Social Insecurity


I recently received an email entitled “Take the Trash Out on Nov 2” which, as one would imagine, requested the reader to vote out the incumbent Congressman in this coming election. The reason for such a tactic, you ask? No increase in Social Security benefits for two years. An annual cost-of-living adjustment (COLA) was added to Social Security in 1972 as a way to tie the benefit payments to the high rates of inflation being experienced at that time. Now, as with most programs of governmental origination, these adjustments are seen as rights which should occur every year regardless of the conditions.

These arguments are obviously fallacious as I will soon demonstrate but I feel it necessary to give a quick explanation of Social Security and how it actually functions. For untold generations care for those too elderly or disabled to work fell upon the family and community. It could be (and was) argued that this method left an unsatisfactory number of individuals without proper care so, like a good parent does, the kindly government stepped in and forced us to be generous. Although primarily it was to be considered an insurance program, there were regulations in place which allowed payment (i.e. wealth transfers) to other individuals in some cases.

On paper, the idea was to pool a portion of each worker’s income in a gigantic slush fund which earned interest on the funds, eventually growing enough to provide that person with a minimum income upon retirement. Unfortunately, in this universe it works much differently. The FICA tax revenue is combined with the other sources of revenue and is spent on current government expenditures (in addition to interest on the national debt). The allocated money which was taken from the Social Security “account” is then given an IOU by the Treasury and the paper trail stops. In other words, the workers of today pay the benefits of the workers of yesterday. In the early 1920’s they coined a name for this sort of system: Ponzi Scheme.

This generally would not be a problem if we had one of two (though preferably both) fixes: 1) a continually increasing workforce in relation to the increased numbers of retirees and 2) continually adjust the retirement age to the increase in life expectancy. By constantly adding more workers to the economy in order to pay for those of retirement age the burden is spread evenly and thinly. This would really be more of a band-aid than a fix and is really impossible to control from a government standpoint anyhow. A link to the rising life expectancy would make sense for many reasons and would eliminate the eventuality of Social Security to drag the United States into bankruptcy.

When Social Security was created as a supplemental income insurance program in 1935 the retirement age was set at 65. For the same period, the life expectancy of a male was 58 and 61 for a female. In other words, the average person was not expected to live long enough to reach “retirement” and be in need of benefits, which was why it was designed as a supplemental income program rather than a primary income program. The only time this age was adjusted was in 1961 when the age was actually reduced to 62 for early retirement (with reduced benefits). At this point in time, the average life expectancies were 67 and 73 respectively. So rather than continue as a program intended to supplement the income of a retired person beyond the expected lifetime it had now turned into a political tool to garner votes. Fast forward to today when men are expected to life to 75 and women to 80 and we begin to see the problem: people are living, on average, ten to fifteen years beyond a program they were never intended to use.

Which brings me back to the email. According to the anonymous author, “Congress say[s] no increase is warranted because of the losses in gross national product and other cute things” (emphasis added). Those “other cute things” happen to be the very regulations which prescribe the COLA to begin with. Essentially, the allows for an increase in benefits along with inflation as determined by the CPI-W but does not require a decrease when the economy tanks as it has been doing. So not only does this author want to continue leeching off the productive workers in America but he wants a raise during a period in which everyone else’s future is grim! Very bold if you ask me.

“We must put a stop to this outright thievery!” he says. And I agree. But who amongst us is doing the taking?

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