Cooked books. Defrauded investors. Bankruptcy. Is this WorldCom I’m describing? Enron, perhaps? Nope. It’s Social Security.
For its entire 65-year history, Social Security has been less profitable and more corrupt than private investment. Today, Social Security is in shambles. The benefits paid to retirees will soon exceed the taxes collected to finance them. Even the strongest proponents of Social Security concede that without drastic change, the system will collapse.
When President Bush was elected two years ago, it appeared that change was forthcoming. “Privatization” echoed from Iowa to New Hampshire. But after a few accounting fiascos and several quarters of weak stock market support, Social Security has thinned; and now even President Bush is reluctant to mention privatization in more than a whisper.
This is unfortunate because even when we account for transient recessions (such as the one we’re in the midst of), the benefits of private investment far surpass those offered by government programs. According to the Heritage Foundation, if you are in your late teens to early twenties, you should expect to pay $400,000 into the Social Security system during your lifetime. In return, at the age of 67, you’ll be entitled to $2,500 in monthly benefits. That amounts to a negative 1.02 percent return on your $ 400,000 tax “investment.”
You don’t have to be a business major to know the private sector can do a whole lot better than that. Had the $400,000 principal been invested in a diversified portfolio of stocks and bonds, it would have grown to over $1,000,000.
Of course, these numbers are calculated in accord with the historical performance of the market. There’s no telling what tomorrow holds. Who knows whether or not private investment will outperform Social Security in the future?
Politicians know, which is why they refuse to let you opt out of the Social Security system. Every time Uncle Sam carves open your paycheck to deduct the 6.2 percent Social Security tax, he’s telling you, “I know that no rational individual would choose to invest in Social Security. The only way I can get your money is by stealing it.”
If politicians were best qualified to manage your investments, you’d gladly give them that 6.2 percent out of your paycheck. Heck, why stop there? You’d be happy to hand over your entire retirement portfolio. But has that ever happened? Has anyone in the whole history of Social Security asked to give the government more than the minimum requirement?
Apologists for the Social Security system contend that if people were given the choice between private investment and Social Security, they would choose private investment for the same reason they choose to play the lottery. In other words, private investment lures investors with the possibility of a big payday, but is unable to match the safety of Social Security. The recent wrong-doings of unscrupulous executives would seem to support this argument.
Even though there is the risk of fraud and embezzlement in the stock market, however, such treachery is kept to a minimum by competition. Corporations have to compete for investors. If a corporation dabbles in dubious accounting, it does so at its own peril. The government, on the other hand, does not compete for your money. Therefore, it should come as no surprise that the government has spent decades using trust funds to play the same shell game with assets and liabilities for which a notorious few in the private sector have recently been maligned.
In addition to the safeguards of a competitive market, private investment enjoys legal standing far superior to that of any government entitlement program. Whatever stocks and bonds you own are your property, and nothing short of a Communist revolution can take them from you. It’s a different story when your money is in the Social Security system. As part of a government program, your benefits can be increased or (as is more often the case) decreased at the whim of Congress.
But even if we grant the defenders of government programs the dubious assumption that the choice between private investment and Social Security is essentially the choice between risk and stability, in a free society, the decision should be the individual’s to make.