Who Cares About Our Future?

A strong rebuttal to the critics of last week's controversial column, Dr. Williams illustrates mathematically that Social Security is, in fact, an unsustainable and immoral pyramid scheme.

My column titled "What Handouts to Cut?" created a number of angry responses, and for the first time in my life, I had some, not much, sympathy for political cowardice. Most letters were from senior citizens angered by my suggestion that they were receiving handouts and those handouts be cut.
Federal tax receipts for 2009 totaled $2.1 trillion. The largest items in the federal budget were Social Security ($710 billion), national defense ($689 billion), Medicare ($456 billion) and Medicaid ($327 billion). The primary recipients of federal spending are seniors. Some of the letters argued that it's unfair to characterize what seniors are getting as handouts because they worked all their lives and paid into Social Security and Medicare.
Jagadeesh Gokhale, senior economic adviser, Federal Reserve Bank of Cleveland; and Laurence J. Kotlikoff, professor of Economics at Boston University document the looming Social Security and Medicare crises in "Is War Between Generations Inevitable?"

They report that "A male reaching 65 years of age today (in 2000, the year of their study) can expect to receive $71,000 more in government 'transfer' benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes."
The picture is not so rosy for people who entered the labor force in 2000. They will pay far more in taxes than they will receive from transfer programs. Expansion of elderly handouts, such as prescription drugs, will make things worse. "For example: A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits."
Why is Social Security a better deal for today's seniors? Just look at what they paid in. From 1937 to 1949, the maximum annual Social Security tax was $60. It remained under $200 until 1956. After 1956, Old Age, Survivors and Disability Insurance was added and in 1966, Medicare was added. It wasn't until 1969 that maximum Social Security taxes exceeded $2,000. Today, the maximum annual Social Security tax is $13,000 and the maximum annual benefit is $25,000.
As with any Ponzi scheme, the people who get on board early make out. This is pointed out by Geoffrey Kollmann and Dawn Nuschler of the Congressional Research Service in their report "Social Security Reform." (October 2002)  They say, "Until recent years, Social Security recipients received more, often far more, than the value of the Social Security taxes they paid. ... For example, for workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years."

My question is: How can anyone who draws out every penny he's put into Social Security in a few years say that he's not living at the expense of another?
In my opinion, it takes a special form of callousness and disregard for the welfare of future generations of Americans for today's senior citizens to fight against reform. Nobody's talking about abolition of federal senior programs. We must accept that serious mistakes were made and we must take compassionate corrective action.

But what the heck! As I said in my "What Handouts to Cut?" column, "Both today's politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?"

Walter E. Williams is a professor of economics at George Mason University in Fairfax, Virginia. He has authored more than 150 publications, including many in scholarly journals, and has frequently given expert testimony before Congressional committees on public policy issues ranging from labor policy to taxation and spending.


16 comments from readers  

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Mr. Williams hits the nail on the head here. I'm turning 50 this year. I've been forced to pay into a system my entire working life that I expect to get nothing back from. I would have rather invested that money myself. I don't need the government to provide for me in my retirement.

It is appauling that seniors think they are getting what they "deserve" when actually they are getting far more than their contributions to the system...including interest! None of these whiners are doing the math. They are getting something for nothing at the expense of the youth.

I'm on Walter's side. I don't want Social Security and expect nothing from it. Let's just call it what it is, another tax levied and misspent by our government. Why not kill the system before it kills us? The government can have my Social Security account and give me no benefits...just stop making me pay into it and we'll be all square.
I'm not sure how you can say that "economic calamity (is) decades off into the future" According to The Washington Times (and others), Social Security is in the red *now*. Our deficit is skyrocketing and our junk-bond buyers are threatening tighter credit. Taxes and regulation are already at crippling levels and are set for devastating increases in less than 4 months.

It seems plausible that economic calamity will strike in less than a decade -- maybe even in just a year or two.
I remember that my parents bought a nice house for 20,000 in 1965. Government sponsored inflation overwhelms productivity increases. You, of all people, should recognize that you can't compare apples and donuts. Social Security should never have been implemented, but now we have to live with the mistakes of the past. Bush tried to get folks interested in a fix in 2005. What is a real fix to wean us from it? I think it will take multiple generations, but now is the time to start. Please present real ideas that don't screw the victims of the current system.
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I'm 65 and I'm with Sincere. This is so unfair to our grandkids.

We have had a lifetime to make money and plan for retirement. Our grandkids are never going to get off the ground, they will have to work until July every year just to pay off the government thugs (so they can finance imams on good-will missions to the Middle East and tell the Muslims we not only tolerate their religion, we will even give them welfare if they move here!)

The only way the government is going to quit financing inanities, is to cut off their funding.
Bravo, Mr. Williams!

In 4 years of law school, we had all of 10 minutes dedicated to the "spending power," regardless of the fact that most of the U.S. budget is spent on items which before 1936 were prohibited by the 10th Amendment.

Having spent years studying the "spending power" on my own, I understand that it's based on the flimsiest of constitutional interpretation. I am convinced that the Supreme Court betrayed rational interpretation when they bowed under the pressure of FDR to expand federal spending, allowing for Social Security and such schemes.
Dr Williams, over the years you have earned my utmost respect. But that said, I have a few issues with the particular line of reasoning.

Were the future values of the contributions considered in this study? Either way, this needs to be stated here.

What about an equivalent investment in Microsoft? I realize this is a stretch, but I did not have a choice as to making the contributions, and many possible investments would have paid better. In fact any index would have paid better.
No parent would want to do this to their children, if they properly understood the issue.

OTOH, few children these days want to be burdened with their elderly parents, and yet, the government's mishandling of SS has created an increased need to consider exactly that.

The mismanagment of SS has created a pending huge mess. By overtaxing the Boomers -- and spending that tax surplus immediately, faster, the government created three problems:

1] A subsidy to the budget that, when the subsidy goes away, leaves a hole in the budget that must be filled with new taxes.

2] An unfunded liability in the future, when SS revenues invert(ie, according to Timmy Geither, this year, not six years from now, as predicted just last year.) This creates an additional burden on future economies.

3] An entire overtaxed generation with a greater dependency on SS, because they labored under a much higher SS surcharge than previous generations.

None of the above responsibly planned for this easily predictable coming circumstance. In fact, the government made the problem much worse than it would have been. What was seen as pleasurable when the raid was occurring is now going to be seen as painful when the piper is finally paid.

This is the most stunning economic blunder in history, brought to us by government fatfingering in the economies.

The current generation is going to rightly ask, "Where is the money your generation supposedly put away to cover this?" and we're going to say, "We let the government spend it when we were young."

Not enough Americans understood what the government was doing. No loving parent would ever try to do this to their children,knowingly. Folks who finally realize waht was done are going to be angry, because they did pay their extra tax surcharge all those years, they did assume they were doingn it for this coming rainyday, they for sure didn't beleive that the government was just spending it immediately and making this coming rainyday three times as bad as it would have otherwise been.

The pols were doing what pols always do -- hosing over the future, passing the buck. That future is here. Why should we be handing over even greater control of our lives to these failed emperor wannabees aftger this pathetic outcome?
Thanks for having the courage to stand up and speak the truth. As you said, nobody is suggesting abolition, but reform has to happen soon.
I usually love the way Walter thinks, but he fails to mention that today's seniors didn't make the rules. Had there been no Social Security plan, and seniors were allowed to keep ALL their earnings and invest them, they would have much more at retirement than the weak social security return that is now "doled" out. Couple this with the destruction of our once sound money based on precious metals, and we end up where we are today. I blame the power elite who gave us the FED, the IRS and other "New Deal" wonders. Oops! I'd better be careful; I'm beginning to sound like a conspiracy nut.
This is a very good and brave description of the looming problem we have coming. I am 58 years old and understand chances are the system will be broke by the time I start drawing my retirement paychecks. On the other hand my son is 32 years of age and I feel awful knowing he will be suffering the injustice of the current system while me being a beneficiary.
Political and personal interest must be put aside to fix this problem. I am not sure if this will happen without a fight.
To all the aging Pauls that want to rob Peter:

A dude accosts you on the street, "Hi. I'm a victim of Bernie Madoff. Give me my money back or I'll murder you."

Good idea?

The point is that those who paid into social security can only get their money back if it is robbed at gunpoint from others.

The criminal government is bankrupt, and no one has any right to get any more back from the government than what they can get out of the auctioning off of the government's assets. As the government is trillions in hock anyway and has practically no assets, no one will get more than a couple cents on the dollar, if anything. (Observe that most land the government claims to own is in fact unowned.)

The bang you just heard was the sound of a check bouncing.

"Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: 'Account overdrawn.' "

â?? Francisco d'Anconia

If you have been defrauded by the government, don't be sad, though:

Hungarian farmer Nagosh was asked to buy 5,000 forints' worth of government bonds.

"But what collateral do you have?" he asked the party promoter.

"I vouch for it myself," the man declared self-confidently.

"And what if something happens to you?" the cautious farmer asked.

"Now, comrade, then you'll still have the party as a guarantor!"

"But if we assume that something should happen to the party?"

"Well, comrade, that ought to be worth 5,000 forints to you?"
I'm within a couple of years of reaching early retirement, and I still say, right on!
Dear Dr. Williams,

I agree that Social Secuity is immoral, unsustainable, and must be reformed. In reducing future benefits, though, the fair approach would be to let current retirees cash out to the extent of their lifetime contributions, plus interest. The interest rate should be a generous one to account for the high opportunity cost of the Social Security program in relation to private plans they could otherwise have participated in. There needs to be a fair and rational phase-out of benefits, so that those who did contribute for decades aren't cheated. It's a fairly easy actuarial calculation.

As you've pointed out elsewhere, it's not right to force anyone to save for retirement. I.e., the goal of reform should be an end to compulsory Social Security, and a true free market in retirement planning.

Perhaps most important, the morality of altruism must be challenged. Americans should come to understand that they have no right to demand that others sacrifice so they can live comfortably.
Lately, I keep listening to older people (40+) ramble on and on about the current state of this country and where it's going: most are conservatives crying that we're headed more and more into socialism, others are liberals who do not support the current administration's attack on social and economic freedoms. To me, both are a joke. The current state of this country is a direct outcome of the choices of the politicians they elected in for the past several decades: of their willingness to compromise, their willingness to vote for 'lesser evils,' and their willingness to sacrifice freedom for minute safeties. The same argument I hear over and over is "Well, what should I have done? Tell me, what would've been your idea of rational?" Well, for one, you all could of read up on some Mises, Friedman, Rand, and Hayek, and maybe have caught a glimpse of morality, and with that, perhaps courage to have demanded better. But you didn't. And now you demand the younger generations to keep the flames of generational failures alive; and by looking at my generation, their volitional ignorance most probably will. But this does not justify it.

Guilt and empathy are the tools used to keep us bound to these failed programs of welfare for the greater good. When I present the idea that we should cut ourselves loose, older people gasp "But what about the poor? What about the elderly who live off their social security? They had no choice in the government doing that to them." And I had no choice either. I'm 26 and I've been working since I was 16, putting into an government 'investment' that I shall never see a return on. There was no form handed to me that asked if I wanted in or out of social security, the government simply took and continues to take what it wants. And their opinion is that I would be the 'immoral and heartless' one for stopping it because they did not have the courage to but instead caved, compromised, and fit their lives into it. No, the morality of rational, free man demands that he make no compromise with any form of tyranny.

I can offer no graceful solution that will appease every one alive, I doubt there is one. But what happens if we reform social security with just the promise to take care of those who need it now and no one else. Ten years down the road, will it hold against a retiring generation who'll scream they deserve some form of government aid? Is there a compromise that will not open the door for further compromises in the future? Not likely. I've accepted that I will never see what I've put in back, and as another person posted, I'll be willing to call it fair if the government will just stop taking these taxes out. To let me 'op-out'. Otherwise, I'm left with two choices: cave in to the 'arguments for empathy' waged against me or strike. Consider if there was an entire generation who would make the choice I would.
I am 68 and I am saying: "Abolish S.S. now!" When I was 12 I got my first paycheck. I questioned the deductions. (S.S. was .75%.) I was outraged on principle. I quit drawing a check and became part of the underground economy. I realize I am a rare exception. Just because almost everyone excepted the confiscation of their earnings and the word of government that it would be returned is not relevant. It is never too late to admit a mistake. Suffering is no excuse to demand a bailout. Seniors made a mistake, just as the bankers, and justice demands the guilty pay.
Thank you for this article. I definitely agree with the ideas you put forth.

I'm 68 years old and never imagined that the Social Security system would come to this. Sadly, there are so many seniors, including myself, who never considered questioning the government and the workability of such a system when we were younger.

Although this is a very difficult situation, given the amount of seniors with no income other than their SS, no family to care for them, and often in need of medical care, it still has to be confronted now.

When I discuss this with many seniors who claim to be conservative, individualists, libertarian, those opposed to big government and big spending, etc., their views do not include losing any of their benefits. It is so hypocritical even though I can understand their reluctance to face such a threatening situation.

Regardless, it has to be done. We have to make reforms in the system with, as you state, "compassionate corrective action"
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