The Final Solution

For both practical and moral reasons, the Social Security system in the United States should be abolished and completely privatized.

On the pragmatic side, the inherently flawed Social Security system is eventually headed toward bankruptcy. The entitlement program imperils the earnings of its contributors, deprives them of satisfactory investment returns, and compromises the rapid growth of the American economy through a colossal misallocation of capital resources.

On the moral side, the program is intrinsically unfair, since its benefits have absolutely no direct bearing on merit and efficiency. A contributor to the system, for example, may either pay more or less into the system than he ultimately gains during his benefit years.

What is still worse: the forced savings that this government program demands represents an unjust claim upon the life, rights, and liberty of the individual who should have every right to his hard-earned income, to dispose of however he sees fit.

On both sides of the political spectrum–right or left–the general consensus seems to be that, unless drastic steps are soon taken, Social Security is clearly headed for financial insolvency. It may not happen within the next ten years, but given projected demographic trends, Social Security will eventually go bankrupt. Even
Alan Greenspan, the highly revered Federal Reserve Chairman, has publicly stated that forced Social Security payroll “contributions” will probably have to be raised if present benefits are to be maintained. With the rapid aging of the U.S. population, there simply will not be enough working adults to adequately finance the Social
Security retirement of the rapidly exploding elderly population.

However, even without the specter of ominous bankruptcy, the system is still utterly deplorable as it exists today. According to virtually all studies conducted on the subject, Social Security offers appallingly atrocious “investment” returns. From 1973 until the present, it is estimated that the average low income worker gained an average annual return of 2.57 percent through his Social Security “contributions.” For the average high income Social Security “contributor,” the returns are even more abysmal: 0.15 percent for the same period. Such dreadful returns are particularly egregious when compared to the returns produced by the private marketplace of equity investments, which have delivered, on average, well over ten percent annually for the past 20 years. Bonds, money market accounts, certificates of deposit and passbook savings accounts have all returned more than forced Social Security “contributions.”

The billions of payroll tax dollars funneled into the Social Security system, moreover, only undermines the growth of the American economy. Social Security payments compromise the American economy through the misallocation of enormous financial resources that would have otherwise been productively employed in the far more dynamic and efficient private business sector. Every dollar “invested” in Social Security (into low-yielding U.S. Treasury bonds) could have been an extra dollar invested in corporate research and development projects yielding enormous technological breakthroughs of immense benefit to humanity.

However, in addition to all of the pragmatic concerns surrounding the Social Security program–financial insolvency, meager returns, capital misallocation, etc.–there are still more fundamental issues at stake.

The Social Security program is intrinsically unfair, because its benefits are in many instances unearned and hence undeserved. Under the current system, Social Security “contributions” have no direct bearing upon retirement or other program benefits. Contributing members do not have separate individual accounts from which their benefits can be specifically and exclusively derived. In true free lunch fashion, benefits are derived from the forced contributions of working younger members. The retired elderly population is essentially living off the labor of the younger working population, which is patently unfair to working individuals and their families.

Even more basic than the issue of earned merit are the moral principles of freedom, self-ownership and individual rights. Under the current system, private individuals are denied the right to dispose of their income as they see fit. Social Security “contributions” are not voluntary; they represent an extremely egregious form of government coercion. All American citizens, except those exempt through state and municipal pension programs, are herded into the system regardless of their personal desire to do otherwise.

For all of the aforementioned reasons, both practical and moral, the Social Security System, as it currently exists, should be abolished and replaced with an entirely privatized system of separate and distinct individually tailored accounts. Such a privatized system, already largely in place through company-sponsored 401(k) plans and expanded Individual Retirement Accounts, would at once solve all of the problems described above.

It would be solvent. It would not require the imposition of additional taxation. It would offer superior investment returns. It would contribute to the accelerated growth and development of the American economy through productive free market capital allocations. And, finally, best of all, an entirely privatized system, respectful of individual rights, would be completely voluntary, devoid of any element of paternalistic government coercion, and completely merit-based: all benefits will have been fully earned, not siphoned off from the efforts and earnings of others.