Another Pyramid Scheme’s Demise
Social Security is broken, and only the free market can fix it |
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Carlo “Charles” Ponzi, of the famed Ponzi pyramid plans, was an abysmal failure at everything he undertook, save for an ability to convince others to invest in his metaphysically bad ideas. Ponzi devised a dupement by which money put in by new "base" contributors forced money up the "pyramid" and provided earlier investors a financial windfall as money gushed out of the top.
If this sounds too good to be true, it is only because it is. Ponzi successfully drew the interest and dollars of countless suckers to his purported get rich quick schemes; at the end of the day no one got rich, and a whole lot of money went a-missing (okay, almost no one). In this, he has a great deal in common with the Social Security Administration (SSA). But while Ponzi garnered the money of willing patsies, the SSA legislatively forces its “contributors” to feed the pyramid via the Social Security Act of 1935.
The results of both are the same: fools and their money, soon parted. There can be only one final outcome for any system built upon the structural tenets on which Social Security is laid: implosion. Any implemented formula whereby monies are paid out of a system in which no wealth is created is doomed to failure. From its inception, the Social Security Insurance Program (SSI) was predicated on an economic fallacy. Taking in and doling out money, dollar for dollar, with no attempt to utilize the accumulated currency to generate additional revenues, is a recipe for disaster. The reservoir for this temporary excess of capital was supposed to be the much heralded and perpetually nonexistent Social Security “Trust Fund”, into which the excess FICA payroll taxes were supposed to be placed. But even had this actually been transpiring, and it has not been, it would merely have been the federal equivalent of sticking the money under a mattress.
The result is a program that would inexorably reach a point where it would be awash in red ink. For SSI, that point is 2018, the first year in which the money coming in is outstripped by the money going out. The excuse proffered by members of the Leave It Alone Coalition is that the payer to payee ratio that began at 40-1 has now shrunk to 3 (and soon to be 2)-1, hence the imminent shortfall. This is merely more evidence that rudimentary economic thought was not a part of the SSI formulaic process. It is fairly safe to say that any operational model that is not sustainable on three sources of income for each corresponding expenditure is one that should be immediately discarded, not put into practice on a national level. Private insurance companies also rely on multiple income streams to keep up with each outlay, but that is where the similarity with Social Security ends. Automobile carriers, for example have many, many customers who pay premiums their whole lives and never file a claim. (As my exorbitant rates attest, I am not to be found amongst said purchasers.) The vast majority of Americans do succeed in achieving an advanced calendarial state, however, at which point they all file SSI claims. So as the Greatest Generation’s prodigious proliferation begins to call it a career, the Social Security jig begins to be up.
I find it highly improbable that President Franklin Delano Roosevelt could not see this coming when he created the system. This did not stop him from executing it, because likewise I am quite sure he foresaw it establishing and ensuring a large Democrat voting block in perpetuity. Not to mention an enduring political hammer with which to bludgeon Republicans. Fundamental, fatal design flaws notwithstanding, SSI has taken on additional water from damage inflicted by politicians simultaneously seeking additional social program dollars and political expediency. In 1968, President Lyndon Baines Johnson and the Democrats in Congress moved Social Security off-budget as an “entitlement”, meaning the Congress was no longer responsible for being responsible with the extra cash collected each annum. And with that procedural shift they gave themselves permission to spend the excess FICA income on building the Great Society, rather than setting it aside for future SSI recipients. As we have seen with every Socialist endeavor ever attempted, the road to Heaven on Earth always dead-ends in Hell. Leaving aside the societal damage wrought thereby, maximized with these federally pilfered dollars, the pitiful monthly stipend provided by Social Security could most assuredly have been augmented by the excess revenue robbed from the repository. The defenders of the status quo will argue that SSI was never meant to be anything more than a supplemental income for retirees. To them I say any program that takes 12% of my coin to provide a mere “augmentation” of the retirement income of current recipients is not making a successful go of it. The Republicans, in control of Congress for the last decade, have been just as happy as the Democrats to continue assiduously spending the FICA excesses.
President George W. Bush deserves credit for his fearless discussion of the impending SSI demise during his 2000 campaign, willingly waltzing along the “third rail” of American politics on his way to the White House. He receives a pass for not addressing the issue during his first term, due to the necessary diversion of addressing IslamoFacist idiocy created by the September 11th, 2001 attacks. His willingness to campaign on the issue again, and primarily prioritize it in his second term, bodes well for at least a swipe at a solution. And to this end, private investment accounts have to be the conclusion reached by Congress, as it was (and is) for the President. Government holding money, even when they resist the temptation to not hold it (the former, of course, being far less probable than the latter), does nothing to add to the pot. There are numerous potential private sector repositories of FICA cash that will provide certain, safe returns on investment that are far greater than the 1.2% currently being paid to the average SSI recipient, a percentage that will only continue to fall as the Program hurtles towards insolvency. The anti-reform crowd will at this point invariably mention WorldCom, Enron, Global Crossing, or some combination of the three, and cite these companies as proof that the nation’s retirement money is not safe in the hands of the evil Marketeers. To them I posit, just how safe has it been so far exclusively in the hands of government? At present, there are over 2,800 companies listed on the New York Stock Exchange, and over 5,000 listed on NASDAQ. Three out of 7,800 is not a bad ratio of bad apples, especially when contrasted with the one to one ratio of the spoiled Granny Smith that exists in Washington, D.C. I feel much safer rolling the dice down Wall Street than I do up Capitol Hill. Beyond that, this fear of turning the people’s monies over to the people contradicts their notion of SSI being but a mere supplementary retiremental stipend. Where are the nation’s elder statesmen to cull the remainder of their non-SSA retirement income, if not from some form of investment in the private sector?
401Ks, CDs and every other form of individual investment is putting the money in the exact same places as would private SSI accounts, and I do not hear Democrats bemoaning the retirement plans proffered by our nation’s employers as being too treacherous, just too tightfisted. So they are perfectly comfortable calling for greater employer investment in the private markets on behalf of their employees, but they will not allow the employees to do the exact same thing for themselves. Interesting dichotomy, is it not? But not a surprising one. Democrats long ago arrived at the Marxist conclusion that all business is bad, government is good, and the people are too stupid to either tell the difference or to get out of their own way. So government continues to force them out of theirs, as to lead its sheep down the primrose path to fiscal oblivion. Copyright December 21st, 2004, by Seton Motley, LessGovernment.org, All Rights Reserved |
