Cato’s Dan Mitchell gives another video primer on the crisis facing Social Security and the dearth of real options for reform for the Center for Freedom and Prosperity, and it’s well worth the watch. The two most-mentioned prescriptions for reform are benefit cuts and higher taxes. But the real problem in Social Security is that its investment value for workers continues to fall, and both of those solutions make the situation worse. One cannot reform a Ponzi scheme by making it more expensive or less lucrative, and the dearth of new participants dooms a Ponzi scheme of any sort. The only real solution is to give workers control over their own funds and to keep them away from Congress:
There are two crises facing Social Security. First the program has a gigantic unfunded liability, largely thanks to demographics. Second, the program is a very bad deal for younger workers, making them pay record amounts of tax in exchange for comparatively meager benefits. This video explains how personal accounts can solve both problems, and also notes that nations as varied as Australia, Chile, Sweden, and Hong Kong have implemented this pro-growth reform.
There is one other point to make about privatization. The tax changes in the early 1980s that created IRAs and 401k plans created a revolution in the investor class. Prior to those changes, the investor class was only around 10% of the families in the US. In less than a generation, that changed to over 70%, with nearly all workers owning stocks and bonds through private retirement accounts. The massive influx of capital into investor markets helped create the 25-year boom economy, which got derailed only when government interventions to impose “fair” outcomes in the housing market backfired.
Considering the lack of investment capital at work at the moment, imagine what privatization could do for the American economy now. And if that isn’t enticing enough, imagine how being unable to take Social Security money to cover budget gaps would do to restrain Congressional spending.