One of the slowly-simmering issues I try to follow is the future of Social Security. Eventually, the current Ponzi scheme is going to go bankrupt, and right now there’s no morally principled reform on the horizon. So one big question is what sort of response to this brewing problem can we expect, given the current political and cultural climate?
Last week, there were a couple of high-profile news stories that indicate which way we’ll be headed. And it’s not a pleasant picture.
First, there was a 10/22/2008 Wall Street Journal story about the Argentinian president’s attempt to nationalize their current private retirement accounts:
“Argentina Makes Grab for Pensions Amid Crisis”
…President Kirchner painted the move as an attempt to help workers weather the financial crisis. The value of private retirement accounts in Argentina has probably fallen in recent months due to a declining stock market, economists say. President Kirchner said in a speech: “The main member countries of the [Group of Eight] are adopting a policy of protection of the banks and, in our case, we are protecting the workers and retirees.”
Buenos Aires economist Aldo Abram, among many other economists, wasn’t buying that argument. “They were in a tight situation and this was an accessible source of funds,” he said.
The step requires approval of Congress, where the governing Peronist party has a majority. Opposition leader Elisa Carrio vowed to contest it, saying, “The government measures aren’t designed to better the retirement system but rather to plunder the funds of the retirees.”
The current financial crisis is being used as a pretext to confiscate that money, in the name of “protecting” the Argentinian workers. Of course, in reality it’s just a way for a bankrupt government to attempt to steal enough money to keep going for a little while longer.
The second story was from the 10/23/2008 issue of US News & World Reports on a proposal to nationalize private 401(k) retirement plans in the US:
“Would Obama, Dems Kill 401(k) Plans?”
House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created “guaranteed retirement accounts” for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return.
By taking over this huge pot of private 401(k) retirement money, but promising to pay out only a pittance to the nominal “owners”, the government would (quite literally) make out like bandits.
Although this is just an academic proposal at the moment, these ideas have a way of leaping from academia and think tanks to the floor of the US Congress in a surprisingly short period of time.
Several of my friends and co-workers have independently told me that they fear that their own private retirement money will no longer be available to them by the time they retire. (They already recognize that Social Security won’t be). The government might not engage in a complete confiscation this private money. Instead, they might use an indirect approach, such as imposing, say, a 40% tax on any balance over $1 million on 401(k) accounts. That way, it would only harm evil “millionaires”, whom the government would claim could easily afford such a tax.
Or it might be mandatory conversion of private 401(k) accounts into government accounts as proposed by Ghilarducci, where the government would then control which retirees could receive any money, and how much.
Another less likely possibility (which some libertarian groups advocate) is that the government might propose some sort of faux-privatization scheme, in which our current Social Security system was replaced by a system of “private” accounts (but still heavily regulated by the government). In that case, there is still the worry that current 401(k) plans would have to be folded into these new accounts (in the name of “efficiency”). Such a pseudo-privatization would merely gives the government more control over private assets, not less. Hence, this would still not protect Americans from the possibility of confiscatory taxation of those nominally “private” accounts — not if there were political and economic pressure to do so, as I predict there will be.
Given that (1) there are lots of working Americans who will not have saved enough for retirement, and (2) there will not be anywhere near enough Social Security money to pay for these people, the gloomy scenario predicted by my friends may not be too far-fetched.
Furthermore, I predict that many statists will argue that the need of those who didn’t save outweighs any alleged claims of “right” to the money by those who actually did save, and that the savers have an obligation to bail out the non-savers. This would be the predictable end result of the altruist morality that is too-prevalent in our culture.
Based on numerous conversations, those who have been responsible and who have saved enough money for their retirements are understandably angry at the prospect that they will be punished for their frugality in order to reward those who didn’t exercise proper long-range thinking and failed to save when they could have.
What they need is the moral sanction to be told that this money is rightfully theirs and that it’s therefore wrong for the government to steal their money to give to others.
Most of society won’t give them that sanction. Objectivists will.