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Tuesday, October 30, 2007

Demystifying Social Security

Demystifying Social Security

What is Social Security? A transfer program designed to a a small short run solution to elderly poverty. Yet some still don’t understand the program. An example is shown from the Congressional Institution's website :
Return on Investment
Many Americans have little idea what "return on investment" means. Yet, though they may not know the definition of return on investment, analysis of public opinion reveals that they understand and apply the concept in practice.
In the prior sections, we defined Social Security's return as the change in fund available per beneficiary. While accurate in that context, we will use a more simplified definition in the context of public opinion.
Simply put, the return is a measure of the efficiency of an investment. Like the gas mileage of an automobile, it tells you how much return you get for every unit -- be it dollars or gallons -- you put in.
The website, prepared to educate the public, doesn’t gets its wording correctly. First, Social Security isn’t an investment (capital or infrastructure). An Investment implies that their is (or my be) a future gain to society, but the program is a transfer program from the working class to those whom are no longer working. An investment would also help (in theory) increase productivity per worker allowing the economy as a whole to produce more with less: thus making society better off. Yet transfer programs don’t focus on productivity (GDP or a workers output) it instead focuses on a person’s income (GDI). What is the investment? Are workers more productive paying for non-workers? Is it allowing more income/wealth to be generated in the future? Is it helping future generations? Social Security does none of these and isn’t an investment. So we, as a society, need to be honest about what it is: income for the retired, and as such shouldn’t be treated as an investment.
Another problem is that the program is being misrepresented by the government and/or those who report on the government actions again the Congressional Institution:
It appears the public's feelings of self-confidence and distrust of government pass on to the evaluation of reform options. Americans have doubts about investing in the market... Yet, when phrased in terms of personal choice, support for the option of market investment is overwhelming...
...And when asked who they trust most to manage Social Security investment, the public again strongly favors the individual over government...
...Support for individual investment choice is consistently strong through all categories...
(..are deleted percentages of persons polled, unimportant because for this argument)
This passage illustrates the problem with even having a discussion about social security. This passage, like the one previous, doesn’t describe the actual program or problems with the actual program (a transfer program). What this passage is saying is that the government has a bank account for each citizen and is investing the money for us, but we don’t think they are doing a good job of it. If this was the problem then an easy fix is at hand: change those people making the investments. But that then shows us this isn’t a problem of investment return it’s a problem of the program. What the above is asking for is a government forced 401K or other retirement program. As stated above the government has a transfer program; the government taxes the working (or those with income) and gives the money taxed then to those not working. The government doesn’t save the money or invest the money it spends the money as soon as it gets it (sometimes sooner). Therefore this illustrates another lie being shoved down the throats of the people.
More examples or government miscommunication about social security exist but these two issues. The idea that social security is an investment and that it is a retirement program (in the form of a 401K) are two lies that are crippling the arguments to fix the system.
To read the full report by the Congressional Institute visit

Woodrow McClure

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