Friday, April 01, 2005

Social Security Ain't All It's Cracked Up to Be

It completely amazes me that there is such resistance to changing Social Security. My guess now is that Bush’s efforts will fail only due to personal hatred for the man, fear of the unknown, general ignorance of how social security works or a combination of the three. For years, I have believed in the idea of changing social security from a transfer program to at least partly include a fully-funded pension program. Let me just break this whole situation down, how I see it.

1.Democrats and their allies claim that Social Security is fine until 2041. This is a bit misleading. It assumes that there will be predictable demographic changes: life-expectancy will continue to grow only at a slow and steady pace, and that birth-rates will not decline significantly. Assuming both of these things, especially the former, is a bit dubious.

2.The 2041 figure also assumes that the government can afford to pay out all of the IOUs that are owed to Social Security. The program is currently running a surplus up until around 2017. Currently, as the surplus comes in, the money is being spent on other parts of the government leaving IOUs to the trust fund. So in 2017, the IOUs start to come due. What does that mean? Either cuts in other government spending or higher taxes. Both options offer negative consequences to our economy. Twelve years from now we will face this problem. That’s far away and not something we need to worry about?

3.Social Security hardly offers any real return on investment. All it does is move money from one group of people, the young, to another group of people, the old. Any increase in funds that the seniors receive comes on the whims of our laws. There is no wealth building here. Higher payouts depend on increases in the workforce (which is no longer happening) or increase in productivity (which is not a very high percentage), or sucking more money out of American workers.

4.Allowing for personal accounts would allow the working poor the join the investor class. Why is this so bad? A lot of the attacks on this part seem to focus on the idea that people are too stupid to pick one out of five different kinds of investments. This is rank liberal paternalism at its worst.

5.The current system transfers money from those with lower life expectancies to those with higher life expectancies. Therefore, blacks transfer money to whites, men transfer their money to women, and so forth. Personal accounts allow people to keep their own money and if they die, it gets transferred to their survivors, not to certain demographic groups among the general population.

Critics might point out that there will be a lot of pain in increased borrowing if we transition to personal retirement accounts as a part of Social Security. I do not deny this, but this would be short-term borrowing freeing ourselves from the albatross around our necks: the national pyramid scheme, Social Security.

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