A couple years back, when the Tea Party movement was in full force and the 2010 mid-term election process was in full swing, there was a common complaint about Tea Partiers regarding their opposition to taxes but their refusal to forego entitlements. This criticism came from both libertarian quarters and the Left, and here I will discuss how the exact same criticism was valid when libertarians made it but false when statists made it.
Lets start with what Social Security is. Semantic quibbles, word-smithing and rules-lawyering aside, it is a Ponzi scheme. Investors in the system contribute money toward a promise of future return, but their money is actually used to pay past investors whose return is due. The contributions of those currently working are used to pay the benefits for those who have retired. It is a redistribution of wealth from the young to the old. As such, it is not proper to consider the contributions into the system made by the young in the classic sense of the word “contribution.” If you contribute to a 401K or a pension fund, your money remains in existence. You have a contractual right to that money, subject to the rules of how it is managed (and yes, it is money at risk, but nevertheless it is your money). Your Social Security contributions? They’ve been spent by the government, and not just on current retirees’ benefits. All the surplus revenues (up until just recently, SS collections have exceeded SS payouts) have been spent. The government maintains the fiction that there is a Social Security fund, but the money that was there has been replaced by IOUs. In the private sector, any pension manager who did this would be in jail, so it is an inescapable conclusion that Social Security is NOT a retirement or pension fund in any normal sense. It can only be characterized as a tax on wages.
Contrast this stark reality with how the program was and is portrayed by the government. A wage-earner has a portion of his salary taken from him in order to pay him that money back when he retires. Every year, workers receive statements indicating what their contributions have been and what their expected retirement benefits will be. But, Social Security also pays survivor and disability benefits, so it is not solely a retirement program. It is much more apt to call it an insurance program, albeit one that is grossly underfunded. Nevertheless, lets stick with the popular portrayal, which has used the words “trust fund” countless times. Inherent in that portrayal is the belief and promise that one’s contributions are accruing towards a future pay-back. We’ve already seen how this is a lie.
Back to the Tea Party. I’ve read many posts by those who self-identify as Tea Partiers about Social Security, wherein they claim opposition to current or higher levels of taxation but also state that they expect that the money they’ve put into SS be returned to them when the time comes. Considered from the perspective of what they’ve been told and promised, it’s not an unreasonable stance and neither dissonant nor hypocritical, as those on the Left have accused. But, considered with feet planted in reality, it is a blindered outlook and demand, one that cannot be reconciled with the current state of things.
So, yes, the criticism leveled at Tea Partiers who “want to have their cake and eat it too” is both fair and unfair. If one is a believer in the power and glory of the Social Security system, if one subscribes to the notion that it is one of the great successes of modern government, that it should be inviolate, that it is an unbreakable promise to the citizens of the nation, one cannot criticize those who demand the promise be honored, no matter what else they demand. The money that has been collected was collected based on that promise, and the failure of politicians to act responsibly with that money isn’t the fault of the contributors, nor should the contributors be called upon to pay more taxes to fix what the pols broke.
However, this specific stance is as untenable as any other bit of statism. “In a Senate Finance Committee hearing, one Senator asked Secretary of Labor Frances Perkins, “Isn’t this socialism?” She said that it was not, but he continued, “Isn’t this a teeny-weeny bit of socialism?” This teeny-weeny bit of socialism is a giant gaping maw that will swallow the nation’s economy whole (unless Medicare and ObamaCare do that first) unless something changes.
Herbert Stein, a former chairman of the Council of Economic Advisers, once stated the obvious: “If something cannot go on forever, it will stop.” This undisguised truth is known as “Stein’s Law.” It is applicable to countless aspects of our lives, but it is especially relevant to government, since as I and others have quipped, ‘the hardest animal to kill in all creation is a government program.’ SS as it is currently structured cannot go on forever, therefore it will not.
And here lies one of the weaknesses of the Tea Party movement, though it is an understandable one, given that so many people in the movement are just average citizens, not hard-core political wonks like yours truly. For it is certain that the Social Security promise is a lie, and that without major reform, SS will break down at some point.
Unfortunately, even bright and well informed people don’t want to give up the ghost on Social Security. They insist on holding to the unsupportable position that their “contributions” be given full credit and returned to them. This necessitates perpetuation of the system, or in business terms, throwing good money after bad. In business analysis, it is a well understood precept that sunk costs should not be considered when making decisions about future outlays, yet that is exactly what many do when they contemplate the future of Social Security. And, until a majority of Americans finally realize that the promise of SS is an unfulfillable one, that the money that has been taken from them in connection with that promise is lost and gone, no real reform of the system is possible.
Three decades ago, the nation of Chile began a radical reform of its Social Security system. It replaced a “pay as you go” system (a nice euphemism for Ponzi scheme) that was similar to ours with a mandatory individual retirement account system, and built a set of transitional rules to cover the retired and those near retirement. The change has been a rousing success, and can and should be a model for a similar change in this country. It won’t be easy, either politically or for many “caught in the middle,” who aren’t going to see their promised payouts fully realized, but that difficulty must be judged against the reality of SS’s insolvency, not against the fiction of SS promises.
It is an unfortunate fact of politics that most people would rather not face hard realities, and thus are susceptible to politicians who claim they can fend them off or make them disappear. This makes instituting painful but necessary fixes nigh-on impossible, unless and until the problem is more immediately painful than the solution. People will not accept some lesser degree of current pain in order to alleviate a much greater degree of future pain, especially when there are many out there who will tell them against all evidence and reality that they can kumbaya circumstances into soft happy fuzzy land. Add in those people who simply don’t care about the future pain, who either figure they’ll sort it out then or who “have gotten theirs” and don’t give a rat’s petootie about anyone else, and the problem gets even more intractable.
Nevertheless, those of us who seek to convince others that certain changes are necessary need to continue driving the point home that SS is broken, that the promises made won’t be kept, that one’s past contributions are dust in the wind. It really stings to hear it, but waiting to fix the problem later will hurt much more than trying to fix it now. And, we do no good in coddling the false hope that one’s past SS contributions somehow still exist.
As we move into 2014, as politics start becoming important again to average people, as the words “Tea Party” again start appearing in the press, lets watch for the trap I discussed earlier. When the Left dings Tea Partiers for wanting their SS benefits while cutting taxes, hit back. Ask the statists whether SS is a retirement program, where contributions are collected with the promise of future payouts, or if it’s just another tax, to be spent as they deem important. If the former, challenge them on their reckless management of the money. If the latter, challenge them on their lying ways. Either answer paints them into a corner they’d really rather not be in.
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