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.
Blogger Tony Donadio puts it more sharply. He notes that if the next generation of workers chooses to opt out of Social Security, they would be morally entitled to do so — the fact that current workers had already paid into “the system” would be irrelevant. The current workers’ money is already gone, spent by the government, just like the money lost by Bernie Madoff’s victims. Current workers do not have a moral claim on future workers’ income any more than Bernie Madoff’s current victims have a moral right to compel new victims to cover their earlier losses.
Given the economic and moral bankruptcy of Social Security, the proper question is not how to “reform” it, but rather how to privatize and eventually eliminate it. Eliminating Social Security will not be easy, but it must be done if this country is to survive economically. The alternative is the riots and civil unrest we’ve seen in countries like Greece when their entitlement systems finally collapsed.
And just as an individual who runs into financial trouble may have to sell personal assets to pay his debts, the federal government may similarly have to sell some of its assets to make good on its debts, as has been recently proposed by Investor’s Business Daily, the Cascade Policy Institute, and the Cato Institute.
Fortunately, some Americans are recognizing both the economic and ethical necessity of eliminating Social Security. Blogger Milton Wolf writes:
As burdensome as it would be, I would volunteer myself to be the “sandwich generation” to solve it. I will pay for my parent’s generation’s retirement (through my Social Security taxes) and pay for my own retirement (through my 401K) without accepting for myself any Social Security benefits, if doing so would unshackle my children from this welfare state Ponzi scheme system that will otherwise crash hard and take America with it.
There’s ample room for legitimate debate on how quickly and by what precise methods Social Security should be eliminated. But the overall guiding principle of any such discussion must be that the government should not compel a man to pay for his neighbor’s retirement against his will any more than it should compel him to pay his neighbor’s mortgage — or his neighbor’s medical bills. Instead, the government should leave individuals free to plan for their own retirements (or not) according to their own best judgment — and enjoy the rewards (or suffer the consequences) of their decisions.
If we Americans don’t start working now to eliminate Social Security, our delay will only make the inevitable crash all the worse. And future Americans will rightly curse us for leaving them with a stack of worthless paper promises.