BETWEEN THE LINES: Addressing Social Security crisis now a must

Republican governor and presidential candidate Rick Perry was criticized for calling Social Security a Ponzi scheme in a recent debate in Florida. His statement needed clarification, for it was only partially correct. It is similar to Charles Ponzi’s investment rip-off only because early recipients win and those coming later lose.

Ponzi’s scam was illegal, and he eventually served time in prison. Not so the Social Security law, which was ruled constitutional shortly after it was passed, albeit by a close 5-4 vote. President Franklin D. Roosevelt’s critics have found much to criticize during his years in office, but I do not think he can be held accountable for the changes Congress made.

For as long as I can remember, politicians have avoided dealing with the actuarial problems that plague the long-term stability of the system because it was simply easier to pass its shortcomings on to future generations. They would rather do that than take the heat in the short term for making necessary, but unpopular, changes. When the Social Security Act was passed during the Roosevelt Administration in 1935, the life expectancy of the participants was age 68, and the benefits initially were relatively small compared to today.

Who could have anticipated such improvements in life expectancy in 1935?

Early recipients such as Mary Fuller paid in little and received much over their lifetimes. Fuller’s contributions of $24.75 from 1936-1939 netted her $22,888.92 before she died at age 100. Not a bad return on one’s money. Clearly, the early Social Security receivers were benefactors, while those under age 40 today stand to be big losers unless the system is drastically changed.

Dozens of Congresses throughout the 20th century saw fit to expand the program from being a limited safety net to a much more comprehensive program by adding such provisions as the cost-of-living adjustment and increasing both the benefits and taxes accordingly. These changes might have garnered politicians more votes, but they were enormously expensive over the long haul.

Another factor heavily weighing on the system is the lowering of the birth rate during the past several decades. Baby boomers born after World War II are beginning to retire, while new entrants into the system are dwindling. In the coming decades, more will be receiving money than are putting it in, thus generating a negative cash flow to be paid by a national government that is already trillions of dollars in debt.

What are we to do?  As a libertarian, I am opposed to a mandatory government retirement plan but am realistic enough to know it is not going to happen anytime soon. If political agendas can be set aside, reasonable long-term solutions can be found, but only if they address these problems very soon. Clearly those at or near retirement should be paid the benefits they expected because, for them, it is too late to change course.

However, they can expect the cost-of-living feature to be on the chopping block. If enacted, it will require the federal government to be much more frugal in money management, for printing money to pay bills will only increase inflation, and therefore diminish the purchasing power of retirement checks.

For those below age 40 who have time to make investment changes, a new plan should be put in place where employee and employer contributions should be placed into an account under the worker’s name. They should be given investment options just like they are receiving under their qualified plans.

No one probably will be completely satisfied by the ultimate changes that must be made. Everybody should expect to make some sacrifices along the way. Although the Roosevelt Administration might have had good intentions, there was no public outcry for this comprehensive act. At that time, the Social Security legislation drew considerable opposition from African-Americans and women’s groups who felt they would be discriminated against, and the courts rightfully questioned its constitutionality.

Nevertheless, if we are to succeed in this important arena, common sense and compromise must prevail.

Laughlin is a Christian Libertarian. He is an economist, teacher, father, husband and most recently a grandfather. He has written a weekly column for The Tribune for 12 years. He and his wife Gina reside in Meadowlakes. To contact him, email ablaughlin@nctv.com. He is an independent columnist, not a staff member, and his views do not necessarily reflect those of The Tribune or its parent company.