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Is Social Security a form of savings?

By Thomas E. Brewton
web posted April 16, 2007

Emphatically, no.

A reader on the Intellectual Conservative website, responding to the recent post titled Savings?, posed this query:

Let me ask a silly question: Do your Social Security contributions count as savings?

The answer is that Social Security is the polar opposite of savings.

The effect of Social Security is to decrease savings.  None of the money remitted as Social Security taxes is available for individuals or businesses for real savings that could support productive investment in business expansion and create new jobs, thereby enriching the people. 

As soon as Social Security taxes reach the Treasury, they are removed and replaced with non-marketable, low-interest-rate Treasury debt.  The money scooped from the Social Security accounts goes straight out the door to pay Social Security beneficiaries and, if any money is left over, to pay everyday federal operating expenses.  Not a penny is invested in productive assets.

Social Security taxes are what economists call transfer payments.  The federal government takes money from workers and employers and transfers it to the elderly and infirm.  What the working person or his employer might have saved, absent the required FICA taxes, is given to people whose needs almost guarantee that what they receive will be allocated to consumption expenditures.

That, in fact, was one of the Keynesian rationales for President Franklin Roosevelt's instituting Social Security in 1935 as a counter to the Depression.  Keynes, the British economist and apostle of the collectivized, socialistic political state, theorized that the Depression would not end, because people were saving too much and not spending enough on consumption.  We had been snared by what he called a liquidity trap.

The economy, Keynes believed, had permanently stabilized at a low level with permanent, high levels of unemployment.  According to economist Alvin Hansen, Keynes' Harvard disciple and New Deal advisor, the federal government had to spend massively, and presumably for all time to come, because the system of capitalist individualism had proved to be a failure.

Social Security had the presumed beneficial effect, both of increasing consumption expenditures, and of ripping those excess savings from the hands of greedy capitalists (Roosevelt's economic royalists) in order to move the nation towards the socialists' idea of social justice: equal distribution of income and wealth.

Social Security is, as many commentators have noted, a gigantic Ponzi scheme.  Unlike real savings from personal income or corporate retained earnings, Social Security taxes immediately go to someone else.  There is never any investment fund built up as a source of future payments to the individuals who are paying Social Security taxes.  To make the Ponzi scheme work, the Federal government must keep receiving ever larger amounts of Social Security taxes to cover immediate payments to people who retired long before the worker who pays today.  The last one in is left holding the bag.

As with all Ponzi schemes, Social Security must come to a flaming end at some time, because the ratio of retired and infirm beneficiaries to workers is rising rapidly.  What is devastating the American automobile manufacturers today - payments to retired and permanently laid off workers - is directly analogous to what's in store for Social Security. ESR

Thomas E. Brewton is a staff writer for the New Media Alliance, Inc. The New Media Alliance is a non-profit (501c3) national coalition of writers, journalists and grass-roots media outlets. His weblog is The View From 1776. Email comments to viewfrom1776@thomasbrewton.com.

Other related essays:

  • Savings? by Thomas E. Brewton (April 9, 2007)
    Thomas E. Brewton wasn't very happy when a money manager recently told readers of Forbes that unrealized capital gains should be considered a part of your savings


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