18A023 Social Security in the ZGS by Jim Davies, 6/5/2018    

After government has evaporated there will of course be no taxes, nor any employees to distribute "Social Security" payments. So will oldsters starve to death?

Oldsters didn't do that before the SS System was invented in 1934, and they won't after it has been scrapped. For 99.8% of the time hom sap has walked the Earth we got along fine without it, and will certainly do so again.

The traditional way that the elderly were cared for was by their families, in the family homes. Grandma and Grandpa were part of the family. Its young children grew up around them, and as they grew up they helped care for them. It still happens that way in much of the world. It's a good system; the children learn that age makes folk less able to care for themselves, and the grandparents are cared for not by strangers but by those bound to them by love all their lives.

The other traditional way the elderly managed has been by "saving up for one's old age" and then living apart from the younger generation, in one's own home - with wife or husband, for as long as he or she lives. This became feasible for most folk only fairly recently, with the huge increase in wealth, widely distributed, brought about by the laissez-faire industrial revolution. It, too, is a good system; the generations can readily visit each other as desired, and the retired ones can enjoy the satisfaction of having provided for their own financial needs without burdening the kids.

That "saving up" means that consumption was postponed a little, and that money was invested so as to grow and yield dividend many years in the future. Often a life insurance company would participate, guaranteeing rates and payback.

"So there your are!" may interject the knee-jerk statist; "Social Security Insurance does exactly the same thing, but makes sure that everyone gets a fair pension, not just the well-off!"

It's true, its full name does indeed use the term "Insurance" - but there the resemblance ends. In a true life insurance plan offered in the competitive market, terms are agreed by voluntary contract, which specifies both premium and benefits. The benefits typically are paid out many years into the future, and so depend on a stable measure of value, such as is provided by gold. Policies written in terms of fiat "dollars" have to factor in estimates of how much the Feds are likely to slash the value of those tokens, over several decades. For the last few, the rate has been about 4% a year. Every 18 years, their value is cut in half. That makes the calculation complicated, especially for the mathematically challenged, which is to say a large fraction of government-school graduates.

The government's SSI gets around that problem nicely, by specifying a premium expressed not in units of currency, but as a percentage of earnings (15.3%, including the "employer contribution") and by fixing the pension benefits only when the time comes for its payment, changed annually according to how much the government wants to pay out. No doubt the calculation relates to the number of elder votes it wishes to attract or retain, and it certainly relates to a cost of living "basket" carefully chosen to minimize the current effect of inflation.

There's a second reason why the SSI scheme does not resemble true insurance: the capital fund which must accompany a real plan is missing altogether. What happens in commercial life insurance is that investors put up capital, which is retained permanently as a large "buffer". Premium revenue adds to it, and pension payouts deplete it; and because it's invested in safe but profitable enterprises it is also augmented by dividends from those investments. So in a properly managed insurance firm, premiums plus dividend income equals or exceeds the payouts of pensions. That's the business model, and any buyer of a policy is wise if he makes sure that capital buffer is large; for his old age pension depends on it being there even if trouble afflicts the company.

But in the government's SSI, there is no capital fund or buffer.

They have just a bucket full of IOU promises that future taxpayers will provide the money. The promises are made not by those future taxpayers (many of whom haven't even been born) but by the government itself; as in "we solemnly swear we will steal enough to pay your pension." And when government evaporates, so will those pensions. It's just a massive Ponzi scheme.

So let's follow the money. First the Feds steal 15.3% of what you earn, and pay it out (minus generous administration costs) to the previous generation. Tomorrow, for as long as they exist, they will steal from the next generation to pay you. That's if they still exist. But they won't.

We're not quite done with this racket, yet. Grossly unstable though it all is as above, its worst aspect is that from the get-go, it has been compulsory. Everyone must take part, even if you'd prefer to self insure (run your own savings plan) or do without altogether (because you trust your children to take care of you.) That is perfectly typical; government programs are always based on force. In effect, since it began in 1934, government has forcibly reduced the relative living standards of old folk.

In the ZGS, there will be a mix of the well-proven traditional methods of furnishing pensions: self directed insurance ("saving up") and reliance on the younger generation in the family. Temporarily, those who've made no provision themselves (usually because the means to do so, while earning salaries, was stolen) and who do not have children ready to take care of them, will be in a fix. That won't last many years, because those not yet retired will all know from Day One that their future is in their own hands; nor will it affect a large number, because most folk do have children, and those grown and earning children will have a dramatic increase in available money, taxes having been zapped.

After that initial dip, the sky's the limit. As it was in the 19th Century, all families will be free to accumulate wealth and keep it, from one generation to the next, and the amount they will earn will grow dramatically after the economy is freed. We are used to hearing that GDP grows at rates of 1% to 3% a year (and that GDP is a poor measure anyway) but notice that societies that have recently thrown off even part of the burden of government - like China - have grown by 8% to 10% a year, for many years in a row. Once we have discarded government altogether, I'm expecting rates of the order of 15% a year here in the Former USA. And 15% means we'll see living standards double every five years.

Retirement used to be referred to as one's "golden years", though nowadays that's a sick joke. In the coming ZGS, that phrase will come back into its own.