today for the argument to be heard with tolerance that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use for any purpose [other] than the promotion of the general welfare." He was speaking there of unemployment benefits, but note his underlying assumption that the Federal Government was anything but the sum of the States. When this mistake happens, what is normally being discussed is the power of the Federal Government to print money and run up deficits (for more, find my piece on Money). The program was never self sustaining. Part of their actuarial analysis involved the assumption that most of the prospective beneficiaries would die before they got paid any money. They would pay the spouses of the deceased, though, so this is not fully wrong. They did find they had to raise the age of eligibility almost immediately, since too much was being paid out. Even beyond that, though, it was borrowing from the future day one. Consider this summary of the issue by Paul Johnson: The first Social Security check was issued to Ida Fuller, of Brattleboro, Vermont in 1940. It was for $22.54. At the time she got this check she had paid in only $22.00 in Social Security taxes. By the time she drew her last check in 1974, she had received $20,944, all except $22 unfunded. No wonder Reagan called it 'an inter-generational Ponzi game'. It was a kind of pyramid fraud, played on youth. Congress knowingly promoted this kind of fraud. Between 1950 and 1972 Congress, often over Presidential protests, raised social security benefit or extended eligibility eleven times, six of them in election years. The most irresponsible change came in 1972, when Wilbur Mills, the great House Democratic financial panjandrum and big spender, raised it 20%, and indexed all benefits to the Consumer Price Index. By 1982 the average pensioner was collecting (in real terms) five times in benefits what he/she had paid in taxes. By the time Reagan became President, Social Security was 21 percent of the total budget. [note: that amount is now 37%, or was as of 2007]. I spoke of the 3 ways things can be paid for. The way Social Security is paid for, in reality, is through inter-generational wealth transfer (and to a greatly lesser extent through the transfer of wealth from those who paid in more but get the same benefits). My grandfather did not pay his way. I paid his way with taxes taken from my check, and the assumption is that my grandchildren will pay my benefits. Yet, there are many, many more Baby Boomers than there are people born, say, in the 1970's. This means the burden on the system is ALREADY more than we can fund. This happened this year (2010). We are paying out, today, more than we take in. Officially, it is adding to our deficit, and the worst part of the Baby Boomers have not hit yet. This is, and will continue to be for some years, a rising tide. This means that we have to borrow money to continue this fiasco. All Ponzi schemes collapse. People who are in early get a great deal. Those who are in late-us, our children, and grandchildren-get stuck with a bill that cannot be paid. That is where we are at today. It's not a question of when these entitlements will drive our nation into bankruptcy-particularly since we are spending like drunk sailors (with an apology to the sailors, who at least pay their own way)-but when. Fiscal collapse is INEVITABLE if we keep doing what we have been doing. We are literally paying one credit card bill with another. Every year puts us deeper in debt, which makes our cash flow problems, with interest, even worse. With respect to retirement, if we look at any of half a dozen Aesop's fables (say, the grasshopper and the ant), we see the value of planning for the future. What is the best way to do this? First off, it is immoral and irresponsible to do it by borrowing from your grandchildren. It is wrong. It was wrong for our grandparents and parents to do it to us, and equally inexcusably selfish to do it to our kids. Secondly, Social Security-EVEN IF IT WERE SELF FUNDING-would be inefficient. Consider what you are doing: you are paying money to the government, which theoretically has a pile of money somewhere, to which your payment is added. This is the "lockbox" to which an aspiring Presidential candidate used to refer. Someday, maybe, you or your spouse get back an amount that is determined both by politically motivated policies, and the simple availability of money. You are required by law to PAY the money, but they make no promise they know they can keep to pay ANY of it back to you. You have no control over your own money. Since this is a massive bureaucracy-62,000 employees-who you vote for will make little direct difference in anything. But consider this: from the total money paid in must be subtracted the Administrative overhead of those 62,000 employees. Buildings were built for them, which have on-going maintenance costs for cooling, and heat, and water, and sewage. All of those salaries and RETIREMENT plans have to be paid (Federal workers don't have to live on Social Security). Thus, even if the system were hermetically sealed, and your money never tampered with, it would still not keep pace with inflation, and from it would accrue the negative interest of paying all those bills. You would give them a dollar, and get back 50 cents. And they use the money for their own purposes in the meantime. This is simple financial calculus. This has nothing to do with the desirability of taking care of those who reach old age poor, or who have disabilities. This is simple math. And in any event, Social Security is never enough to help those who have made no other preparations for their retirement to avoid poverty. They still need family, or OTHER welfare programs. We need, in my view, to raise the age of eligibility substantially-say to 75-and make anyone who is under the age of say 50 ineligible for Social Security. We need to start reducing the amount of the contributions, until they reach zero, say within 15 years. The program needs to be abolished, and all of those 62,000 drains our economy fired. Every last one of them takes their job from someone in the private sector, since their jobs are funded through taxation that is then not available for job creation. As I will argue in my piece on Money, one of the intents of the creation of the Federal Reserve System (which as a private corporation is not Federal; does not "reserve" anything; and whose power is actually quite centralized) was to discourage private capital accumulation by using the power given it by the Government to set interest rates artificially low. You can't do this with money that is backed by gold (for reasons I will discuss there), so Roosevelt took us off the Gold Standard. This is what enabled the financing of the so-called "New Deal", which had actually begun under Hoover. A direct and planned effect of this is that we have transitioned from a saving society to a borrowing society. That this amounts to a net transfer of wealth AND power has been noticed by few. With respect to Social Security, we need to begin, again, paying our own way. Where ends don't meet, the parents can be DIRECTLY supported by their children and grandchildren, by living with them, as is done in virtually every society on Earth except our own, and those other nations who have followed our example of chronologically determined ghettoes. Put more simply, we need to start saving our own money, and investing it to grow it any way we choose. People mocked George Bush when he proposed allowing Social Security (you know, the money you make, but can't touch, and may never touch) to be invested, but the underlying intent was sound. We just need to take the next step, and not grant the government permission to take the money in the first place. What would be helpful this regard is a return to the gold standard, since inflation disincents savings, and our current system is, by design, inflationary. Prices don't rise that much, true, but wealth is moved. Again I will discuss this under Money. If the value of money can again be made stable, savings will again begin to make sense. Net: there are no problems we have that can't be solved, IF WE ACT INTELLIGENTLY AND DECISIVELY.