Ideas for a better Union: Idea 2

Privatize Social Security

At the end of last week a local radio station briefly mentioned that this year Social Security will pay out more than it takes in. They passed it off as if it was no big deal because we still have the trust fund and it will not run out of money for a couple more decades. The only problem is that there is no trust fund. It is full of IOUs because our Congressmen have been borrowing that money for years. We also know that this is an unsustainable program that will have to be dealt with eventually. The only realistic option to save the program is to privatize it.

Ideas for a better Union
Ideas for a better Union

 First, I think it is important to understand the program. I wrote a quick post on it back in 2008 that summarizes some of the aspects of the program, but there are a couple of other resources that you should read as well. One is the wikipedia entry. Here you can learn a little about the history of the social security program. It is a perfect example of how a good intentioned program gets out of control when it is in the federal government’s hands (and a great example of why Obama’s policies are so wrong). There is also the Social Security Basics page from The Heritage Foundation that offers an in depth look at the program, how it works, problems, and how other countries have dealt with the same issues. These are not the end all of knowledge on Social Security, but if you take the time to read them then you will probably be more knowledgeable on the subject than 90% of your fellow Americans.

One thing not really discussed in these resources is the effects this program has had on average Americans. Think about what the program does. It takes your money and gives it to someone else with the promise that you will get that money back later. That means you have less money to build a personal nest egg with making many people dependent upon the government when they retire. The program has destroyed the notion of personal responsibility and has led to the entitlement society that we now find ourselves in. It is also saying that you are not smart enough or responsible enough to save for your own retirement so it’s best for the government to do that for you. I always say that if you treat someone like a baby, they will act like one…and that is exactly what this program has done.

There have been attempts to privatize this program in the past. The most recent was by President Bush, but he backed off when it was met by fierce resistance from liberals in Congress. This begs the question. Why would liberals fight this reform? Aren’t they all about being fair? What is fairer than letting people keep more of their hard earned money? Well, first I would say you are using the wrong dictionary. 

You need a liberal’s ‘new fangled’ dictionary to understand that by fair they mean wealth re-distribution. That old Keynesian theory that has been proven false time and time again. Second, the social security funds go into the general fund now, so these Congressmen can reach their dirty little hands into any surplus and spend it like a rock star, which they do and then some. In the end, it once again comes down to big government versus limited government. Liberals have very little faith in the American people to do the right thing, something that is counter to the fabric of this nation. They feel the government can do a better job at handling retirement than the private sector, which is obviously absurd.

 Studies have shown (as well as real world examples) that when money is allocated to personal investment accounts instead of a government run program, retirement benefits are much larger (mainly because the government does not actually invest your money). So how have liberals been successful in fighting common sense? For the most part they use scare tactics and feed off of people’s lack of knowledge of the markets. They will tell you (as Obama did) that the stock market is OK for investors, but is too risky to base a retirement program on. He made these comments after our recent market drops looking for the emotional response that you get from those who do not understand that the market always does this, and from those who do not know asset allocation protects you from these drops when you are closer to retirement. They will also try to scare those in or near retirement that they will lose their benefits and scare lower income Americans that they will not receive the help they need. All scare tactics and all fallacies.

So what is the fix? I was sitting in my living room brainstorming about how it could be privatized (before I started researching) and I was surprised to find that my initial thoughts were very similar to what has worked in other countries. It basically comes down to allocating part of the taxes that you now pay towards Social Security into a PRA (Private Retirement Account). These accounts would be managed by professional money managers from the private sector. 

Essentially you would create a Social Security Part B where you get to invest the money instead of giving it to Uncle Sam. Eventually this program would overshadow a much smaller government portion that would still be available to help those who are truly in need. In case you have not noticed, I am a huge fan of The Heritage Foundation and their research. I found the following article on implementing this type of program on their website. I would encourage you to read it and pass it along to your friends. These are the kind of ideas that need to get out to the people so they understand there are viable conservative ideas that can both help them and decrease government dependency.

As mentioned in the article, a program such as this one would have to be carefully planned, but other countries have proven that it does work. I believe the hardest part will be some possibly unpopular and really unfair compromises that might be needed. One being that the Social Security Program must be more realistic in what benefits it can pay out. To help offset some costs, a hard look will have to be made at reducing benefits based upon some metric of wealth. For those who have paid into the system all their life, it would be unfair but may be necessary. 

This would really affect the older generation because if you read how this plan would work, younger generations would be covered by part B. Another interesting point that could help this program be more cost effective up front is a sliding scale of how much you can allocate to Part B, which once again would be based upon some type of income metric. This idea allows lower income individuals to invest more while still providing funds for Social Security. The tweaks are probably endless, but the idea is sound. Over 10% of your income goes to Social Security (including what your employer has to pay). A PRA system will allow business and individuals to keep more of their money and give less to the government while increasing retirement benefits. That is a good situation for everyone.

Hope everyone has a blessed Easter Weekend. Remember why it is a time of celebration

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