Everyone knows why the social security crisis is coming, right? All the boomers will be hitting social security age, and there won’t be enough of us whippersnappers around to pay for the geezers. “But wait, I thought all the geezers paid into the program, so they should just be getting back what they’ve already put in!” you exclaim. BAHAHAHAHAHA!

Historically there has been a surplus of money, more than enough to pay for current social security recipients, coming into the program. But if you think that “surplus” sticks around, forget it. That “surplus” is spent just as soon as it comes in, on bombs, education, funding for the arts, or whatever tickles your senator’s fancy.

Your “social security” taxes are nothing of the sort; they are merely a 15.3 percent income tax, assessed before you pay your regular 10/15/25/28/33/35 percent federal income tax, your [insert state tax percentage here] percent state income tax, and your [insert local income tax percentage here] percent local income tax.

Social security is really a pay as you go kind of thing. There’s no lockbox. (And the value of getting congress to pass some sort of “lockbox” legislation is of little use when congress can just pass a law to magic the lockbox away again.)

Now, I realize there is conflicting evidence whether there is a real problem or not. Some say there is, others say there is only if you use really pessimistic economic figures. (When it comes to planning for the future, why not plan for the worst case?) Some people say that creating private social security accounts is the only way to save the program, or at least is the best way to save it. Others think that’s a terrible idea, what if your social security money is invested in Enron II?

I’m personally very nervous about letting the government plow money into the stock market. Bad, bad idea. I don’t care how much you dress up the idea in nice happy right-wing “privatization” propaganda, letting government invest directly in businesses is a very, very, very bad idea.

Now, I’m in favor of privatization in general, don’t get me wrong. But privatization in this case would really be to just give people their money back, or better yet, not take it from them to begin with. Setting up a system whereby you take a bunch of money from individuals (who know how best to use their own money), and just funnel that money into the stock market, well, that’s disasterous.

It’s disasterous if you let individuals pick and choose only “conservative” stocks (so they don’t get soaked), because then you’re just funnelling money into the stock market in a random or ill-informed way. Essentially you destroy the knowledge aggregation function of the market. All of the companies who are on the “conservative stocks” list gets a huge government influx of cash that has nothing to do with the performance of the company or anything.

And if you set somebody up in the government to funnel the money around, well that’s even worse! How about an example: hmm… Eli Lily is in the S&P 500. They make drugs like Prozac and Cialis. Maybe you’ve heard of them?

Lets say that three years from now, 1/500th of the social security money is invested in Eli Lily. Someone working late at the FDA discovers that in very rare cases, long term Cialis use gives a man cancer of the penis. Within 3 months, your penis gets chock full of tumors and just falls right off. The chance is like, 1 in 200,000. Do you think there’s not going to be a good amount of pressure on the FDA to hush it up, or at least tell the folks over in the SS department to maybe move some stock? We’re talking about 15-20 middle aged, un-hip, high-pants wearing, golf playing washed up executives here, vs. 1/500th of everyone’s social security money. The government passes laws and regulations that affect businesses every day, do you trust them to not think about how those laws and regulations are going to affect the stock of the companies that everyone has their social security money in? Not on your life. It’s the ultimate insider trading nightmare.

If you don’t put restrictions on stocks that people can buy, if you let people do whatever they want to with their money, then how is that different from just not taxing them in the first place? What happens if someone loses all their money in their social security account? Now they don’t have social security or ANYTHING.

Bottom line: privatization is a bad idea.

So let’s assume there is a social security crisis. “Privatization” is out because of all of the arguments I just gave. What should we do to save it?

Step number one: Means testing. I still don’t know why we don’t have this. Why not only let poor people recieve social security? I mean, Warren Buffet, who recently made 650+ million dollars in one day, does not need social security. Yet Warren Buffett is eligible for social security. This is ridiculous.

If cutting social security would really hurt the poor people, then why not eliminate the benefits that the rich are getting? That has the same effect as cutting the program but without hurting the poor people. Bam! Problem solved.

Okay, but what if that doesn’t quite solve the problem? Then we move on to step two (which I’m a bit more tentative about, but I haven’t heard a convincing argument against it.) Index social security benefits to prices, not wages. That in and of itself is enough to save the program, with room to spare, even with the most pessimistic figures that anyone has put forward.

I highly recommend this post over at Marginal Revolution for more info on indexing social security benefits to wages.

Now, I kind of lied a bit up there. Means testing and indexing social security benefits to prices are what I’d push for if I was being realistic about what kinds of things I could get passed through Congress. What I’d really like to see is the abolition of the entire program. Think about it: if everyone in the country got a 15 percent pay raise, don’t you think that would have an impact on charitable giving? I think private charity is more than capable of stepping up to the plate to take care of the elderly if the social security program (and the usurious tax!) was abolished. I’m more than willing to pay into SS for my whole life and not get a dime back if it means getting rid of the whole mess.

But when I put on my “Be realistic!” hat I know that would never happen. It’s just my own private little fantasy.

This entry was posted on Friday, February 11th, 2005 at 12:27 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.