Social Security: How Sacred a Cow Is It?

It is clear from examining the amounts and percentages of our national budget spent on various things, that the largest shares are consumed by Medicare, Social Security and the military.  It should be equally clear that if significant reductions are to be made in that budget in order to begin to whittle away at the enormous and potentially bankrupting Federal debt, each of these three voracious areas of expenditure must be trimmed significantly.

Rep. Paul Ryan has already offered a practical way to do so, by gradually reducing the Federal commitment to the first two.  Hopefully our withdrawal from the three wars we are in will accomplish big reductions in military expense.

Gather friend mickey d posted a blog today calling Social Security a Ponzi scheme, which is a kind of congame designed to eventually defraud later investors because it pays older investors with the proceeds of newer investments.  Eventually, when the number of new investors shrink or disappear entirely, returns can no longer be paid to all older investors.  This is my comment to that blog:

I was not sure if taking the deliberate Ponzi scheme analogy back to FDR's time is entirely fair, mickey, so I took the usual lazy way out and checked Wikipedia aka The Main But Unfortunately Mostly Pro-Socialist Online Encyclopedia.

After getting past the "Intitial Objections" section which only noted one objection and then negated it by immediately suggesting a reason it was wrong (as Socialist media always feel compelled to do when forced to have to report on something they don't agree with) and then went on and on about how women and minorities, especially Blacks, were originally excluded by various nefarious means, after that there is this:

In the 1930s, the Supreme Court struck down many pieces of Roosevelt's New Deal legislation, including the Railroad Retirement Act. The Court threw out a centerpiece of the New Deal, the National Industrial Recovery Act, the Agricultural Adjustment Act, and New York State's minimum-wage law. President Roosevelt responded with an attempt to pack the court via the Judiciary Reorganization Bill of 1937. On February 5, 1937, he sent a special message to Congress proposing legislation granting the President new powers to add additional judges to all federal courts whenever there were sitting judges age 70 or older who refused to retire.[22] The practical effect of this proposal was that the President would get to appoint six new Justices to the Supreme Court (and 44 judges to lower federal courts), thus instantly tipping the political balance on the Court dramatically in his favor. The debate on this proposal was heated and widespread, and lasted over six months. Beginning with a set of decisions in March, April, and May, 1937 (including the Social Security Act cases), the Court would sustain a series of New Deal legislation.

Two Supreme Court rulings affirmed the constitutionality of the Social Security Act.

Steward Machine Company v. Davis, 301 U.S, 548[24] (1937) held, in a 5–4 decision, that, given the exigencies of the Great Depression, "[It] is too late today for the argument to be heard with tolerance that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use for any purpose narrower than the promotion of the general welfare". The arguments opposed to the Social Security Act (articulated by justices Butler, McReynolds, and Sutherland in their opinions) were that the social security act went beyond the powers that were granted to the federal government in the Constitution.

Helvering v. Davis, 301 U.S. 619 (1937), decided on the same day as Steward, upheld the program because "The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way". That is, the Social Security Tax was constitutional as a mere exercise of Congress's general taxation powers.

So in other words, Social Security was upheld due to Roosevelt having successfully intimidated the Supreme Court into backing it by threatening to "pack" the Court with Socialists by having the number of Justices raised. The Court's main justifications for upholding Social Security's Constitutionality were (a) the Socialist "Living Constitution" approach which says that it's ok for government to do new stuff if it is justified by an emergency situation, in this case by the Socialist interpretation that the "promote the general welfare" clause in the Constitution justifies implementing welfare programs even though the Founders knew nothing of the concept, and (b) the money collected from future recipients is called a tax rather than a contribution, so Social Security is ok because government has the power to "lay and collect taxes," and had been allowed to collect income taxes by a previous Constitutional amendment.

It would certainly seem that any reasonably fiscally responsible person would recognize that unless huge numbers of new workers were added to pay into the system, the Federal contribution could never be covered except by more borrowing, especially if the Fedgov did not invest worker contributions in interest-bearing saving funds rather than spending it.

It could easily be argued that had the workers put that money into a life insurance policy, for instance, they could have doubled their money or more on their own with little additional effort and therefore have received the same net value as the Social Security system offered. Were they particularly astute investors they might have increased the amount available at retirement by much more than that.

This does not even consider the expensive additions to the Social Security program involved with such things as disability and aid to dependent children.

It is hard to escape the net conclusions that (a) Social Security was a political ploy by Democrats to win votes and make Americans believe the Fedgov was coming to their rescue, that (b) it was a Keynesian policy designed to justify pumping borrowed money into the economy, and (c) it was as big a step into establishmentized Socialism in its time as Obamacare is now.

PS: I hate to add to the length of this already obscenely long blog, but last night Rick Perry apparently called Social Securty a Ponzi scheme.  Rush Limbaugh commented on that just now, noting Social Security is worse than a Ponzi scheme because:

a. A Ponzi scheme pays older investors with money from new investors.  Social Security pays older investors some of the money from new investors, and then spends the rest on other things which help promote the reelection of members of the majority party in Congress;

b. Investor participation in a Ponzi scheme is voluntary.  Social Security participation is mandatory;

c. When a Ponzi scheme runs out of enough money from new investors to cover commitments to older investors, it collapses.  When Social Security needs more money to pay recipients (or wants more money for those reelection aids), it raises taxes on new investors.  The percentage of income taken has risen since the 1930s from 1% to 12%, with the maximum taken from a worker's income rising from $60 per year to $13,400.  Adjusted for inflation, the amount taken from new investors has risen 800%.