Category: Politics

by Richard R. Tryon and others

The failure of the Social Security system in the relatively near future is a certainty. It is not debatable. All that is at issue is to answer the question how to pay the bill when it comes? Liberals see a simple solution: Just park about $400 billion in a vault in cash and use it when the 'rainy-day' comes! In this manner they avoid a more intelligent solution involving investment of the cash in individual accounts- an idea they do not like for two reasons: One, it is risky for the poor; and two, they lose control over the money!

Compassionate Conservatives have the chance to put forth a better alternative- one that is not risky for the poor and while it adds some risk to the rich, they will end up paying more without this approach than they will with it, and may not have to subsidize the poor unless they can not deliver investment decisions that eliminate the problem.

Compassionate Conservatism and Social Security
by Richard R. Tryon

Perhaps no so-called Liberal vs Conservative issue can generate more heat and less light than the one involving the Social Security mess. The demographic time-bomb that will destroy the last remaining fiction about the S.S. system will not explode until current candidates for the office of the President of the U.S. have probably retired or died. But, to the voters the simple charge from one camp is that the other wants to destroy the social security system while the other charges that the cost of keeping in the existing system alive is prohibitive. Since most voters in tune with the issue have a personal stake in it, the natural tendency is to not want to change the status quo if it lasts long enough to suit you as a voter!

Unfortunately, that selfish approach is not only wrong, it is self-defeating. Unless we modify the approach taken to supply retirement and other benefit funds, we are destined to see the Ďmirageí of the past come to the point where it canít pay everyone it owes! The current liberal answer is to bury about $400 billion against the time when it may be needed, like the strategic oil reserve! This answer just ducks the question and trys to pretend that the system is sound, it just may have a temporary snag in it because of the baby boomers! Unfortunately that is not so.

The fundamental flaw is that the legislators have voted for benefits that the so -called insurance premiums canít cover. Two mitigating factors make the problem worse: One is the fact that people now live longer; and the second is that we have no courage to increase the tax rates which already combine to equal 15.5% of almost all earned income. It is already the most regressive tax against the poor and that bothers liberals. If they could just increase the 15.5% tax on the rich to say 150% of their income, then the books might balance. But, of course you canít get more from the rich than what they have, less what income taxes take away, not to mention all other taxes.

The only answer that can work is to modify the system to leave the current benefits alone but allow the money coming in to be invested either by the government or better by the people who stand to benefit. The program can contain a mixture of fixed bond type investments that are safe but not spectacular in terms of growth, but do offer a compounding feature that the current program fails to provide. Why? The current funds coming in are freely borrowed by the federal government to reduce the need for other borrowing to subsidize deficit finance. They simply do not know how to invest such money, so they donít.

The compassionate conservative wants to see these changes made, but recognizes that if the individual is not a high wage earner, he or she needs to have an extra safety net, in the event that a portion of their portfolio which is invested in Insurance Company equity and mortgage investment programs fails to produce what is needed to maintain the current level of benefit. For those under some minimum level of benefit, we simply have to have a reserve fund that can pick-up any slack should such happen to be the situation in the future for such persons. That risk is rather small and the cost not likely to be very high if any cost at all.

Such an approach takes the risk away for those least able to handle it, while providing the majority with a certainty that their increased benefits may well be adequately funded by the working of their money during their working years. If such a system fails to produce adequate levels of income to fund then we will know that we will have to invent another solution at the time, if any is possible.

Yes, this solution puts some extra risk in the hands of those who earn more and may have to subsidize the benefits to the poor, who need the extra protection, in order to take advantage of the likely improvement in the ability of the government to fund the benefits when the time comes to pay them. It is a fair trade-off for the alternative of certain need to fund for all!

Previous Chapter


Next Chapter