Jewish World Review Jan. 20, 2005 / 10 Shevat, 5765

Thomas Sowell

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Social Insecurity? | The latest liberal spin on Social Security is that there is no problem. Of course, there is no problem with any obligation if you are willing to welsh when it comes time to pay it.

Politically, the bottom line of this approach is that President Bush's plan is "not a magic bullet," in the words of Businessweek magazine. When people start talking about how this or that policy "is no panacea" or "not a magic bullet," then you know their argument is not serious.

Why don't we all stipulate, once and for all, that no policy on any subject, anywhere or anytime, is a panacea or a magic bullet. Then we can start talking sense like adults.

If we are serious, we can compare one alternative to another, instead of comparing one alternative to perfection. What is different with the private retirement accounts that the President is proposing, compared to the Social Security system as it exists now?

The biggest difference seems to get the least attention: With private accounts, money is invested in the economy, creating additional wealth, from which pensions can be paid. With Social Security, the money is spent as soon as it gets to Washington.

Is it better to invest for the future or to keep spending the Social Security taxes now and leave it to someone in the future to figure out what to do when today's young workers retire and there is not enough money to pay them what they were promised?

Many people are unaware that the money that is taken out of their paychecks for Social Security is not   —   repeat, not   —   being put aside to pay for their retirement. That money is paying for people who are retired right now, and anything that is left over is being spent by politicians in Washington for anything from farm subsidies to Congressional junkets.

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There is a legal and accounting fiction called the "Social Security Trust Fund." All that this means is that the Social Security system gets government bonds in exchange for the Social Security tax money that is being spent today instead of being saved. But you cannot spend and save the same money, no matter what accounting gimmicks you use.

Government bonds are not an investment that adds to the country's wealth. They are a claim on future taxpayers. Without those bonds, future taxpayers would still be on the hook to provide the money to cover future Social Security pensions that are not covered by future Social Security taxes. The bonds change nothing.

The other big difference between privatized pensions and Social Security is that the individual owns the pension he has paid for. This is not a fine philosophical distinction but a major practical difference.

No matter what the law says or promises when you pay your Social Security taxes, Congress can pass a new law changing all that any time they want to. They have already done it and those who say that there is no problem with Social Security also say, as Businessweek does, that "tax hikes" and a "reduction of the benefit" can fix the Social Security problem.

Of course it can. If you owe a million dollars, that is no problem, if you can decide to pay it off for whatever amount you can comfortably afford. It is just that most creditors take a much narrower view of the situation.

If I tell the bank that I can't afford to make the mortgage payment because my income is not as high as I thought it would be, they are going to throw me out in the street and take the house.

But no matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you back only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.

Owning your own private pension plan means that those who owe you have to pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of having the government keep the money.

Liberals are desperate to keep Social Security the way it is, because that means they can keep spending your money as they see fit and keep you dependent on them. That's what the welfare state is all about.

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JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author of several books, including his latest, "Applied Economics: Thinking Beyond Stage One." (Click HERE to purchase. Sales help fund JWR.) To comment please click here.


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