What Is Wrong with Social Security?

Column for week of June 15, 2015

     Most people seem to have at least an inkling that all is
not well with Social Security.  Many if not most believe that
we should do something to fix Social Security.  A tweak here,
a tuck there, a bit more tax, a slight increase in the retirement
age, and all will be well.

     It won't be that simple.  The Social Security system is
so flawed that it is unfixable.  The US economy is in a death
spiral.  The one single event that started the plunge and put the
USA on the downward course was the creation of Social
Security.  How does it work?

     Our great productivity is built on investment.  Instead of
putting all of our efforts into making things for immediate
consumption, we put part of our efforts into research,
development, factories, office buildings, mines, etc. that will
produce consumer goods in the future.

     Our investment in these production facilities increases
the productivity of workers.  This investment doesn't merely
defer consumption.  It increases total production allowing us to
consume more in the future.  This is how we raise our standard
of living.

     Thus, people who save and invest for retirement
increase our productivity.  This makes it easier for those still
working to produce for the retired.  The retired sell off their
investments and buy what they consume.

     The retired aren't a burden on the producing generation. 
The producing generation saving for its retirement buys up the
investment.  They may add to that investment providing for a
better retirement and further increasing productivity.

     When the  producing generation buys the investment of
the retired, the producers are merely repaying the retired for the
aid the retired gave the producers by investing and increasing
the workers' ability to produce.  Everyone benefits.

     With Social Security there are no savings and no
investments.  All Social Security taxes are spent immediately
by the government, either to pay benefits, or for general fund
spending.  The so-called Social Security Trust Fund is a myth. 
It is merely a collection of government IOUs for consumed
wealth.  The only way to pay those IOUs is to take wealth
from someone.

     Social Security doesn't provide one dime of investment
or even one widget of increased productivity.  It also
discourages workers from saving for retirement and investing
the savings.

     All Social Security payments are taken from the
producing generation and transferred to the retired generation. 
This is totally a burden born by the producers.  The producers
have less to spend on food, clothing, education, medical care,
and everything else in order to provide more for the retired.

     As the ratio of retirees to workers increases the burden
on the producers grows.  In the beginning many workers
supported one retiree on Social Security.  We are fast
approaching the point where there will be one retiree for each
worker.  Each worker will be supporting one retired person.

     The effect of Medicare is the same as that of Social
Security.  Presently Social Security and Medicare payments per
retiree are more than $25,000 per year.  Even with no increase
in payments, each worker will have to pay at least $25,000 per
year to support a retiree.  How are these burdened workers
going to save anything to invest in increasing, or even
sustaining, productivity?

     We have two choices.  We can get rid of Social
Security and Medicare replacing them with savings based
retirement.  The alternative is to continue riding the dying
Social Security horse until it collapses.  Either way Social
Security and Medicare will end sooner or later.

     If we stay on the present course our economy will die
with those worn out horses.  We can act now to keep the
Social Security bus from running off the cliff.  Or, we can
relax and enjoy the ride.  Those of us who see what is coming
are not likely to greatly enjoy the ride.  Perhaps ignorance is
bliss, for a while.

aldmccallum@gmail.com
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Copyright 2015
Albert D. McCallum