I don’t need to harp on the fact that Social Security is doomed unless some politicians comes up with a slick way to reorganize the Government-backed retirement scheme for a few more years than its projected bankruptcy. Kudos to Brad at the unrepentantindividual.com for a wonderful review of what President Bush’s “Part D” might look like (it’s sort of like a terrible series of sequels to a bad movie, isn’t it?).
In his post, Brad writes:
First things first. You’ll never lose your benefit. No matter how badly your investments do, you’ll get a check. All it will take is for the first person to “lose” under this system and you’ll see an immediate “floor” of benefits. That floor will probably be in the range of the lower payments our current system pays out: sparse, but better than nothing. For those of you who think that if people’s investments fail they should pay the price for that, I’m sorry to say that politicians will never let that be true.
But that brings me to the second point. You won’t have freedom to invest as you see fit. It may be an account with your Social Security number on the file folder, but it’s not your property. The government isn’t going to let you day-trade it. The government probably won’t even let you pick individual stocks to invest in. At best, you’ll have your choice of certain “approved” mutual funds. If the Medicare program is any indicator, these funds will be cherry-picked by the mutual fund companies themselves, not by intelligent people based on what they believe will give them the best returns.
We can already see that government involvement will have some sort of distorting effect on the market. But how far down will this go? Well, at the beginning, companies will be clamoring to meet the requirements of the Social Security program to become an “approved” fund. After all, you’re getting a quick crack at tens of millions of investors, sure to impress your bosses (and shareholders). So what do you do to get on the “approved” list? Anything the government asks. You think the Vice Fund will be on that list? I don’t think so. But it only starts there. You can bet that the requirements the government places on funds to be on that approved list will be lengthy and will further distort the market.
All of a sudden, fund managers are no longer looking to earn the largest return, they’re looking to attract the most customers by attracting the new Social Security participants. Will getting the highest return and keeping expense ratios low drive the market? Nope, increasing expense ratios brought on by increasing costs to comply with ever-more-demanding federal regulations will be driving the market. And real rates of return “within the system” will fall.
I think the implications of such a system are correct, if they were ever implemented. Social Security privatization and the many attempts to “save” Social Security will fail. The best way to “save” the system is to let it die. Sell off unnecessary Government holdings and pay everyone back what they paid in plus interest. This solves two problems: It increases the amount of privately owned property in America – good for Capitalist America – and it dissolves the longest running (and only legal) Ponzi scheme in American history.
I know that that may sound like a “radical” idea, but it isn’t. Listen to the Government Accountability Office (the GAO). While they don’t explicitly endorse the dismantling of the SSA, they do acknowledge that “tough choices” will have to be made. There is no way to grow our way out of the predicament we’ve gotten ourselves into. One or more of these entitlement programs must go. One could argue that all of them should go, but the GAO does at least understand that we simply cannot continue to promise these kinds of benefits to retirees. Even if you wanted to, there’s just no way to (financially) support the payouts.
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_________________________This entry was posted on January 1st, 2012 by David C Lewis, RFC. Edits may have been made to keep this entry current. · 2 Comments · Investing, Retirement Planning
Any attempt to treat Social Security, or the bigger problem of Medicare, as a separate issue within the economy will result in choas. At best, it will result in millions of poor, sick old people. At worst, it will result in the complete rejection of capitalism. The current system makes it impossible for nearly anyone to save sufficiently for retirement and their medical expenses. A return of the money put into the system, even if inflation is taken into account (an issue sadly lacking in your post) will not allow anyone to live at more than the lowest levels of poverty. However, a turn towards capitalism, and the reduction of government will solve these problems. Both the energy of the economy and the sell off of government assets would provide more than enough money to see to the retirement of the existing receipients of Social Security and Medicare, and the futures of those who would be looking after themselves without governemnt “help”.
Thanks for your comment C.W.
In all fairness, I tend to delimit my subject matter and focus on a particular area I wish to discuss. In this case, the post is titled “Social Security or Social Security”–so I chose to write about one aspect of Social Security, while briefly tying it into the larger system as a whole at the end. Second, this wasn’t a treatise on how to solve the Social Security and Medicare problem or even a detailed analysis on how to close them down. I do agree that an increase in production, elimination of all social programs, and the sale of government property would likely be a viable option to keep old people from dying poor and sick in the streets. Perhaps I could write a more broad-based post in the future which would focus on the “how” rather than the principle of the matter.