Wednesday, September 29, 2004
Sowell on Social Security: Economist Thomas Sowell has a couple of pieces on Social (In)Security here and here.
How did Social Security get into its present mess in the first place? Because politicians made it the "risky scheme" that they now claim privatization would be.
The same political expediency which caused Social Security to be called "insurance," in order to get public support, guaranteed that it would be nothing of the sort. Unlike an insurance company, Social Security has never had enough money to pay for all the pensions it promised.
Instead, Social Security has been run like a pyramid scheme, where the first people to pay in get money back from the second wave of people who pay in, and the second wave get money back from the third wave, etc. This is so risky that pyramid schemes are illegal -- except when the government does it.
That's exactly what Social Security's key problem is -- one of demographics. This pyramid scheme is going to collapse -- probably sooner. If you're a Gen Xer or Gen Y and think Social Security will be there for you -- don't bet on it.