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10A004 Social Security by Jim Davies, 8/6/2010

Thirty years ago, this flagship government program was said to be actuarily unsound; the commitments it made or implied could not possibly be met from the then-predictable revenue stream. Yet it's still here; why?

The reason is that the Feds changed the rules; compelled "contributions" were increased, to a hair over 15% of earnings, while promised benefits were cut - and have been cut further since - so it's all in balance. Revenues and expenses are equal, more or less, as shown on page 101 of that valuable pie chart in the annual IRS 1040 book. The cuts came in the form of a later retirement year, and in annual manipulation of the "cost of living adjustment"; inflation is understated, so the benefit is not increased as much as would be needed to match the previous year's pension on an honest basis.

There will be more such cuts, as time passes, but the system will survive (in some form or other) as long as government does; it's the ultimate "too big to fail" scheme. But is that good news or bad?

I depend on it, so you might expect me to join tens of millions of others with gray hair and lobby for its survival - with higher benefits. But I won't. This is a viciously evil scheme that ought never to have begun and which ought to end ASAP. When it does, I'll die unless someone takes pity on me; and I have two fine children who might, especially when their SS taxes have been cancelled along with the rest of it. But if not, so be it. I've enjoyed a full life and if I can help the abolition of this evil plan I'll have contributed to the wellbeing of them and their children and theirs, and that will be very satisfying.

Why is "Social Security Insurance" so evil? - three reasons.

  1. It's compulsory, and coercion is wrong. People have the right to plan their own futures, and SSI violates that right.
  2. It pays two or three times less benefit than would an honest, commercial insurance plan using the same revenue as a premium.
  3. It savagely retards economic growth, as below.
A true insurance plan starts with a large invested reserve (from shareholders) to which is added premium revenue and dividends, and from which come the benefits paid. The inflow and outflow must be equal over time, or trouble follows, though premiums need not perfectly equal benefits paid in any one year. Note that the revenue includes investment dividends; that is what provides the slack to absorb unpredictable fluctuations, unexpected claims - and assures the insured customer that the company is reliable in the long term. Notice too that over time, those dividends reduce the amount of premium needed. "SSI" has no such invested reserve or dividends; hence its poor performance.

As well as furnishing a cushion and keeping premiums low relative to benefits paid, the investment reserve doesn't just sit there, it works to benefit the companies in which the capital is invested; that is, it grows the whole economy. By socializing pensions instead of leaving the market to work, government has therefore prohibited a large degree of growth and prosperity. When it is abolished (along with government) that growth will be enjoyed; but not before.

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