Cooked books. Defrauded investors. Bankruptcy. Is this WorldCom
I’m describing? Enron, perhaps? Nope. It’s Social
Security.
For its entire 65-year history, Social Security has been less
profitable and more corrupt than private investment. Today, Social
Security is in shambles. The benefits paid to retirees will soon
exceed the taxes collected to finance them. Even the strongest
proponents of Social Security concede that without drastic change,
the system will collapse.
When President Bush was elected two years ago, it appeared that
change was forthcoming. “Privatization” echoed from
Iowa to New Hampshire. But after a few accounting fiascos and
several quarters of weak stock market support, Social Security has
thinned; and now even President Bush is reluctant to mention
privatization in more than a whisper.
This is unfortunate because even when we account for transient
recessions (such as the one we’re in the midst of), the
benefits of private investment far surpass those offered by
government programs. According to the Heritage Foundation, if you
are in your late teens to early twenties, you should expect to pay
$400,000 into the Social Security system during your
lifetime. In return, at the age of 67, you’ll be
entitled to $2,500 in monthly benefits. That amounts to a negative
1.02 percent return on your $ 400,000 tax
“investment.”
You don’t have to be a business major to know the private
sector can do a whole lot better than that. Had the $400,000
principal been invested in a diversified portfolio of stocks and
bonds, it would have grown to over $1,000,000.Â
Of course, these numbers are calculated in accord with the
historical performance of the market. There’s no telling what
tomorrow holds. Who knows whether or not private investment will
outperform Social Security in the future?
Politicians know, which is why they refuse to let you opt out of
the Social Security system. Every time Uncle Sam carves open your
paycheck to deduct the 6.2 percent Social Security tax, he’s
telling you, “I know that no rational individual would choose
to invest in Social Security. The only way I can get your money is
by stealing it.”
If politicians were best qualified to manage your investments,
you’d gladly give them that 6.2 percent out of your paycheck.
Heck, why stop there? You’d be happy to hand over your
entire retirement portfolio. But has that ever happened? Has
anyone in the whole history of Social Security asked to give the
government more than the minimum requirement?
Apologists for the Social Security system contend that if people
were given the choice between private investment and Social
Security, they would choose private investment for the same reason
they choose to play the lottery. In other words, private investment
lures investors with the possibility of a big payday, but is unable
to match the safety of Social Security. The recent wrong-doings of
unscrupulous executives would seem to support this argument.
Even though there is the risk of fraud and embezzlement in the
stock market, however, such treachery is kept to a minimum by
competition. Corporations have to compete for investors. If a
corporation dabbles in dubious accounting, it does so at its own
peril. The government, on the other hand, does not compete for your
money. Therefore, it should come as no surprise that the
government has spent decades using trust funds to play the same
shell game with assets and liabilities for which a notorious few in
the private sector have recently been maligned.
In addition to the safeguards of a competitive market, private
investment enjoys legal standing far superior to that of any
government entitlement program. Whatever stocks and bonds you own
are your property, and nothing short of a Communist revolution can
take them from you. It’s a different story when your
money is in the Social Security system. As part of a government
program, your benefits can be increased or (as is more often the
case) decreased at the whim of Congress.
But even if we grant the defenders of government programs the
dubious assumption that the choice between private investment and
Social Security is essentially the choice between risk and
stability, in a free society, the decision should be the
individual’s to make.