Would you sign a contract that enabled the other party to change the terms of that contract at will, while you could neither stop him nor make any changes of your own? Probably not. Yet that is exactly what happens when you pay money into Social Security.
No matter what you were promised or at what age you were supposed to get it, the government can always pass a new law and change all that. But you still have to pay into the system. A private, insurance company-run annuity plan is legally required to pay you what was promised, when it was promised, and to maintain assets sufficient to redeem its promises.
One of the few issues on which Sen. John Kerry has taken a stand and not changed it (yet) is Social Security. He has said: “I will not privatize Social Security.”
This has long been the position of liberal Democrats, and Mr. Kerry’s voting record in the Senate makes him one of the very few senators more liberal than Ted Kennedy. That is the ranking given by Americans for Democratic Action, a leading liberal organization that ought to know.
Why are liberals against letting people put part of their Social Security payments into private investments?
Risk is one of their arguments. Al Gore incessantly repeated the phrase “a risky scheme” during the 2000 election campaign and risk still seems to be the big objection to letting people put their own money where they want.
Some liberals may actually believe politicians know better than you what is best for you. That is, after all, the philosophy behind many other government programs.
Another reason liberals oppose private investment of Social Security payments is they lose control of billions of dollars they have been spending from the Social Security trust fund for years. They can buy a lot of votes with all sorts of giveaway programs, financed by money taken from Social Security.
As for the risk, that might be a real concern if people put their money into commodity speculation or other volatile markets. Most people have better sense and privatization could limit where Social Security premiums could be invested.
Although the stock market bounces up and down from day to day, people do not invest today in order to retire next week. They begin paying Social Security premiums when they first get a job and they retire decades later.
Stocks are far less risky in the long run than they are in the short run because the ups and downs balance out over a long time. It is virtually impossible to find any 40-year period in which the stock market has not paid a higher return on your money than available from Social Security.
There are some mutual funds that simply buy a mixture of the stocks that make up the Dow Jones average (or Standard & Poor’s), so their clients get the kind of return on their investments the stock market as a whole has. They don’t make a killing, but they also don’t get killed.
How did Social Security get into its present mess in the first place? Because politicians made it the “risky scheme” they now claim privatization would be.
The same political expediency that called Social Security “insurance,” to get public support, guaranteed it would be nothing of the sort. Unlike an insurance company, Social Security has never had enough money to pay for all the pensions it promised.
Instead, Social Security has been run like a pyramid scheme, where the first people to pay in get money back from the second wave of people who pay in, and the second wave get money back from the third wave, etc. This is so risky pyramid schemes are illegal — except when the government does it.
They have got away with this thus far because the first generation covered by Social Security was unusually small and was followed by the unusually large “Baby Boomer” generation. But when the Baby Boomers retire, the pyramid scheme will no longer bring in enough money to pay their pensions.
Nothing is riskier than depending on politicians.
Thomas Sowell is a nationally syndicated columnist.
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