The columnist Thomas Sowell calls social security a “pyramid scheme” : pay up now not for the future but for those now reaping the benefits. This was true in the beginning but there were sufficient numbers of working people to quickly build up a surplus. In addition, it was never Roosevelt’s intent that social security would in the long run pay for itself; the ultimate plan was to supplement it by general funds once social security became institutionally acceptable. Besides in the midst of the Great Depression it was important to add more people to the rolls of consumer. Before then negative consumption was in play by most of the working relatives saddled with the support of their aging and widowed parents, together with the disabled.
In the ‘80s payroll tax dramatically increased to make up for the shrinking ratio of retirees vs. those working. It still is not enough but unrealistic to further increase the payroll tax to offset the weak ratio. In risk of sounding like a broken record, I again maintain that the cost of social security is not all negative since it still holds true that overwhelmingly the money that goes out is immediately spun out into the economy — good for business and employment.
Sowell, however, is one dimensional in comparing private annuities with social security when he ignores the public obligation of the latter to extend benefits to the agéd, disabled, children of the widowed, unemployment insurance, and workman’s compensation as opposed to building security for individuals. Obviously social security has bitten off more than it can digest and leaves it vulnerable to unfair criticism, but the nation is not prepared to reasonably redistribute the wealth so that everyone subject to hardships are relieved of undue burden and the fortunate are free to develop self-reliance.
Copyright © 2004 Richard R. Kennedy All rights reserved. Revised: October 1, 2004.
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