What’s Up Social Security?

All right first off let’s get you ready to read some mad long shit about Social Security. I’ll start off with an awesome vid vid of the rap tune “What’s Up Fat Lip?” Oh yeah, don’t steal my shit. Thanks. If you want to, then just let me know beforehand.

Part One: Briefly describe the Social Security system. What are the important issues?
Business Week, amongst many other publications, began reporting about a crisis in the Social Security system in the United Stations a few years back. The main issue that has been extensively discussed in economic circles is that there is a shrinkage in the cash supply that is used to pay retiring baby boomers. That’s because the number of workers per retiree is at 3.3, which is five times less than in 1950. Even worse, socialsecurityreform.org states that a married couple (two workers per retiree) in 2025 will have to pay benefits for just one retiree.

President Franklin Roosevelt, a proponent for the protection of the elderly, signed the Social Security Act in 1935. The Act put forth a form of social insurance; workers are mandated to have Social Security taxes deducted from their pay check. As a form of protection (in the case of an economic crisis or other potentially hazardous occurrence), that tax money is supposed to go back to workers upon their retirement. After a certain amount, which often varies anually, of yearly earnings (in 2009, it was $106,800) workers no longer pay Social Security taxes. The idea of having a limit, officially referred to as the Social Security Wage Base, is rather simple: if there was not a maximum income restriction the government would have to pay out a lot more money in Social Security benefits than if there is a maximum restriction in price. Nevertheless high earners do end up with higher amounts of benefits than their lower paid counterparts, but the cut-off is in place to keep the difference “within reason,” for lack of a better phrase. For years, the rate of return on Social Security contributions was positive (and very high at that), but now according to Roger Miller, the author of Economics Today, most people under 50 years of age face the threat of a negative rate of return. Imagine explaining that to one Ida May Fuller, who put in a total of $25 worth of contributions and received $23,000 worth of benefits by the time of her death, which to be fair was at age 100 (well over life expectancy). The thought of a negative rate of return is scary one, at least to those who care about their financial status.
If the system gets to that point, there are two particular things the government could do to “salvage” the situation: the first would be to raise Social Security taxes on workers so that there would be more benefits available to those who are supposed to receive them and the second would be to lower the amount of benefits delivered to retirees. In fact, President Barack Obama proposed in 2007 that he would raise the cap on Social Security. He said that if he did that, “people like [himself would be] paying a little bit more and people who are in need are protected.”ⁱ The option of excluding the middle class (which was extensively discussed during the 2008 Presidential election season) from a higher tax burden is certainly possible and I’m sure that the people of the middle class would be receptive to such a measure.Recent polls indicate that as many as 90% of Americans consider themselves “middle class” so getting through a populist measure like that would only upset a small fraction of wage earners.ⁱⁱ Many websites and campaigns, such as the explicitly titled socialismdoesntwork.com and the Campaign For Liberty, are grassroots efforts aimed at warning the public that raising taxes on the rich is ineffective. The former argues that “high taxation discourages entrpreneurship, investment, and attempts at high achievement…leading to less economic activity” which “creates higher demand for social services.”ⁱⁱⁱ Of course, these assumptions are based on high earners working at near full capacity, which shouldn’t be unexpected if their motivation is to earn more money. In terms of lowering benefits, it was announced one month ago that there would be no Cost of Living Adjustments (COLA) dispersed in 2010.^iv Some seniors, I’m sure, were disappointed upon hearing the news, but their real buying power will increase and at least one major organization is pointing out that zero COLAs would be a good way of containing future costs.^v It seems to me after analyzing the two “remedies” above that increasing taxes and lowering benefits would be inefficient because the two major groups of people involved, workers and retirees, would both suffer in some way. Other options proposed by Miller include reducing disability benefits, reforming immigration, and allowing for the purchase of stocks instead of treasury bonds. Unfortunately, these measures, too, would cause harm to various groups of people, in particular disabled persons, would-be immigrants, and workers of unpopular corporations, respectively. After reading about this subject and elaborating on it above, I’m more inclined to believe that authorative economic interferences always undermine the individual. I’ve read about individuals criticizing the current system as an illegal Ponzi scheme. That sounds about right, because so long as the government distributes contributions from “investors” to other “investors” it’s acceptable, but when individuals do it, it’s fraud. The Social Security system relies on new generations to pay for benefits, just as the average Ponzi scheme relies on new investors. There’s been a lot of talk, mianly from conservatives, about privitizing Social Security. That alternative, as I will discuss, is just as malignant as what we have now.

Part Two: Is it a good idea to privatize Social Security?
If privatizing Social Security would involve moving Social Security contributions into government sanctioned investments, I would be totally against it. Again, individual liberties would be undermined. Individuals would “kind of” control where their money goes, but not fully control it. A halfway solution isn’t at all a solution. It’s indeed a form of economic control. It’s as if the government doesn’t completely trust people to make their own financial decisions. The government would then dictate which private interests earners could resort to. I’m sure large corporations would then lobby extensively to get recognition as “favored.” To me, that’s corrupt and anti-democratic. Individuals should be allowed full control over their earnings. That includes doing away with the income tax, as well. That’s why I’ll say if privatizing Social Security would involve wage earners having complete responsibility (absolutely no government or corporate influence) in their investments, I’d be fully in favor. Earners could move their money in whatever direction they want. They could choose to put that money in the stock market, under their bed (not economically satisfying, unfortunately, but still an option!) or into a bank account..anywhere. The question then becomes what would happen if there is a stock market collapse, a house fire, or a bank failure? There would be no safety net like Social Security that could save these people from disaster. The key concept is that people know that in a genuinely free market, bad things can happen. Earners have to adjust the way they go about saving money and claim responsibility if something does go wrong. Ideally, there wouldn’t be a government to bail them out. Why have government mendle in earners’ affairs? In fact, under an independent system, as I will go about calling it, individuals could set up their own Social Security-esque system. They could voluntary put money into it and expect to get money out of it when they retire. If they don’t end up getting benefits, that’s because they took a risk and that risk failed to work out as they wanted it to. That’s a fact of life. Is the privatized system in Chile similar to the one that I prefer?
The results of the Chilean system are encouraging: none of the competing private companies have gone bankrupt and workers have not lost a dime. On top of that, it’s nice knowing that Chilean workers aren’t forced to put their money in a so called “trust fund.” Workers can contribute at minimum ten percent of their earnings and at maximum twenty percent. My question is, why the limit? By imposing standards on the marketplace, workers aren’t completely free to do whatever they want with their money. There seem to be even more questions of whether the system is truly private. For example, the twenty competing companies (called AFPs) have formed a regulatory body. Initially, Chileans couldn’t even invest their money abroad.^vi Such strict restrictions have apparently been relaxed, but my doubt is in that regulatory agency. There shouldn’t be any regulations, as more regulations just limit economic freedom, as I have continuously stressed. I think it comes down to a case of controlled prosperity. Chile knew that its Social Security system was nearing disaster. The state didn’t want to fail its people entirely, so it created a so called “capitalist” program that would not give workers complete control, because that, of course, could spell disaster as much as a state program. So they opted for a halfway program, that gives just the “right” amount of ownership to workers. The “right” amount that wouldn’t potentially result in a failure. A lot of people are probably content with that because the system is new to them and they do not know what to expect. A petty thief is not as bad as a bank robber, but they are both similar in how they get the job done. This analogy can be appropriately applied to regulatory bodies and governments.

Part Three: How should Social Security be reformed?
My answer to this query goes along with much of what I’ve stated above. To put it more bluntly in this questionnaire, I will say that Social Security should be entirely eliminated. Many older folks depend upon Social Security for their well being. They were involuntarily tricked into the system, just like you and I. These folks shouldn’t be punished. The most logical step in reforming Social Security at the moment would be to enact a proposal that was put on the table by Congressman Ron Paul of Texas. Paul’s revision of the Social Security Act would add a tax-exempt “Personal Retirement Account Program.” These accounts would be made available at local banks and could easily be accessed by retirees.^vii It’s a step in reducing central planning. This proposal would give more power to the people. Unfortunately, there are always going to be liberals and conservatives alike who perpetually oppose fiscal responsibility. In 2000, HR 4839 (the name of the revision above) was only able to get enough leverage to be referred to the House Committee on Ways and Means. Only thirty-nine people participated in HR 4839; they were all Republicans. I’m sure the others fear what would happen if the government wasn’t involved in economic issues like this one. Maybe they think that chaos would ensue and that the amount of low-income earners would be in a deeper mess. Whether low income earners realize it or not, their well-being is their own. Their financial and physical health is in their hands, or at least in somebody they trusts’ hands. Class division is affirmed by government programs. A survey by the Principal Finacial Group affirmed my concerns that people fear financial responsibility. 49% of those polled indicated that they would not be comfortable managing their own accounts. Only 61% said long term financial security is a top concern.^viii These statistics are alarming, especially if they correlate with the general population here in the United States.
Another practical measure which is constantly brought up by Congressman Paul whenever he is asked about Social Security is allowing young people to opt out. The bleeding isn’t going to stop soon and is just going to keep getting worse. Why should college students like myself be forced to pay Social Security taxes when we know that we are not going to see a worthy return on contributions? That’s government fraud and must be taken care of immediately. I frequently go to the bank and manage my money on a consistent basis. Some of my friends have never even been inside of a bank. These friends are just like the majority of other complacent Americans who don’t really care about their finances. They work part-time and full-time jobs and must realize a good chunk of their money is being taken out in taxes. If everyone takes a stand against theft (especially useless theft that sees absolutely benefit or positive effect insight), maybe enough individual pressure can be mounted on the government to change things. Congressman Paul has the right idea, but there aren’t enough Americans pledging their support or even giving their attention to this issue. It’s nice to know that nine years after that failed HR 4839 there are still responsible measures being proposed. HR 219 “simply states that all monies raised by the Social Security Trust Fund will be used only in payments to beneficiaries or invested in interest-bearing certificates of deposit.” Will that so called stop the bleeding? It will stop wasteful government spending at the least. On a final note, I will end this by saying the best kind of reform is the willingness to look at the status quo with suspicison.