In a classic episode of The Simpsons, a hungry Homer Simpson runs out of donuts and breaks into his emergency stash. But when he opens the box, it’s empty except for a note that reads: “Dear Homer, IOU one emergency donut. Signed, Homer.” Homer curses his earlier self: “Bastard! He’s always one step ahead.”
It’s easy to laugh at Homer Simpson’s folly, but America is doing the same thing with Social Security financing, and the end result won’t be amusing.
In a recent Washington Post column, Charles Krauthammer described the federal government’s accounting shell game behind the fictional “Social Security trust fund.” He notes — and Obama administration officials acknowledge — that the federal government has already spent the Social Security surpluses of the last decades, replacing the borrowed money with so-called “special issue” bonds. But according to the Office of Management and Budget (OMB), these “special issue” bonds “do not consist of real economic assets that can be drawn down in the future to fund benefits.” Instead, they are mere promises to repay the borrowed money, just as Homer Simpson’s IOU is a mere promise to someday replace the borrowed donut. These “special issue” bonds are thus no more tangible assets than Homer Simpson’s IOU is edible.
To make matters worse, now that the Baby Boomers have started retiring, Social Security will no longer run surpluses but rather ever-increasing deficits, rising from $40 billion in 2011 to over $100 billion in 2021. As Investor’s Business Daily notes, these Social Security deficits will drain precious capital from the private sector that could have been used for productive investments — making the value of the “trust fund” less than zero.
But more fundamentally, not only is Social Security economically bankrupt, it is also morally bankrupt. Contrary to popular belief, Social Security is not a savings plan where people deposit their money during their working years then withdraw it once they retire. Rather, as Robert Samuelson recently described, it is a “pay as you go” scheme. Current workers are taxed to pay current retirees. When these workers retire, they’ll then receive money taken forcibly from future workers. Hence, Social Security is no different than any other Ponzi scheme, except that Americans are compelled to join whether they wish to or not.
Individuals are legitimately entitled to retire with their own savings or from money contractually owed them via insurance, private pensions, or other voluntary retirement plans. Individuals have both the right — and the responsibility — to plan for their retirements according to their own best judgment. This includes saving money as well as purchasing insurance (or entering into voluntary mutual assistance agreements with others) to protect themselves against unforeseen adverse circumstances that might prevent them from saving for the future.
But they do not have the right to confiscate other workers’ earnings to fund their retirements. The fact that current workers have already been taxed to pay earlier retirees does not give them the right to confiscate future workers’ incomes, just as someone who had been physically abused by his parents does not somehow gain the “right” to abuse his children in turn.