Is Social Security Bankrupt?

       Joe White’s article is most interesting for its denial that anyone should consider Social Security an investment. No, he tells us, it is “pay as you go social insurance” and a “government guarantee of protection.” It is protecting us against living too long after we become 65 years old, and protecting us with survivors’ benefits should our working spouse die.
       Well and good. But the point I was trying to make in my column in IntellectualCapital.com is that both these functions can much better be performed through market accounts. The returns would likely be larger–the “insurance” payment higher–and the longer we live past 65, the more we will need that payment. Further, once past 65 under a market system, we would own some real assets, some wealth we can pass on to our children or grandchildren. Social Security provides no such benefit.
       Mr. White practices the confusion of all statist thinking: equating the need to provide a service with its provision by the government. The same mistake is made regarding education: Government rightly sees the need for educating children, but then concludes that only government schools can provide it. The fear of liberal educators is that if people can choose their own school, some people will do better than others, and that would be unfair, so we must keep all people in common schools.
       The thinking is much the same regarding retirement income. The truth is, the market could much better help elderly people live secure lives with greater incomes. But statists worry that some people will do better than others, and that will be unfair, and so insist that everyone by law must participate in the government retirement system.
       Consider a real-life example: Back in 1981, when it was still permitted by federal law, the employees of three Texas counties near Galveston voted not to participate in the Social Security system. Instead, they opted to create their own market-based retirement program. Known as the Alternate Plan, it deducts approximately the same amount that Social Security deducts (half from employees and half from the employer) through payroll taxes, but places the money in a private pension fund.
       Over the past dozen years, the Alternate Plan retirement fund has earned an average of 6.5 percent interest, compounded daily. So, the employees’ share of the Alternate Plan funds are growing every day. Social Security benefits, by contrast, do not grow at all.
       A hypothetical young, entry-level employee in the Alternate Plan, retiring today after making a salary of $20,000 a year and 40 years of deposits, would own a $383,000 nest egg. Had the employee remained in Social Security, he or she would have owned nothing.
       Then, if the employee turned this sum over to an insurance company, he or she could get a monthly annuity of $2,740 for life. The monthly Social Security benefit would have been $775.
       An article by E.J. Myers in the Jan. 16 Wall Street Journal provides several more examples. The Houston Fire Department’s private retirement program, begun in 1937, now has more than $1billion in assets, and its retired members receive more than three times the retirement income they would have received under Social Security. According to Mr. Myers, the federal government’s Thrift Savings Plan will achieve similar results for its members.
       The question for Mr. White is why a person who wishes to should not be allowed to join plans such as these. Put another way, should an individual be able to join a plan that will increase his or her retirement income from $775 to $2,740? Or, in the name of the state, should this be forbidden? And what principle would one invoke to forbid it?
       Fairness? What could be more unfair than denying someone a higher retirement income? Risk? That, of course, can be insured against, as Mr. White concedes.
       No, the true answer is that liberals believe the collective choice of a wise and all-knowing government is better for you than whatever individual choice you might make. Not to mention that their favorite organization–government–would lose control of all that money.
       Former New York Mayor Ed Koch once defined a conservative as a liberal who had been mugged by reality. Young, better-educated Americans are being mugged by the reality of a Social Security system that is unable to deliver the retirement-income security that they can see being generated by other concepts.
       That, Mr. White, is why, for Generation Xers, seeing a UFO seems a more realistic bet than a good deal from Uncle Sam when they turn 65. Or will it by then be 67? Or 71, or …