The Grinch who stole Social Security

As the year winds down, there are a few Christmastime comforts which everyone cherishes on some level. Garlands of holly romantically hanging from ceilings, creamy egg nogg sprinkled with cinnamon… and detailed earnings statements from our good friends at the Social Security Administration.

Every person paying into Social Security receives at year’s end an accounting of contributions to date, which assures the person of all the retirement benefits he is accumulating by way of lifelong payments. The detailed statement impresses the citizen to believe that the national government is keeping an account just for him, so that he can live by its equity after retirement.

And that is exactly what the government wants him to believe.

The reality behind Social Security is more “nuanced” than that. In truth there is no fixed account accumulating funds for the citizen’s retirement. A citizen’s current contributions to Social Security are merely paying those who have retired out of the system. When it comes time for the citizen to retire – which the system hopes will be many years hence – new contributors will fund his retirement, rather than his lifelong deductions into the system.

Similar to the way starlight reaches us across incomprehensibly vast distances such that the emanating stars had actually burnt out billions of years ago, the Social Security Administration’s detailed statement of earnings shows the citizen money which may have once been in his account, but which has long been spent on whatever slush projects and liabilities the national government undertakes.

Of course, if a private retirement fund were to be administered like this, we’d call it a Ponzi scheme and deservingly send its managers to the pokey. But if it’s the government, we just shrug our shoulders as the SSA annually submits a financial report to Congress, which Congress well knows is bunk since Congress has long ago overcommitted those funds.

Undoubtedly some reader will counter that no, Social Security is actually flush with cash and every person’s contributions are safe and patiently awaiting his retirement. It hardly matters that $36 trillion in debt is drowning the national government… there will always be enough money for SSI checks. In the abstract sense, such critics are genuinely appreciated because they unwittingly demonstrate the system’s vulnerability, for the next test of faith is to propose that contributors who distrust Social Security be allowed to withdraw their accounts into private retirement savings. After all, Social Security is flush with cash and those citizen accounts are currently funded, right? Obviously you know the response of such critics to such a proposal. The Social Security Administration’s detailed statement of earnings at year’s end tells the citizen that however many thousands of dollars are his for the taking… but the very fact that his account is not privately portable belies such an assertion.

As you settle down to enjoy the Christmastime comforts this year, just realize that the myth of Social Security’s solvency against looming financial default is on par with a jolly fat man sliding down your chimney with goodies.