Imagine a company presents you with a great investment idea: “We will set up your investment account for you, only we – and not you – will determine how much you invest. Your account will be pooled with others and you’ll have no right to your individual contributions. The return rates are negative and only getting worse, so you will pay us more than what you will ever get back. Although we cannot manage our own firm, trust us to spend your money better than you can. Disclaimer: This investment is uniquely guaranteed to lose you money.”
Are you still interested? No? That’s too bad – the investment is Social Security, and you have no choice.
The federal government has proven, time and time again, to be an incompetent manager of money. Social Security’s historical return rates have been a dismal two percent, as noted by the Center on Budget Policy and Priorities, unable to keep pace with the government’s devaluation of our currency via inflation.
Despite the best intentions of liberals to construct a “Great Society,” Social Security is arguably one of the single worst investments today’s university students will make. AP reports according to a 2011 study by the Urban Institute, “A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85.” Given at an age beyond our present life expectancies we still lose money, why on earth would we continue to support this mandated program?
Even if Social Security did break even, we’d still receive zero net return on our investment. Considering the enormous opportunity cost of what we could earn if we are allowed to privately invest our money at higher return rates, we are being royally screwed over. It’s only going to get far, far worse for current university students by our retirement age.
The solution? Obama’s abject failure of leadership has yet to seriously propose one, and will likely come in the traditional form of kicking the can down the road. This inevitably results in raising payroll taxes (your “investment” the government forcibly compels you to make) and decreasing benefits. In other words, we will pay even more for less. Wonderful. Or, we could borrow more money from China and other creditors, paying for it through debt – all of which is financed courtesy of higher inflation taxes imposed on all Americans. Much of the money deducted from your paycheck under the Social Security portion of Federal Insurance Contribution Act you will never see back.
The Republican solution goes in the direction of partial-privatization, but let’s take it one step further: Abolish Social Security. Yes, you read that right: Phase out Social Security, quit redistributing our money and abolish it. In the words of one of the greatest economists of our time, Milton Friedman, “What you should do, in my opinion, is to give every person who now has a claim on Social Security bonds equal to the value of his claim, and set him free. Let him save. Let him do what he wants with it. That would not add a dollar to the debt we now have; it would just convert an unfunded debt into a funded debt.”
Privatization, contrary to the demagoguery and hysteria by the left, does not equate to handing Social Security over to Wall Street. Privatization does precisely what the term implies: Making decisions of how we spend our money personal, removing all bureaucrats from the equation. Nobody is compelled to invest in anything they wouldn’t want to, and quite frankly, even conservative, “safe” investments would yield significantly more than Social Security’s negative returns.
Giving people back their money and maximizing personal freedom over how to spend it? Now that is a “stimulus” worth implementing.
Justin Kramer ([email protected]) is a junior majoring in nuclear engineering.
