Trego's Mountain Ear

There’s an article on RealClearPolitics titled Why Social Security Must Be Reformed | RealClearPolitics  It’s not necessarily news – but it is worth a read. 

The author describes Social Security: “This type of retirement system is frequently referred to as a “generational transfer.” That is, we are transferring income from younger generations to the retired generation. This is not unlike the traditional model that existed in tribal and rural societies for millennia, where younger generations provided for those who had grown too old or infirm to contribute. When Social Security was created in 1937, the U.S. nationalized and monetized this traditional model.”

Then he does a great job of bringing out population pyramids to demonstrate the failure of that traditional model.  Our population pyramids aren’t pyramids anymore (and I like it when folks bring in real demographics to illustrate the point).

“Demographers have developed a tool called the population pyramid to visualize how the relative size of generations compare. There is a valuable website, www.populationpyramid.net, which shows the population pyramid for every country in the world. It has historical data going back to 1950 and projections through the end of the 21st century. Here are their calculations of the pyramids for the U.S. in 1950 and 2100.

In 1950, just ten years after Social Security began paying benefits, 58% of Americans were 20-64 and only 8% were over 65. As a result, there were just over seven Americans of working age for every potential retiree. Since 1950, the percentage of the population in the working age bracket is about the same (57%), but the percentage over 65 has more than doubled to nearly 19%. That lowers the ratio from 7:1 in 1950 to 3.1:1 today.”

As one of those old duffers getting a social security check every month, let me say a solid thank you to those three youngsters who work diligently to make sure my social security checks arrive on time and don’t bounce.  I never received that sort of a thank you when in my pre-retirement days, and I do believe it is owed to them.  I’m not sure when generational transfer turns into a pyramid scheme. A dozen years ago, Forbes called social security “much worse than a ponzi scheme.” 

“The facts about Social Security are these. Yes, it’s a Ponzi scheme, thus criminally fraudulent (as I’ll explain), but even worse, because it coerces us to be a part of it. Since the scheme began in 1935 the full force of the U.S. government has compelled a growing portion of citizens to suffer by it, such that we all do so by now. A scheme of such widespread, compulsory fraud is unprecedented in U.S. history, and perhaps one of the most shameful (and popular) of FDR’s New Deal schemes.”

Here’ that author’s plan:

But here’s a plan – call it the Salsman Plan – that would ensure electoral support from all three groups, and thus potentially guarantee a political landslide for the candidate who proposes it. First, tell the elderly that they’ll no longer be subject to political scare tactics, because immediately they’ll be given an account in their name that’s full of U.S. Treasury bills and bonds, whose worth equals the present value of what they’d otherwise receive in Social Security checks for the likely balance of their lives. They can do what they wish with their new account: cash it out now, slowly liquidate it over time, perhaps buy an annuity, or keep most of it as is. Second, tell the young and the middle-aged they will no longer have to pay the 15.3% payroll tax, and they too will immediately receive an account in their name with U.S. Treasury bills and bonds, based on what they’ve already paid in so far. They too can do what they wish with their sudden investment windfall. Social Security, no longer empowered to tax payrolls or send retiree checks, would then be closed overnight.”

Click the links and read both articles – the quotes are here to lure you into reading the whole thing.  If Salsman is right . . . and I think he is – well, the 2.31 younger workers who are supporting my social security definitely deserve my thanks.  And your 2.31 younger workers deserve yours.