Social Security is a giant Ponzi scheme and, like all Ponzi schemes, it will eventually fail when the cohort paying in becomes smaller and poorer than the cohort receiving the money. It’s going to take a sea change to remedy the problem, which means re-thinking the government’s role. Here’s what could be done:
(1) The Constitution has the federal government’s job description, so we must defund any federal spending that is not within that description, and the projects, whatever they are, need to be kicked down to the state level where they either belong or taxpayer money shouldn’t be spent on them at all. As an aside, this wouldn’t affect only Social Security. It includes banning all earmarks, making congresspeople liable to the same laws everybody else obeys, and ending both so-called “monster bills” and continuing resolutions.
(2) The federal government must balance the budget and pay its debts, including the worthless Treasure Notes that Social Security holds.
The above two steps sound like the end of Social Security, but they’re not. There’s still a way out to protect Americans, especially those who have paid into the system (money that they could have invested for their own benefit) and are now dependent on its returns.
Image (edited) from the public domain
(3) Social Security needs to create the world’s biggest index fund which sees it investing only in the stocks and bonds of profitable companies. Its planned investments, of course, would have to closely kept secrets, with Social Security insider trading resulting in serious prison sentences (including for congresspeople).
(4) In terms of the fund itself, the the criterion for whether it’s profitable needs to be specific, e.g., “profitable over “X” years or “X” years within as specific time window...perhaps ten years.
(5) So that the government doesn’t play favorites in the marketplace, the method for selecting which of the profitable companies to buy from next should be done through something like a bingo basket. That is, there’d be a list of reliably profitable companies from which to choose, but the ultimate choice would be randomized, as happens with the spinning bingo basket and the little ball pulled from it.
(6) Under the proposed new system, when a person’s payroll taxes or self-employed taxes are paid into Social Security, the person’s account would be credited with the percentage of shares proportionate to those funds. Thus, it would function like an IRA or other retirement plan, only the money would be put into the system involuntarily on the part of the worker.
(7) When the individual retires, whatever the account has accumulated becomes what said individual has to retire on. Any unpaid funds left when a retiree passes on should be passed on to the person’s heirs. If a guy has a wife and kids and dies young, whatever is in the account goes to the wife and kids.
(8) Those already retired—or who will wind up with partial benefits via the old plan plus shares in the new plan—must be paid what they relied upon. Thus, the system would earmark a portion of the dividend income from the fund to these legacy retirees, with money coming both from the federal government itself and from the index fund.
(9) Social Security needs to be returned to its function as a retirement fund. Subsets of benefits, such as disability payments, should be removed from the fund and sent to the individual states.
Josh Colon is a pseudonym.