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Wednesday, May 04, 2005

Liberals Abhor Savings

Liberals want you to be entirely dependent on the Federal government.  Otherwise, you might not have to vote for them.

As Thomas Jefferson said of his writing the Declaration of Independence, this essay is not intended to express novel ideas or theories never before considered.  The aim is to pull together some basic points regarding the current debate about Social Security, all of which I have written about in earlier essays.

First, Social Security was not needed in the Depression when it was enacted.  Individuals then saved much more of their earnings than today, knowing that they would be responsible for their own support.  Additionally, there were tens of thousands of self-help organizations, some in every community, to which husbands and housewives contributed small amounts each week when they attended lectures about moral conduct and homely subjects such as efficient management of housekeeping.  Finally, churches, synagogues, emigrant societies, and local philanthropic organizations provided an extensive network to help the deserving poor, disabled, and widows and orphans.

Moreover, nobody during the Depression received any significant amount of benefits, because nobody had paid enough taxes into the system to qualify for benefits.  In short, few people needed Social Security and few people collected any benefits from it during the Depression.

Second, the public were deliberately misinformed by telling them that Social Security was a sort of insurance system that would provide annuities paid for by each contributor’s Social Security taxes.  In fact, no actual cash ever remains in the Social Security Trust Fund.  Every penny is spent as soon as it is collected.  Young workers’ taxes pay retirees’ benefits, with nothing saved for future payments to the young workers themselves.

Whatever is left over after paying Social Security benefits is immediately withdrawn to fund other government current expenses.  All that remains in the Trust Fund is non-marketable Treasury securities.  It’s the equivalent of cashing your pay check each week, spending it all, but putting a note in the cookie jar that says IOU a portion of the weekly pay as savings for the future.  That is why Social Security is headed toward a nasty choice by 2017: cut benefits or raise taxes, when the ratio of retirees to workers becomes too high to support entitlements.

Third, this stands in contrast to individuals investing part of their savings in private accounts.  Those private funds finance private businesses that produce useful goods and services that people will buy of their own free will, businesses that create new jobs and raise people’s standards of living.  Unlike government spending, the added production of goods and services in the private sector offsets the inflationary effect of increased credit availability levered by personal savings. 

Government spending, which, under our socialistic welfare state, almost always exceeds revenues, is financed by “creating” new money through the Federal Reserve.  That process is always inflationary.  Today we think things are great, because inflation is less than 3% a year.  In the early 1970s that level of inflation was still frightening enough to cause President Nixon to impose national price and wage controls.

The question naturally arises: why did liberal-socialists in the 1930s create Social Security?

The intent of Social Security was to emulate what the Iron Chancellor Otto von Bismarck had done in the German Empire, which he had assembled under Prussian control of the formerly independent German principalities.  In the 1880s, irritated by continual pressure from socialists, who held large numbers of seats in the Reichstag, Bismarck pulled an end run and established the world’s first welfare state.  As he candidly informed the Reichstag, his intent was to make the German people dependent upon the Prussian Reich for their retirement and health care, so that the Prussian Junkers could herd them like cattle.

This is precisely what President Franklin Roosevelt’s Brains Trust of socialist professors had in mind in 1935.  Social Security taxes were enacted and participation in Social Security was made mandatory, expressly for the purpose of cutting the source of dues paid in the past to private support organizations.  The President told his advisors that he wished to embed Social Security so deeply into the tax and social structure that no one in the future would ever be able to reverse it.

Why do liberals shriek in horror today when private savings accounts are proposed as an option for investing a portion of Social Security taxes?

The answer is blinding obvious: to the extent that people accumulate their own private sources of retirement funds, in accounts which they own and control, liberals lose their stranglehold on the people. 

Clearly it has nothing to do with the future reduction of benefits.  Inescapably Social Security benefits will have to be cut to some extent, at least for some categories of beneficiaries.  Clearly, with the so-called Trust Fund “earning” interest on Treasury securities at less than a 2% annual rate, any form of reasonably prudent private investment account, even in the depths of the Depression, exceeded that level of income.  Over any moderate time frame, private investment accounts have earned money at twice or more the rate paid on non-marketable Treasury securities in the Trust Fund.

It has everything to do with the fundamental theories of socialism.  Create a society of equal wealth and income distribution, according to theory, and we will have a society of perfect harmony, without avarice, aggression, crime, or war.  Put decision making in the hands of intellectual councils and government bureaus and, by eliminating advertising and luxury goods, we will vastly increase the supply of goods that intellectuals think you ought to have.

We’re well on our way along that path already.  Liberal-socialist policies have produced a catastrophic decline in private savings.  Several generations after Americans were raised to know that they should defer self-gratification and save for their futures, most people now believe that they are entitled to look to the Federal government to take care of them no matter how irresponsibly profligate they may be.

Dan Ackman writes in Forbes Magazine that:

“[Ben] Stein is on a crusade to warn Americans about the coming retirement crisis. It has less to do with Social Security or its reform, and more to do with the dramatic decline in U.S. savings and the absence of individual retirement planning.

“This is the greatest crisis facing the country that people can do something about,” Stein says. The crisis is that they are not…..

“With less than 20% of U.S. workers now in employer pension plans (many of those plans are on shaky financial footing) and with Social Security typically replacing less than 40% of pre-retirement income, personal saving has never been more important.

“But savings rates have never been lower. In 1999, the national savings rate dipped below 3% for the first time since 1959, according to the U.S. Commerce Department. It has been declining further since then, and in 2004 it was at a mere 1%. The low savings rate, coupled with large deficit financing by Asian banks, is dangerous for the U.S. But it’s more dangerous for individuals.

“The nest eggs are cracked. Nearly 28 million U.S. households—37% of the total—do not own a retirement savings account of any kind. Among the households who owned a retirement savings account of any kind as of 2001, according to a 2004 report by the Congressional Research Service, the average value of all such accounts was $95,943. That number was distorted by the relatively few large accounts, and the median value of all accounts was just $27,000.”

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