I read another article on the Social Security debacle yesterday. This one talks about protecting the income of people over a certain threshold. That’s nice, but let’s face it – many of us will never meet the threshold anyway. So what do we care?
What I don’t get is why people can’t see the truly big picture. Moving money into individual accounts may be a lovely PR move, and make for some wonderful sound bites, but it isn’t going to help anything in the long run. The reason is that the system wasn’t designed to work that way. It was designed as a safety net of sorts, not an investment system.
The inherent problem in Social Security is that it’s run by the government as a pay-as-you-go system. It’s not designed to build wealth, but rather to re-distribute it to those in need. As I pay in, someone else takes out. While most financial wisdom would have you deposit your money in your account and then take it out to spend, that is simply not the way that this system works.
As such, I am not completely sure where I stand on it. I hate paying money for an “investment” that, in all likelihood, will be at least severely diminished when the time comes for me to draw on it. But as I mentioned, this is not an investment. It’s a security net for those who can’t, or don’t, save for themselves. And because of that, I have some sympathy.
I still don’t have sympathy for people who choose to ignore their responsibilities, but I can understand the system more from that angle than from looking at it as an invesmtent. The problem is still that the government probably isn’t the best choice to run such a system. There is simply no need to have the government involved in every aspect of our lives.
And even if they should choose some wonderfully “safe” vehicles for these individual accounts, what happens if they don’t quite work out? Oops. Back in the same system we have now. Perhaps worse. Namely, that we pay in money, which is then spent by another area of the government. In turn, that other area gives the Social Security Administration IOUs in the form of Treasury investments, to be paid back at a later date (ie, when people retire and draw on the funds).
Does anyone see the problem? The problem is that money is coming in, then being spent, then coming magically from another area to cover the promises of the Social Security program. It’s like a giant Ponzi scheme. So long as more and more people are paying in, then those cashing out are able to get their benefits. But what happens when the payers start dropping in comparison to the payees? You have a serious money problem.
I don’t think the solution is to invent another method of dealing with the current program. The solution is to scrap the program we have and build something different, because this plan doesn’t work, no matter how you tinker with it. And while we’re at it, perhaps we could scrap the tax code as well and replace it with something much simpler.
Of course, both prospects ride on the government shirinking to perform more efficiently. It’s probably unlikely that that will happen anytime in the near future. It’s like a cancer that just grows and grows and grows. One day, I hope everyone will see what a mess it has become and realize that change is needed. Hopefully that will happen soon.