The Coming Social Security Disaster
Walter E. Williams, April 2, 1997
The Social Security's Board of Trustees' most recent report predicts the system will be insolvent by the year 2029; they had been predicting insolvency in 2030. By 2010, the Social Security system will be running deficits, the year when the Social Security trust funds go to zip. What needs to be done? Earlier this year, Federal Reserve Board chairman, Alan Greenspan recommended higher taxes and reduced benefits as a solution. But wait. Thirteen years ago, Alan Greenspan headed a commission, named after him, whose 1983 report assured the American people that Social Security had been "fixed" through higher taxes and it would be sound until at least 2058.
Let's face it; there is no government solution that can fix what is an inherent contradiction and a "Ponzi" scheme. You say, "Williams, there's nothing wrong with Social Security; after all there's a big trust fund cushion." There is no trust fund. The actual money earmarked for the trust fund is used to finance today's spending thereby understating the true federal deficit. What politicians call the trust fund is simply a bunch of IOU's. When 2010 comes, and payouts are larger than payins, government has three options. They can make good on the IOU's by increasing taxes, borrowing money or cutting spending. This is exactly what they'd have to do if there were no trust fund.
Social Security is not only a corrupt system it's a bad deal as well. According to "Social Security Privatization," a publication of the Washington-based Cato Institute, and written by Harvard professor Martin Felstein, Social Security privatization would not only make retirees richer, it would raise annual GNP by at least 5 percent. Social Security's rate of return is 2.9 percent compared to a 9.3 percent in the private market. Simplified that means a 50 year-old person has to fork over $1,000 to get $1,900 worth of benefits at age 75. In a private market, that person would only have to pay $206 to get the same benefits. Since most payments into Social Security go to pay today's recipients, there's reduced national savings. With privatization, retirement money would be saved and made available for investment. Investment is what makes for a higher GNP and greater national wealth.
"But Williams," you say, "the Social Security Advisory Council is way ahead of you. They're talking about putting our Social Security money in the stock market." I can't think of much that's more sinister than the government buying and selling stocks. I can see congressmen threatening companies telling them if you don't have an affirmative action program, you won't be on the list of "approved" companies. Or, the White House saying, "If you don't come to our coffee hour, and make a contribution, the Social Security Administration is going to sell the stock in your company."
How about the liberty-oriented solution to Social Security: let people take care of their own retirement. After all aren't we emancipated adults. Under what moral principle or constitutional authority has the government the right to threaten a person with the proposition that if he does not pay into the government's retirement program, they will seize his property, impose fines, jail him and, if he is too resolute in insisting on his liberty, possibly kill him?
Ed Crane, the President of Cato Institute, has it right when he says, "Privatization of Social Security may well be the most important issue confronting our nation. . . ." We've listened to the fine tuners long enough. It's time to listen to our commonsense.
Walter E. Williams
April 2, 1997
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