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Can the Commoners Deform their Social Security into the Private Security?

by Victor John Serge


Yes, we, the commoners, can transform our Social Security into a private or communal security, because we are the numerical majority, which eventually gives the authority to the public figures who make the social rules and execute them. However, is such a transformation necessary; that is, is such a transformation in our long-lasting interests? It depends. Because such a transformation cannot be done in a day. That is what Governor Bush meant when he said, that the government could not go from "one regime to another overnight. It's going to take a while to transition to a system where personal savings accounts are the predominant part of the investment vehicle. And so, this is a step toward a completely different world and an important step." [New York Times, 5/17/00]

Why the political bureaucrats could not change their direction overnight? Because they bound to promote the long-lasting interests of the majority.  A correspondent of the Dallas Morning News  asked Bush whether he envisions a system in which future beneficiaries would receive no less than they would have under the current system, "if Americans could lose money?" Bush answered: "Maybe, maybe not." [Dallas Morning News, 5/15/00]  And that's correct, because it depends on what "is" is, on what from what social strata a particular American is.

Continuing his inquiry, the correspondent asked  whether it was "conceivable" that a worker taking advantage of the investment accounts would get a lower guaranteed benefit from Social Security. Bush admitted that it was "conceivable". A correspondent of the New York Times [5/17/00] reported that, "Bush also refused to say how much benefits might be reduced for workers who created private investment accounts. 'That's all up for discussion,' Mr. Bush said." Bush said it was possible workers would eventually be allowed to invest their entire Social Security tax, not just a portion. The Houston Chronicle [5/17/00] reported: "Bush on Tuesday said his plan to create private savings accounts could be the first step toward a complete privatization of Social Security." However, Mr. Bush does not believe that it can happen in his life-time. May be in 10 or 20 years.

Besides the time-span for the reform, there is another problem to look at -- if a commoner or a laborer would manage his-her own retirement account, where he-she would go to gain the knowledge of the market place. That's right, he will go to the corporate bureaucrat, who, eventually, would take control over the commoner's account. It means that the commoner would transfer his trust from the political bureaucracy to the corporate bureaucracy. Why he would do that and how much the corporate bureaucracy is more trustworthy than the political one?

On the first glance, Bush’s plan of privatizing Social Security is not only contradictory in terms, it contradicts also with the long run interests of the American majority. Bush's privatization plan puts a commoner's retirement security at the caprice of the market professionals who may lose and lose big not only their own money, but also the  money of those commoners who would rather prefer to entrust their money to the market "wizards" than to the federal bureaucrats. The commoners used to hear for the 75-year history of Social Security that it is a guaranteed secure retirement regardless of the fluctuations of the stock market. Investing these funds in the market means to put them in jeopardy. Bush’s privatization plan could result in massive government bail-outs.

In their report, A Primer on Privatization of 11/99, J. Cordes and C. Steuerle for the Urban Institute noted: “Privatization proposals that would allow individuals to ‘keep’ gains from private accounts in good times but require the government to maintain a floor in bad times would encourage individuals to take excessive risk. The consequences to the government would be similar to those when the savings and loan financial sector essentially went bankrupt.” On April 22, 1998, GAO reported that, "Over the past 70 years or so, stock returns were negative in nearly one out of four years. There is no guarantee that investing in the stock market, even over two or three decades, will yield the long-term average return" [about 17% now]. Neither there is guarantee that such an investment will yield the long-term minimal return (about 2% now); that is, what the banks pays to the savings accounts.

Bush admits he has not accounted the trillion dollar transition cost his privatization plan would require. According to a report published by the Center for Budget and Policy Priorities, Bush's privatization plan would cost the commoners $900 billion over the first ten years. These losses would occur because the Social Security system would have to pay out simultaneously current benefits, while privatization would drain over 15.1% of the amount of money coming into the system (assuming a 2% diversion out 12.4% currently paid). Plans to divert two percentage points of pay-roll taxes, or 15.1% of the money paid into the Social Security system, into private accounts could make Social Security go insolvent 14 years sooner than it would if no action were taken at all. From the above-mentioned report follows that, "under a two-percentage point plan, Social Security could go bankrupt by 2023". [Wall Street Journal, 5/12/00]

The combination of Bush's privatization plan with his nearly $2 trillion tax cut plan (the lion share of which will benefit the upper class) will leave multi-trillion dollar national debt intact as an increasing burden to the following generations of the commoners, who will ultimately pay for this debt by own increasing sweat and exploitation. 

That is why Gore asserts that Bush's plans could weaken the American economy by eliminating a chance to pay down the national debt and could place at risk the Secure Retirement Benefit that Social Security provides for millions of commoners and laborers. If commoners' investment experiments would fail, Bush's proposals have left no ways to pay for Social Security, national debt, and Medicare except resorting to the printing machines and following in the mode of the treacherous financial schemes of the Russian bureaucrats. Bush puts all the extra federal surplus into tax cuts, 36% of which goes to the wealthiest 1% of Americans. Taking into consideration that the major technological progress of the past decade was made by the small business enterprises, is it not too generous to the big corporate bureaucrats for their modest entrepreneurial activities?

Once upon a time, a hare bumped into a fox at a neck of their woods. The fox asked the hare why the latter was in a hurry. The hare answered that the coyotes were going from the other side of the forest and were cutting testicles of those who had three. "Do you have three," asked the fox. "No," replied the hare, "but they cut first and then count." So, the commoners would be so much like those coyotes if they permit to cut the taxes of the wealthiest first and then to look at the maintenance of Social Security and Medicare, and relieving themselves from the national debt. It would be more appropriate to relieve first the majority from the 15% Social Security federal tax, to extinguish the national debt, and transfer the supervision over Social Security from the political bureaucracy to the corporate one.

On April 18 of this year, Jeb Bush, George W. Bush's brother, wrote an editorial for the Tallahassee Democrat stating that, "it makes sense that we take the surplus we have now and place it in a reserve that is not affected by changes in the market." On May 16, the Philadelphia Inquirer reported that George W. Bush's chief economic adviser, Larry Lindsey, who briefed reporters on the safety of the stock market, acknowledged, that "he bailed out of the market years ago" because of its risky nature and because he does not take any risks because he hates losing money. Jeb Bush and Larry Lindsey feel the stock market is too volatile today. If the stock market is too risky for Florida’s aristocrats, how is it not too risky for the common Joe who did not finish Harvard and had no time to study Economics 101 and higher?

Nevertheless, Mr. Lindsey acknowledged that Bush's Social Security plan would deplete the cash surplus in a few years. He also acknowledged that the Treasury Department would then have to make good on Social Security bonds. Moreover, Mr. Lindsey acknowledged, the government may need to dip into general revenues; that is, to rely on budget surpluses to cover the cost of transition to private accounts in 2030.

Contrary to his relatives and advisers, George W. Bush has suggested the full privatization of Social Security, even though he has admitted it is "conceivable" that "some" American workers would receive less under privatization than the conventional Social Security system. In an interview with Business Week, Bush recently said, "the stock market appears to be somewhat skittish these days, and there is nervousness on the horizon." It is a step in the right direction of McCain's moderate approach to the reform of the social help system. McCain, whose own plan is roughly half the size of Bush's, once said, that he has "called this kind of economics fiscally irresponsible".

So, when retirees far outnumber active workers, the Social Security system will need infusions from Treasury and a corresponding tax increase to pay benefits; and this necessity will be the pivotal point of a future presidential campaign. But the majority of prognostications tell us that such a time will probably come somewhere in the years 2015-20.

Therefore, the central domestic issue of the 2000 presidential campaign seems will not be defined by tomorrow's old folks, who are not the key to what present-day alarmists label as "saving Social Security."

That is why the candidates of both major political parties, George Bush and Al Gore, are seemingly freely touching what used to be called "the third rail of American politics." And that is why their differing approaches offer the moderate commoners a vague political choice.

Bush's plan calls for taking one-sixth of the present payroll tax and allowing workers to invest it in mutual funds in individual accounts. The intent is to get a return on that investment that is higher than the present rate; that equity growth would supplement the Social Security benefit somewhere after the year 2030.

Gore's destructive labeling Bush's plan as "a risky scheme" could not impress the old generations of Americans because many of them are now stock market investors and know that in the long run, broad indexes do better than risk-free bonds. Therefore, Gore come up with own constructive plan to supplement Social Security with an individual savings account for low-income workers. Gore would encourage the latter to save a little each year by adding matching government funds (three dollars for every one saved), similar to the corporate match of 401(k) plans.

Correspondingly, Bush's conservative advisers derides the Gore plan as another government hand-out to re-distribute income of the middle-class, while Gore's liberal advisers down-play the Bush proposal as a scary threat to future Social Security benefits of the lower-class workers.

Both plans are based on a premise that the economy continues to generate trillions in surpluses -- that is, the good times will continue to roll on and on as far as the reasonable eye can see. If the economy will continue to clime up, then, both right and left approaches have its merits. Bush's upper middle-class would get their benefit of long-range stock growth, and Gore's middle lower-class have their savings enhanced. So, if both plans would be implemented, one third of the American workers would be tax-deferred to allow the buildup of different degrees of financial security. That would be not bad.

But if the good times don't continuously roll? What if the federal bureaucracy would be deprived of surpluses? That is from where comes the need to dig deeper to see who will be those "old folks" in the nearest 20 years.

In 1935, when Social Security was launched, life expectancy was in the mid-sixties. So, when the federal bureaucrats pegged the retirement age at 65, they thought that not too many commoners and laborers would live to collect their benefits for long. Now life expectancy in America is in the mid-seventies. That is why the Capitol Hill is presently noisy about increasing the retirement age to 72.

The conservatives are pushing the message that if "we" want to maintain Social Security benefits without raising taxes or depleting the Treasury, "we" should raise the bar of retirement age to the present longevity.

However, longevity, in its turn, depends on the "good" times and on the "bad" times. Look at Russia -- for the past ten "good" years, longevity over there dropped from mid-seventies to mid-fifties.

And how you would assure that workers under 55 will get their full benefits when they retire at 72?

The moderate commoners should welcome the change among the conservatives and liberals, but they have to be vigilant in order that their long range interests prevail. To that end, they should vote in Washington such political leaders as Pat  Buchanan or "Dirty" Harry Browne, who understand what Social Security ("as we know it") really means to the middle class and who will be responsible to the middle class for the implementation of the reform, not to the upper or lower classes.

And what does Social Security, in its present form, mean to the commoners? Ponzi scheme, an insurance swindle, in which the political bureaucrats collect money from commoners (pretending that it is for their retirement) and immediately spend that money to pacify the lower class or to benefit the corporate bureaucrats or themselves.

The idea is old as the world. Oriental people know this kind of scheme through a tail about Hajji Nasreddin, who became a contractor to an emir in order to teach an ass the Koran in 20 years. Hajji thus explained his scheme: "In twenty years, somebody will die -- either me, or the emir, or the ass".

Occidental people know this kind of scheme as Ponzi scheme -- an investment swindle in which high profits are promised from fictitious sources and early investors are paid off with funds raised from later ones. It was named after Charles Ponzi, an Italian-born speculator who organized such a scheme in Boston in 1919. He promised to pay investors 50% profit on their money in just 45 days. When someone wanted to withdraw his principal and interest, Ponzi simply paid him from money received from new investors. There were some of those who wished-to-receive beyond reasonable reciprocity. However, there were some who believed in reciprocity between the wish-to-receive and the want-to-give. Consequently, Ponzi could not gather enough money to equalize the rate of return he promised, and the political bureaucrats had to intervene to stop his swindle and sent him into a prison.

What do you think, the political bureaucrats will do to me if I would open a shop and offer a retirement plan that pays a pension more generous than my neighbors can get elsewhere. Every payday each of my "clients" will pay me a small portion of his pay-check -- say, 5%, -- and I will send them a monthly check equal to what each of them would make when he would retire at age 65. As the money comes in from my first "clients," I can spend it on a luxurious life-style. In fact, I would not need to keep money in reserve for my clients' retirement. When the time comes to pay them, I will do it with money I will receive from my new and younger clients. So long as I keep attracting enough new clienteles to pay for my lavish life-style and to the old clients, I will be one of the novo-riches, one of the corporate bureaucrats.

If I would have trouble attracting enough fresh clients to keep my promises, then I can change the rules. I can either raise the retirement age to 70 or the amounts deducted from my clients' paychecks -- from 5% to 10%; or I can either lower the promised benefits or pay them without inflationary adjustments. It is more probable than not, that the political bureaucrats of all levels will immediately shut my shop down, drag me into a court, and send me into a prison for "re-education". But how does their Social Security plan differ from my would-be retirement insurance plan? Is it because their scheme was started in 1935 and I was born only in 1953 or what?

From the vantage point of tax-payers -- polls steadily show that an overwhelming majority of young Americans have little hope of getting back even a dime from those 15% of their wages that the political bureaucrats extricate from each pay-check.

From the vantage point of Social Security receivers -- the system also stinks, because it provides only a meager monthly income to a commoner (maximum $1,500) and no estate for him to leave to his posterity. If he would invest the same money in a simple bank savings account, such an investment would provide a monthly income several times greater than Social Security. Moreover, it would build an estate worth hundreds of thousands of dollars, and such a plan would be a reality for the majority of the middle class.

Indeed, how richer would be an average middle-class family if the political bureaucrats would not mug it through the income tax?

Here are some price-tugs for your liberties that the bureaucrats re-distributed in the name of the War on Poverty for the past 35 years:

Spending by all levels of the political bureaucracies for all forms of social "help" (education, social insurance, welfare, and so forth) has totaled $35.4 trillion (in 1999 dollars).

Federal spending for all forms of social "help"  (education, social insurance, welfare, and so forth) totaled $19.8 trillion.

Total public "assistance" (welfare) by all levels of the political bureaucracy amounted to $5.3 trillion.

Federal public "assistance" totaled $3.4 trillion.

The middle-class family's forced "help" to the lower-class people amounted to $56 thousand.

The middle-class family's forced "help" to the lower-class people and for the maintenance of the bureaucratic apparatus totaled $411 thousand.

You can imagine what you could have done with that money if the political bureaucrats hadn't taken it from you. If the money had actually achieved some of the proclaimed goals, some of you might try to make a sense out of the destruction of the federal Constitution in order to help the lower-class people. But the programs have failed, and it seems the right time to stop the failed social experimentation.

Most of the commoners agreed that the present day messy welfare system should be cleaned up and returned to its previous meaning.

President Roosevelt's New Deal program had entangled the federal bureaucracy into what had historically been a local issue -- social or rather communal help.  During the following 30 years, the federal bureaucrats had been systematically destroying the middle- and lower-class families, their ambition and the very existence. President Kennedy's reforms were meant to fix the problems created by the 30 year implementation of the New Deal. That is why President Johnson said in 1964, "The days of the dole in this country are numbered." He thought that the simple transfer of the communal and private alms distribution into the hands of the federal bureaucrats would somehow elevate scornful "alms" to the honorable badge of "welfare".

However, before the New Deal, welfare had always been considered a temporal expediency -- something to shelter a worker until he found a new job or a widow until her children were old enough to support her. It was not meant to be a life-long source of existence. A representative of a church or other communal or private organization monitored recipients of charity, which was never impersonal. But the struggle for power and control led the federal bureaucrats to transcend their constitutional limitations. It embarked them onto the banks of the local matters.

As it is always the case with the mass production, whether in the banking or health industry, the federal bureaucrats conveyerized social help into the impersonal welfare system. In few cases the bureaucrats have been monitoring the welfare recipients, but the thousands of rules that were set thousands of miles away prevented them from paying attention to the real needs of a particular "client," because they were busy reading all those "executive directives" in order to protect their own hinds. Moreover, the real money, the checks, were dispensed automatically from Washington to the lower-rank bureaucrats and to the welfare recipients alike.

Such a depersonalized social help system became increasingly counterproductive in rescuing honest people from their misfortunes, but it became increasingly attractive to all kinds of crooks. Fewer lower-class people were helped to transcend into the middle class and more commoners sank into the lower class as welfare became a source of opportunity rather than a stigma.

The majority of the commoners realized that the more money the political bureaucrats re-distribute to the poor, the less the latter would strive to ascend into the middle class. Meanwhile, the federal bureaucrats heavily contributed their energy into the welfare system and made enrollment permanent, rather than a temporary expedient. Thus, welfare became a right -- one to which a poor is entitled, probably because a commoner has "natural" ability to work harder and to earn more money than that poor. Therefore, no more monitoring the poor, no more pressure to get back on his feet, no more need to change his unhealthy habits, which pulled him into poverty in the first place. The only responsibility was left to him -- to rise from a couch and stroll to the mailbox once a month to pick up his check.

In 1992 the federal bureaucrats spent $879 billion (in 1999 dollars) on all kind of social help programs -- 15 times the 1964 level; and state and local bureaucrats spent $636 billion -- 11 times the 1964 level, essentially in order to be qualify for federal funds. That amounted the social help programs by all levels of the political bureaucracy to $1.5 trillion in comparison with $117 billion in 1964. And the money spent for public assistance (welfare) by all levels of the political bureaucracy increased to $234 billion in 1992 from $11 billion in 1964 -- the year President Johnson promised to the poor -- 'no more dole'.

Still, the Johnson administration spent only $57 billion (in 1999 dollars), and state and local bureaucracies spent only $59 billion yearly on social insurance and welfare programs -- a tiny fraction of the present day mindless waste of the commoner's labor, thus, demoralizing both -- the commoner and the poor.

Although the government's statistics didn't track the trend of social division prior to 1950, there had been no much movement between the lower and middle classes. The latter had even shrunk for 3% (from 48% in 1950 to 45% in 1999), while the upper class had grown up from 2.2% to 2.8%.

The money is a nominal representative of our labor, of our sweat in our struggle for living necessities. Its mindless waste by the political bureaucrats is sad, but not deadly. Far more dangerous to the commoners were the accompanying explosions in teenage pregnancies, one-parent families, and teenage crime among the lower-class people. For instance, a teenage girl can become independent of her parents by getting pregnant and receiving welfare; otherwise, she must live with her parents and under their supervision. Is it not more attractive to a girl to have her own source of income and have sex whenever she wants it without having scruples about consequences of such acts? Nevertheless, the bureaucrats of the Aid to Families with Dependent Children (AFDC) pay her money, if only there is no Dad at her house. No surprise -- Dad has been steadily faded out of the family picture. Thereafter, teenage boys have no steady role-model and are easily influenced by the street-gang leaders who become their surrogate dads. And this tendency of the lower-class families coupled with the tax penalties on married couples have been surreptitiously influencing some three generations of the commoners.

Any not reciprocated alms cost to the giver twice -- firstly, through the nominal, economical value; and secondly, through the destruction of his moral values that had been perverted by the ungrateful receiver, whose real appreciation would instigate him to change his unhealthy way of living. This ungratefulness of the poor, coupled with the greediness of the middle-class welfare advocates, invented the right to privacy -- to pressure the political bureaucrats to relinquish their control over the testing procedures that question the right to welfare. Thus, the federal bureaucracy, after 50 years of struggle for control over minutest details of the social life, came to point where it started, but it came not as David but as Goliath. Consequently, it lost the battle for details, but it is still struggling in hope to win the campaign of self-preservation in its present size.

Meanwhile, the easy income test for welfare makes a low-paying job seem pointless. This eliminates the incentive for a youngster to get the crucially important first job, and so he never gains the experience needed to get a highly-paid job. The availability of welfare reduces the incentive to save for emergencies. When people spend without saving for rainy day, what else can they do but go on welfare when trouble strikes? It's a pity, but some of the commoners have been seduced by easy money -- and gradually they also became the patients and wards of the political bureaucrats, unable to procure for themselves, with no self-confidence or self-respect that tighter the yoke of slavery.

Time and again the upper- and lower-class leaders have claimed during the past 35 years  they've learned how to fix the system of social help. The commoners have seen one their patchy effort after another. The commoners have been told tons of stories about successful federal programs, flavored with anecdotes of former welfare recipients whose lives were turned around when government job-training let them of the hook and they became self-sufficient at last. But in reality, the waste of money does not shrink -- and the plague of pregnancies, family breakups, and crime continues.

President Reagan's reform, implemented by the Bush's administration in 1990, was aimed particularly at reducing the number of people on the rolls of Aid to Families with Dependent Children (AFDC). But over the next four years, the people on the AFDC's pay-roll grew nearly 1/3 (from 11.0 million to 14.2 million). And the present welfare reform will probably be the same kind of a fiasco.

But what counts to a political bureaucrat is a "good intention". So, in 1996, the lower- and upper-class leaders proclaimed "the end of welfare as we know it". And the waste of "public assistance" grew up from $226 billion in 1996 to $256 billion in 1999. New entitlements, such as a $24 billion  for children's health care and a $500 tax credit for people who pay no income taxes, were created by the upper- and lower-class leaders on the bi-partisan basis.

So, the commoners should re-evaluate their own leaders by criteria -- the only worthy reform is to get the federal  (and then the state) bureaucracy out of social help in accord with the federal Constitution, which dictates to leave the "temporary and expedient" matters to the local governments and charitable organizations, where true and personal compassion can be found. The latter will not make everyone responsible for everyone else, meaning that no one responsible for anything. The real compassion is when people pay from their own packets for their failed projects, they thought were "good," as they should pay expenses for their failed frivolous law-suits.

The genuine compassion was always personal and voluntary, from the bottom of the heart. It cleaned the giver and lovingly nagged the receiver to get out of dependency, because it was better to be a giver than a receiver. But the leaders of the lower class have managed to inculcate into the minds of the lower class people the notion that to receive is better than to give. The commoners should vote the federal bureaucrats out of the economy, to give more opportunities for the unskilled and the inexperienced. Not one federal bureaucrat can possibly know all the details of production and distribution of a particular good or service. The only way a person can become a really free citizen is a way of learning that every his right reciprocates with his responsibility. If he has a right-to-receive, he must have a responsibility-to-give. 

The demagogues would quick to point out that the responsibility contradicts to the volunteering. But the truth of the matter is that the reason of an individual, through his soul, connects with his emotional heart, thus influencing the latter and cleaning it from the filthy habits. Thus knowledge of rights and responsibilities leads to the conscious limitation of ugly passions, to the limited government, to the real freedom and real citizenry.

The leaders of the upper and lower classes think that the middle class can afford other ten years of transitional period to turn the social help to the local authorities. They think you can afford a few more trillion dollars to waste, but you know it well -- multi-year federal programs never stopped and returned as soon as the commoners turn their attention elsewhere.

The next President should announce to all non-reciprocal recipients of the federal hand-outs -- 'Read my lips, no more taxes. You have six months to turn your life around, to find a job, to learn how to take care of yourself, and become the real citizens.' That would be the real compassion, that would be the America of the middle class. It would be a common sense because the commoners do not want a country in which everyone is dependent on the political bureaucrats, because it would mean that each of them would work under compulsion --  and that would be slavery.

The Soviet social experimentation showed the commoners of all countries where the system of politically compulsive work leads. The ruling American middle class used to be an example of where the system of economical compulsion leads. Today, under pressure of the upper and lower classes, the American commoners are two thirds of the way toward the Soviet-style political and economical system.

However, they still have the ability to avert the "1984" because the majority of them still want to be self-reliant and be proud of own resourcefulness -- in a country where people used to keep and multiply what they fairly earn. And that is why one twentieth part of the world population still produces one third of the world's goods and services. But that can be changed quickly, and the next generation of commoners might produce a puny fraction of what they produce today under the system of free enterprise. Precisely in the proportion, the commoners let the limited bureaucracy to spread limitlessly, they become slaves of that bureaucracy. The greater economical power the commoners cede to the political bureaucrats, the greater power the latter use against the commoners. That's why every year the federal bureaucracy makes more of our decisions, leaves us with less control over our business, thus, turning our active destiny and freedom into our passive fate and slavery.

The upper- and lower-class presidential candidates have made it clear that they like the present political system of big federal bureaucracy. They advocate new programs to "help people" through either new subsidies for new privileges to the lower-class recipients, or new programs that will increase the possibilities of the political bureaucrats to hand out the commoners' money to favorite and "faith-based" lower- and upper-class organizations or "grass-roots". Therefore, the commoners should "do as 'they' say, and do not do as 'they' do".  Otherwise, continued meddling of the federal bureaucrats into our purse will turn the American correctional facilities into a continuation of the GULAG in the nearest 20 years, as surely as federal "aid" to education has decimated our public schools.

What will happen to the poor when the commoners reduce the federal bureaucracy in a half? If the commoners will manage to repeal the income and Social Security federal taxes, it will leave them a trillion dollars a year -- enough to organize small businesses with capacity to hire those poor who can work, and enough charity for those who can't.

Who was helped by being enslaved? Who was helped by being forced to live in slums and housing projects to be preyed upon by criminal gangs? Who was helped by being unemployed because of fear of losing money on taking a job? Only federal bureaucrats benefit from present system of social help -- and that's why every reform proposed by the upper- and lower-class leaders have led to increasing hand-outs and larger lower class.

As to the Social Security recipients -- the leftists and the conservatives let us to know -- they prefer to patch the system through gradual tax and benefit reductions, including raising the retirement age, invoking a means test, and changing the cost of living index on which they calculated the yearly dispensations. However, the only viable way for the middle class to avoid the coming Social Security collapse is to get the federal bureaucrats completely out of the Social Security picture.

And there is a presidential candidate, "Dirty" Harry, who proposes to sell to us, the young and solvent commoners, trillions of dollars worth of unneeded and abused, unconstitutional and, therefore, illegal federal assets (mostly swindled from the middle class) to finance the purchase of private retirement accounts for those who are already dependent on Social Security. This would give older Americans guaranteed contracts with private insurance companies and greater probability that the economical bureaucrats will not brake their promises, because their business is for life, unlike the political bureaucrats -- whose business is only for six years or so. That is the only case where we can regret about absence of hereditary aristocracy. Thus, the younger generations of commoners would be free of the 15% Social Security federal tax. They would be able to save on their own, earn a much higher rate of return, and build a substantial fortune for a prosperous retirement.

When Social Security was established in 1935, a trust fund was set up -- to keep the money collected in taxes, so it could be returned with interest to each taxpayer when he retired. But where is a large sum of money, there are the political bureaucrats, like flies around... you know what. So, in 1939, the federal bureaucrats transformed Social Security into a Ponzi scheme -- one in which the amounts paid to the recipients come from taxes collected from other commoners the same year. What an adult commoner pays as the Social Security federal tax is not put aside but is paid out to the senior-citizens. Even if a commoner receives anything from Social Security, after he's been paying into it for 40 years, what he gets will be taken from the pay-check of his son -- an active worker.

Therefore, federal Social Security differs from a Ponzi scheme only in that respect that the political bureaucrats would not put themselves into prison for cheating their "clients". Indeed, they have been cheating us from the 1939. They've been constantly changing the rules. They have increased tax rate about once every three years. They have increased the portion of wages that subject to Social Security federal tax for twenty times -- from an original maximum of $3,000 to the current $60,600. And the portions of dispensation are changed frequently. Consequently, what was once a $60 annual tax is now as much as $9,271. They have increased tax rate sevenfold since 1935. Today an employer must deduct 7.65% from the first $60,600 of an employee's income each year. In addition, he has to match that dollar for dollar. Therefore, roughly 15% of his earnings, commoner is forced to give away to the federal bureaucrats.

Presently the life expectancy among the commoners rises; consequently, a larger portion of the middle class survive to the retiree age. That means each younger commoner has to support more senior-citizens, and that means more sweat, exploitation, worsening conditions of life and work that lead to moral degradation of younger generations of commoners. And the moral degradation will necessitate the depression of economy, thus, leading to stagnation and pauperism of the middle class.

Some economists project that rising costs for Social Security, Medicare, government pensions, and interest on the debt will chew up 71% of the future generations of commoners' earnings. Consequently, the political bureaucrats will survive in the atmosphere of the extreme public skepticism only if they will not brake the majority of their promises. What kind of moral and material lives will our children have if they will get only one third of their earnings?

It is already clear that current rates of taxation and benefits will lead to the insolvency of the federal Social Security system within a few years. To fix this, a bi-partisan commission is appointed. It will probably recommend to raise taxes or retiree age and to lower benefits for the next four years. Then the upper- and lower-class leaders will proclaim Social Security completely safe and secure for another 30 or so years. In four years there will be another bi-partisan commission, which will recommend again to raise taxes or retiree age and to lower benefits for the next four years.

Unsophisticated people think that the federal bureaucrats would never brake their promises to Social Security recipients, no matter in what shape federal finances are. But when the only alternative is to raise the Social Security tax rate to 20% or 30% or to cut off food stamps to the poor, then, the federal bureaucrats might have no choice but to cut Social Security benefits or raise retiree age. After that, the upper- and lower-class leaders will ask the commoners to be compassionate to the needy and to tighten their belts. But by then, some of the commoners would be unable to work harder and make up the difference.

It is not just a cliché when upper- and lower-class leaders accuse each other in passing a bill for federal spending on to our children, although a few of us may think that they will also pass their bills on to their children. In fact, each generation may pass the primary debt on, but it cannot pass on the yearly interest that keeps getting larger. Every generation already is suffering from the government spending of earlier generations, and the bills get larger and larger.

Our parents paid around 35% of their income in taxes. Today, we are forced to give away 47% of our income to the federal, state, and local bureaucrats. Will it really be 71% for the next generation? There is a limitation of the commoners' patience. And once the political bureaucrats will reach that limitation, they will hardly survive the out-break of anger of the middle class.

Meanwhile the upper- and lower-class leaders are playing political ping-pong with Social Security -- warning the senior-citizens that the other site will water down their Social Security or Medicare benefits and denying own intent to do the same. But the commoners are already fed up with their rhetoric, and polls routinely show that about two thirds of the Americans do not expect to receive a dime from Social Security. The majority of commoners do not expect Social Security to survive until they start to draw their pensions. And they are right -- Social Security ("as we know it") is broken and will soon collapse. However, if we want to build a new system of social help within the present political system, we should know where are we going.

When Alice fell down into the Wonderland and met the Cheshire Cat, she asked him, 'Dear Sir, how I can get out of here?' The Cheshire Cat replied: 'Before anything else, you should know where are you want to go.' So should we know what kind of system of social help do we want; until then there is no reasonable basis for reform. And what kind of system do we really want?

Apparently, it should be a really funded and transparent system. The money I put in should be saved and invested on my behalf by a portfolio manager. The latter would live on a portion of profits and losses that the principal investment will make. I should have the power to fire and hire  my portfolio manager when I see his inability to do his job and keep my capital growing. And when I will retire, I should receive at least the same money as I put in. With such a system of social help, my pension would not rely on making money off my own posterity.

In fact, many of such really funded and transparent systems are already set in motion. They are lifetime annuities offered by private insurance companies, and they have existed for hundreds of years. While I pay into the annuity over the years, a company manager invests my money and pays me a lifetime pension when I retire.

If I would own an annuity, I would have a contract with an insurance company. I would know my rights and my responsibilities. I would know how much I would have to pay every year and (unless I agree otherwise) the amount I should pay would never change. Moreover, I would know how much I'll receive when I retire and (unless I agree otherwise) the amount I'll receive is guaranteed.

This is a voluntary and contractual way of providing for corporate help, which nearly entirely eliminate the necessity of supervision of the Big Brother. When I have my annuity, I do not have to worry that Congress might change the rules of "Social Security". Instead, I will frequently check upon the decisions of the board of directors of my insurance company -- it would be more personal, nearer, and simpler to do than try to control the Capitol Hill. Besides, many employers already provide pensions for their employees. If there were no federal Social Security system, competition for the best employees would inspire a greater number of corporate bureaucrats to do the same.

You have to admit that the economical system of private annuities works. On the other hand, the political system of federal "Social Security" does not work. So, it would have a common sense to abandon the system of social help under the supervision of the federal bureaucrats and to build such a system under the supervision of corporate bureaucrats, because Social Security ("as we know it") will always be a tactical means for the upper- and lower-class leaders to go ahead of their political competitors by promising bigger benefits now and leaving the necessary taxes for their successors to impose. That is why the two party political system could fool the commoners for so long. So, it will be a chronic problem unless the commoners take it from the federal bureaucracy and re-do it with the corporate bureaucrats.

In that end, the commoners should free themselves from the 15% Social Security tax by voting in the federal bureaucracy such middle-class leaders, who would actively implement this plan while making sure that no one dependent on Social Security today loses what has been promised by the upper- and lower-class leaders. The fresh federal bureaucrats should sell unneeded federal assets and buy from the private insurance companies annuities for those active workers whose age more than 55 and for those who already depends on Social Security. Those who younger than 55, would easily accumulate the necessary capital to provide a benefit at least as large as the maximum of what the present Social Security can provide. They will be able to provide a real retirement for themselves by putting aside whatever they want from their earnings, instead of paying 15% as the Social Security federal tax. The annuities should provide lifetime incomes similar to what the political bureaucrats has promised creating their own Social Security. Based on the amounts now being paid out each year, it will probably cost around $5 trillion. That is what national debt all about.

06/05/00

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Victor J. Serge created this page and revised it on 04/13/03