Tuesday, May 16, 2006

There Is A Train Barrelling Down The Third Rail

It’s frustrating when politicians don’t understand history. Couple that with ignorance of economics and you have one very flustered blogger.

In FDR's America, an America where more and more Americans were finding themselves on the losing end of a new economy with nothing to cushion their fall, our President believed that if we're willing to share even a small amount of life's risks and rewards with each other, then we'll all have the chance to make the most of our God-given potential.

The New Deal gave the laid-off worker a guarantee that he could count on unemployment insurance to put food on his family's table while he looked for a new job. It gave the young man who suffered a debilitating accident assurance that he could count on disability benefits to get him through the tough times. And Franklin Roosevelt's greatest legacy promised the couple who put in a lifetime of sacrifice and hard work that they could retire in comfort and dignity because of Social Security.

The Great Depression was brought upon the US through government arrogance that felt they could pull the strings of capitalism to “make it better.” If they had avoided that conceit Social Security would never have been necessary. Now we are saddled with a program that can’t succeed.

Also note that Obama mentions the minor parts of Social Security that not even libertarians are proposing to eliminate – unemployment insurance and disability benefits, nothing like clouding the debate with non-sequitors.

Now, let me be clear. There are serious problems with Social Security, and Democrats are absolutely united in the desire to strengthen the program and make it solvent for future generations. As I said in the press club, this isn't an issue we want to play politics on. We want to work together with Republicans on this, and I believe we can.

Says Obama as he plays politics on the issue. Let’s make one thing clear – you cannot make Social Security “solvent.” It pays out more money than it brings in so has a long term problem that we are creaping up on. You can’t get a return on an investment that is stuffed under the mattress, and since the money was never invested in real assets there is no return. The beneficiaries outnumber the active workers which leads to a short term problem since active workers will have to pay a larger percentage of their paychecks to support the current retirees.

Even the “moderate” solutions to Social Security aren’t even solutions, they just extend the inevitable. Increasing the retirement age will help for awhile, but only for awhile, the math just doesn’t work, you can’t tinker with the numbers and accidentally stumble onto a permanent solution, the program is broken. Raising taxes is a non-starter (I hope) the long term harm it would do to the economy just isn’t worth sending paychecks to millionaires.

The only solution is to scrap the program entirely or start means testing recipients. Both have drawbacks which I won’t go into here, but until politicians admit that you can’t fix Social Security they will never make any progress on the issue.

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