Social Security
If you follow the news at all, you already know that Social Security is a mess. The questions that need to be asking are:
- How did this happen?
- Why?
- What can we do about it?
How did this happen?
Long after Social Security was started, we fought and won World War II. The aftermath of the war was a period of prosperity for the U.S. and an unheard of birth rate. This wave of babies soon reached working age and were able to support the relatively few people of retirement age. Politicians increased benefits to seniors at every opportunity. In my mind, social security is a classic example of the Ponzi scheme. The government has merely transferred wealth from one generation to the next via a tax. Politicians have effectively bought elderly votes with these cash giveaways. They have made it palatable to those being taxed by making people believe there will be money waiting for them someday when they retire. Anyone in the private sector who attempted to run social security in such a fashion would be put in jail for fraud, and rightfully so. Today the boomers who have so faithfully paid the way of millions are about to retire and will expect to receive benefits long promised. The catch is of course, there simply is no money to pay these benefits. Watch as the scheme unfolds just as it did so long ago with Mr. Ponzi.
Why?
Here is an excellent description of the pre-Social Security Period. I strongly encourage you to read this article and become familiar with it. The depressions of 1840’s, the 1890’s and finally the 1930’s all had a devastating effect on society and the elderly in particular. Social security was created to help balance the burden between those who were working and those who were no longer able to. On paper, it is a great idea and anyone opposed must seem a bit of a scrooge. However…
There must be reasons that people don’t save for retirement. You may be asking a lot of a person to save his entire life for retirement when there is no guarantee that the money saved will still be there or will have any value when he needs it. Recall, that depressions wipe out ones life savings on a fairly regular basis. In my lifetime, I have come to see firsthand how the value of money can plummet over the years. On a visit to Mexico one time I received 655 pesos for each dollar. Less than a year later you could get over a thousand pesos per dollar. Imagine that you were a Mexican who has labored his whole life and saved pesos. Within a year, the value of the nest egg he had built up over a period of 40 years was cut nearly in half.
My point is that people are not necessarily unwise for failing to save and have their nest eggs taken by others through inflation or depression. Likewise, elderly people are not necessarily unwise for voting for politicians who will increase their paycheck. Some form of social security will be necessary so long as the value of money is unstable.
What can we do about it?
Our government is charged with maintaining the value of our currency (Article. I., Section. 8., Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;). “…regulate the Value thereof” means that the government is responsible for inflation or depression. In my lifetime, I have seen inflation and taxes eat away at salaries and savings until little is left. Until the government regulates a stable currency and curbs its excess appetite, I would caution anyone to keep a very close eye on any sizable amounts of money.The notion of a personal retirement savings account that President Bush is proposing has some merit. If you and I keep and invest our money, the government would be unable to spend it. That is a terrific idea given our recent past and would benefit our country over the long run. This will create another set of problems no doubt but that is a subject for another day (what types of investments are permitted, how much is required to be saved, who handles the mountains of cash, etc.). The pressing problem today is, how do we maintain benefits and switch over to a new privatized system of savings?
Paying benefits to the baby boomers will force politicians to either raise new taxes, inflate currencies, borrow money, or reduce benefits. To get a probability of which will happen, we have to look at each of these from the politicians#8217;s point of view. Promising huge new taxes will not get you elected. Borrowing even more than we already have seems to me a possibility. Granted, it just pushes the problem into the future, but you have to remember that the future generations casts no ballots… today. Reducing benefits would cause a huge outcry but perhaps not enough to get you thrown out of office. Twenty years after the boomers start to retire the problems die away naturally. Ugly as it sounds for me personally, I think it is a likely scenario. The other method of cutting benefits is to inflate the currency. This solves the immediate cash flow problem but also has the side effect of making those who are “saving” for the future wary.
No matter what happens, there will be turmoil. Where there is turmoil, there is also opportunity, for those who look for it.
