On Social Security

A couple friends of mine, Mark and Aaron have been discussing Social Security Reform. My response follows.

Mark started by pointing to Paul Krugman’s Confusions about Social Security. This article makes the following points, echoed by Mark in a later post:

  1. There is no Social Security Crisis. The trust fund is not going to run out, and the money in it is tied up in US Government Bonds, so it’s as secure as the government is.
  2. Rates of return on private accounts would not be significantly higher than the “return” on your current Social Security money.
  3. It’s all so far in the future that the political landscape will shift multiple times before there’s any sort of crisis.

In a private email, I called Social Security a busted Ponzi scheme, which Mark attempts to refute, too.

As far as I’m concerned, that’s all beside the point. I have the following objections:

  1. Social Security is a Ponzi scheme. Calling it welfare does not make it less so.
  2. It may not be Constitutional.
  3. Even if it is, it’s an expansion of federal powers that I’m opposed to.
  4. There are no guarantees. It’s not insurance. It’s a welfare program, funded by a regressive tax.
  5. It’s part of the larger budget crisis, and the Social Security Trust Fund is being used to mask much larger budget problems.

A Ponzi Scheme

Social Security is a Ponzi Scheme. As discussed in this article, money from new investors is used to pay off earlier investors until the whole scheme collapses. That’s exactly how Social Security is funded. According to their own FAQ: Social Security is largely a “pay-as-you-go” system with today’s taxpayers paying for the benefits of today’s retirees.


Then there’s the question of whether Social Security is Constitutional It was declared so in 1937, but by a Supreme Court under duress, and even the Social Security Administration says: the Court, it seemed, got the message and suddenly shifted its course. Beginning with a set of decisions in March, April and May 1937 (including the Social Security Act cases) the Court would sustain a series of New Deal legislation, producing a constitutional revolution in the age of Roosevelt. Further, the creation of the Social Security Administration in 1935 was an expansion of federal power, based on the Taxing Power of the Federal Government, initially set out in Article I, Sections 8 and 9 of the Constitution, and expanded by the Sixteenth Amendment. While the sixteenth amendment is going to stand, that doesn’t make it right (and for the “wing-nut view” search for Minnesota in this document to see what states may not have approved the amendment, or may have done so in violation of their state constitutions).

An Expansion of Powers

Even if Social Security is Constitutional, it means a huge expansion of the Federal Government. I don’t like that idea. The problem with big government is that even when a problem is solved, such as the need for alcohol-enforcement agents at the end of prohibition, government seldom shrinks. Those agents who should have been dumped at the end of prohibition in 1933 were given something to do with the passage of the National Firearms Act of 1934. Rather than doing away with an agency whose time had passed, that agency was expanded and given new license to poke its nose into our lives.

Over time, government (at all levels) has grown from employing just over six percent of the population in the early sixties to nearly eight percent of the population today, and sixteen percent of the labor force. And that doesn’t count contractors, who are a growing percentage of the population, too.

To use what’s probably a more accurate measure, looking at dollars, rather than people, government spending has grown from 24 percent to 30 percent in the same time. If you go back to before the big government expansion during the New Deal and WWII, government spending was below 10 percent of GDP. Now I’m not certain what those numbers should be, but my feeling is that I’d rather see government spending as a smaller percentage, rather than a larger.

No guarantee

There are no guarantees, and Social Security is unfair. You have no rights to any money from Social Security. Further, the tax which funds Social Security is a regressive tax. Whatever your stand on taxes, a tax which hits the poor harder than the rich can hardly seem fair.

Part of a bigger problem

Finally, Social Security is used to mask the much larger budget problem. Were it not for Social Security, the budget deficit would be reported more honestly, and would look appallingly large. The US Government is borrowing a ton of money every year, and that’s going to need to be paid back at some point, either through higher taxes, inflation or other currency devaluation, or by the government defaulting.

For more on why I (and others) don’t like “welfare” like Social Security, Kim du Toit has some comments on “Their” Community vs. “Our” Community which I think apply.

Copyright 2009, Dave Polaschek. Last updated on Mon, 15 Feb 2010 14:09:00.