The Social Security tar pit
My friend, Tom G, is organizing a Townhall meeting on Social Security reform. He sent an email query to his associates eliciting feedback regarding Social Security concerns.
Here is a list of my reasons for believing we have to do something about reforming Social Security.
The Social Security (SS) system senselessly insists on conducting itself in a losing manner. You could design an investment program that would be even less profitable than SS, but that would take time. Our laws then coercively force citizens to invest in this poorly performing investment.
In summary, our SS system forces citizens to involuntarily invest a portion of their retirement savings into the least attractive retirement plan available.
The only defense I can think of for the SS system is that it is guaranteed to avoid loses at the price of only producing small gains. This defense is gravely weakened because the “safety” it provides is purchased at such a prohibitive price in lost opportunity that only the most clueless citizens would select it over the private accounts. (Of course I’m only referring to citizens who are approaching retirement. These folks do not have enough time to benefit from private accounts.)
The SS system enervates our economic growth. SS taxes are invested in government bonds. Like flies trapped in government securities amber, the trillions of dollars in the SS funds languishes in stasis until the citizens retire and it is doled out in monthly checks.
The money “invested” in SS is lost to the economy for the forty years or so between a citizen’s first paycheck and when he gets it back as a SS check. In contrast, retirement savings invested in private accounts—which presumably would be invested in index funds and so on—would have increased annual GNP growth by a few percent each year. This increase in the GNP’s rate of increase, of course, would compound annually.
We would all be much better off today if private account had been around for the last forty years.
Without either a material reduction in benefits or a material reform (e.g., private accounts), the existing SS system will become a threat to our economy. This is because the ratio of workers to retirees will become so low that SS taxes will have to be greatly increased. This debilitating tax increase will become a progressively larger drag on our economy.
Similar to the Ghost of Christmas Future, the Europeans’ much larger welfare state infrastructure warns us as to our fate should we fail to reform SS. The Europe’s welfare states are in trouble for the same reason that our SS system is destined to be in trouble: aging populations resulting in growing number of recipients and dwindling numbers of taxpayers to fund entitlements. Europe crisis has arrived decades before ours because (1) their population is aging quicker than ours, and (2) the stresses on their economies—already stagnated by their cradle-to-grave welfare systems—are approaching the danger zone.
Like so many clueless dinosaurs futilely struggling to escape a tar pit, the European countries are struggling to escape their self-constructed fiscal trap. This slow-motion spectacle of the European economies being consumed by their welfare states is a morbid example of what awaits us should we fail to act.
The sooner we reform SS the less painful it will be. It needs to be done, we need to get it over with.
Here is a list of my reasons for believing we have to do something about reforming Social Security.
The Social Security (SS) system senselessly insists on conducting itself in a losing manner. You could design an investment program that would be even less profitable than SS, but that would take time. Our laws then coercively force citizens to invest in this poorly performing investment.
In summary, our SS system forces citizens to involuntarily invest a portion of their retirement savings into the least attractive retirement plan available.
The only defense I can think of for the SS system is that it is guaranteed to avoid loses at the price of only producing small gains. This defense is gravely weakened because the “safety” it provides is purchased at such a prohibitive price in lost opportunity that only the most clueless citizens would select it over the private accounts. (Of course I’m only referring to citizens who are approaching retirement. These folks do not have enough time to benefit from private accounts.)
The SS system enervates our economic growth. SS taxes are invested in government bonds. Like flies trapped in government securities amber, the trillions of dollars in the SS funds languishes in stasis until the citizens retire and it is doled out in monthly checks.
The money “invested” in SS is lost to the economy for the forty years or so between a citizen’s first paycheck and when he gets it back as a SS check. In contrast, retirement savings invested in private accounts—which presumably would be invested in index funds and so on—would have increased annual GNP growth by a few percent each year. This increase in the GNP’s rate of increase, of course, would compound annually.
We would all be much better off today if private account had been around for the last forty years.
Without either a material reduction in benefits or a material reform (e.g., private accounts), the existing SS system will become a threat to our economy. This is because the ratio of workers to retirees will become so low that SS taxes will have to be greatly increased. This debilitating tax increase will become a progressively larger drag on our economy.
Similar to the Ghost of Christmas Future, the Europeans’ much larger welfare state infrastructure warns us as to our fate should we fail to reform SS. The Europe’s welfare states are in trouble for the same reason that our SS system is destined to be in trouble: aging populations resulting in growing number of recipients and dwindling numbers of taxpayers to fund entitlements. Europe crisis has arrived decades before ours because (1) their population is aging quicker than ours, and (2) the stresses on their economies—already stagnated by their cradle-to-grave welfare systems—are approaching the danger zone.
Like so many clueless dinosaurs futilely struggling to escape a tar pit, the European countries are struggling to escape their self-constructed fiscal trap. This slow-motion spectacle of the European economies being consumed by their welfare states is a morbid example of what awaits us should we fail to act.
The sooner we reform SS the less painful it will be. It needs to be done, we need to get it over with.
posted by johnh | 10:38 AM
<< Home