Posted by
Steve on Friday, February 15, 2008 1:46:11 PM
Since Barack Obama is talking about change, let’s examine some things that need changing in Washington. The first thing that needs changing is Social Security. Right now, we have a Ponzi scheme for a social security system. If an individual developed a scheme like that the person would be in prison so fast that the door would have a hard time hitting him in the rear.
For those who do not know, a Ponzi scheme is where someone gets people to invest and the ones that invest first get paid, the ones that invest last lose. There is no actual investment made. The first people pay him. The next group goes to pay the first group. The third group goes to pay the second group and so on. Eventually, the person running the scheme runs out of “investors” and gets caught. The first person running a scheme like that was named Ponzi. That is why it is called a Ponzi scheme.
You may ask how the Social Security system like a Ponzi scheme is. Well, the first people got paid their social security benefits and Congress took the excess to fund their schemes. The second group funded the first group with the excess to Congress. The third group funded the second with the excess to Congress. I think you can see the pattern developing. We are now in a situation where the groups are so large, that the next group is not large enough to pay for the group before it. It is predicted that in 2017 the amount brought in to cover Social Security will equal the amount paid. In 2018, the amount brought in will be less than the amount paid. It gets worse with each year.
How do we fix Social Security to make it pay for itself? The answer is simple, privatize it. Right now, there is no investment. When you die, any benefits you may have earned are lost to your heirs. In a privatized system, when you die, the amount you invested would go to your heirs. Wealth would be created for the American people. The number of people living below poverty would be almost completely eliminated with a privatized Social Security. The reason is that they would be building up nest eggs that would enable them to live well in retirement and pass that on to their heirs. Their heirs could add their parents money to theirs making even larger investment portfolio’s for themselves.
The question is would such a scheme work. Democrats say that the plan is too risky. There is a chance that a person could choose options that would lose all or part of their investment portfolio. Is there an example of someone who has done exactly this sort of thing? Yes, there are a couple of towns in Texas that opted out of the Social Security system when it was possible to do so. The people that were working in those towns are now retiring. Most of them will be receiving more in retirement income than they had in earnings during their last year on the job. The reason is the investments paid off. There is almost no risk over a 40 year working career of any investment plan losing money. In fact almost all of the plans used by these Texas towns earned far more than the amount needed to keep up with inflation.
We now know that the system will work, if implemented. We even know how to do it; just model it after the Texas towns that opted out of Social Security. We could even tweak it a little to improve it. The only question is how to get it through Congress. If everyone knew what this option would do, every man, woman and child in the country would be for privatization. Democrats in Congress want to keep people dependent on government. One way they do that is to keep people paying into Social Security. Then, whenever a Republican says he wants to reform Social Security to save it, the Democrat will say that the evil Republican wants to take their Social Security away. The only way to do it successfully would be to implement it over a 20-30 year time frame. You would gradually reduce the amount a person paid into the Ponzi scheme Social Security and gradually increase the amount the person paid into the gold mine Social Security. Eventually, all Americans would have wealth that their parents could only dream about. Politicians would lose one of their holds over the American electorate.