Social Security; Ponzi Scheme or Potential for Greater Living?

We have all heard the horror stories being floated around on the Internet and other online blogs and commentaries, but recently a small flurry of hopeful and encouraging reports have surfaced that may have the potential of salvaging something worthwhile out of a ‘not-too-bright’ idea.

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Back some 80 years ago our governing wizards came up with a plan to force people to pay into a plan that would be result in a monthly “retirement” payment more for those without any sort of retirement insurance vehicle for their elderly years. Before that, people wanting some kind of income after retirement had to do it mostly the “hard way”, meaning, a savings account that in those days paid little more than nothing in interest. So the socialistic President Roosevelt’s National Recovery Act included the legislation called the Social Security Act of 1935 whereby a small percentage of the workers’ wages were placed in a government account that would be used to pay a small monthly payment to workers when they retired as few businesses had what is now known as a retirement plan. This Social Security plan was based on current workers paying money into an account from which the older workers would draw their retirement income payments. That is greatly understating the complete package of the Social Security scheme, but a generalization of what it was mainly about. As stated above in the headline, it was, in effect, a Ponzi scheme the likes of which recently got a man named Bernie Madoff sentenced to a long jail term. A Ponzi scheme promises to pay very high returns much like the old pyramid game where the payoffs to the early players are made from money by later players. But succeeding players have to keep putting in bigger sums of money and eventually the money dries up and the whole system shuts down. It is also why in these days of the 21st millennium the funds are running out as more and more workers retire and begin to draw from the fund than there are younger workers paying into it. All this could have been avoided had the plan been placed on the basis of an insurance plan where it would have been invested and brought in much larger interest payments on those funds. Instead of preparing for the day when the fund will reap a negative amount of incoming dollars compared to the larger amount being withdrawn, properly invested funds could have been reaping higher and more profitable returns to the fund. Today when sensible leaders in government suggest that it is not too late to make this changeover, panic sets in with some politicians who think they will not be able to get their hands on those large sums of dollars when being held by private sources instead of in the United States Treasury; which has been one of the contribution factors over the years as politicians were using the Social Security as their pet source of funds to raid for wasteful and spendthrift social programs. A lot of people in this country have negative feelings about the countries to the south of the U. S. and do not think that many of them are on an equal intelligence level equal; but these people might be surprised to learn that the South American country of Chile has surpassed the U. S. in their social security type investment plan and it has been working very well for over thirty years. The Cato Institute, a libertarian think tank headquartered in Washington, D.C, recently released a report online titled “Chile's Social Security Lesson For The U.S.” authored by José Piñera, Chile's former secretary of labor and social security and is co-chairman of the Cato Institute's Project on Social Security Privatization. In the report Piñera states that “America's Social Security system will go bust in 2010. As political leaders scramble to save it, they've overlooked an obvious free-market solution that works. They need only look at Chile. “Pay-as-you-go social security systems destroy the link between contributions and benefits, between effort and reward. Everyone tries to minimize what he puts into the system while trying to maximize through political pressure what he can get out of it. That's why pay-as-you-go plans are going bankrupt all over the world.” Pin’era states that in the late ‘70s, Chile had the same problem as the U. S. At that time he was Chile’s Secretary of Labor and Social Security. He admits that Chile could have done what the U. S. has been doing or contemplating, “increasing payroll taxes a little and slashing benefits a little.” But instead of tweaking the system as the U. S. has been doing, Pin’era decided a major structural reform was needed to “solve the problem once and for all.” Pin’era, who is also co-chairman of the Cato Institute’s Project on Social Security Privatization “decided to save the idea of a retirement plan by basing it on a completely different concept -- one that links benefits and contributions… they allowed all the workers to choose either the failing state-run system similar to that of the U. S. or put the entire payroll taxes into an IRA. As Pin’era continues, “Some 93% of Chilean workers chose the new system. They trust the private sector and prefer market risk to political risk. If you invest money in the market, it could go up or down. Over a 40-year period, though, a diversified portfolio will have very low risk and provide a positive rate of real return. But when the government runs the pension system, it can slash benefits at any time. The Chilean system is run completely by private companies. We now have 15 mutual funds competing for workers' savings.” The privatization plan in Chile has worked out well and the country is better off because of it; probably not yet in the utopian range, but certainly more stable and secure than before the new plan was put into place. The way the current Obama Administration has been beset with un-American demands for socialist ideals and One World pressures from the United Nations corrupt and untrustworthy communist backers, this Chilean venture could possibly save our social security system from disastrous failure. It couldn’t be any worse than the obvious “do nothing” course of action of this country’s liberal Democrat zombies. It should be changed now; but considering the opposition, we will likely have to wait for a 2012 purge of the objectionistas.