- The Washington Times - Wednesday, September 29, 2004

Current Senate hearings on “mandatory retirement” may have more than a little relevance to the huge question of how to “save” Social Security. Unfortunately, far too little attention is given why Social Security requires saving.

Social Security’s key problem: never taking in enough to cover all the pensions it promised to pay. Promises win votes, but collecting enough money to pay for them does not.

Should we be surprised politicians take the easy way out by promising a lot and leaving it to future politicians to figure out how to pay for the promises — or how to disguise welshing?

We hear a lot about new demographics creating a problem, since people now live longer, changing the ratio of those paying into the system compared to those getting money from it. But you don’t see insurance companies agonizing about inability to pay pensions they promised when they sold annuities.

That is because each generation’s premiums were invested to create additional future wealth to pay for its pensions, regardless of the size of the next generation. The big difference between private annuities and Social Security is that private investment creates future wealth for the country as a whole and Social Security does not.

More total wealth through privatization offers some hope of providing adequate wealth to pay pensions Social Security promised the Baby Boomers. Otherwise, the government will have to welsh on its promises, because the needed tax increase exceeds the politically feasible.

That is where so-called “mandatory retirement” comes in. That concept is as fraudulent as calling Social Security “insurance” when it has in fact always been a pyramid scheme, where each generation depends on the next to pay its pensions.

There has never been any mandatory retirement. By contract or custom, employers have had a general practice of no longer employing people after a certain age. But there has been no requirement those people retire. Many, if not most, have continued working elsewhere, often while drawing a pension.

Government passage of laws forbidding “mandatory retirement,” reduced the number of older people who otherwise would have retired and begun drawing Social Security. This self-serving transfer of billions of dollars in financial liabilities from the government to private employers was thus presented as a virtuous rescue of older workers from unfair discrimination.

Never mind that the Constitution forbids the government to change the terms of private contracts. Never mind that younger workers find their upward path blocked by older workers the employer cannot get rid of without legal hassles.

All this is washed down with lofty rhetoric about how age need not mean less efficiency, about how our senior citizens still have much to contribute, and how older Americans are “breaking the silver ceiling,” in the words of Sen. John Breaux, Louisiana Democrat, at recent Senate hearings.

In other words, it is assumed individual employers looking directly at individual workers, with whose work they are already familiar, are not smart enough to make as good a judgment as distant politicians talking in generalities.

Even in the past, when a particular employer’s obligation to employ workers expired at a certain age, there was nothing to prevent a mutual agreement for particular workers to keep working when the employer saw this as advantageous and the worker wanted to continue.

In short, neither Senate hearings nor “expert” witnesses were necessary. Much of this is a charade to allow the government to raise or eliminate remaining retirement ages, to escape the impossible situation politicians created when they designed Social Security as a pyramid scheme.

Thomas Sowell is a nationally syndicated columnist.

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