Posts Tagged ‘Pyramid scheme’

FREE MARKET PENSIONS

July 1, 2010

FREE MARKET PENSIONS

The welfare state is under threat by demographics. Many people are now living for many years beyond retirement age. The US social security pension system is an ever growing government obligation. Financially, it is a pyramid scheme which is doomed to collapse. We badly need something better. The free market can always provide the best answer. The Social security system is a major and growing government intervention into the economy of each household. It’s time to retire the government pension scheme.

Following current US trends, we have people spending fewer years in productive work, more years preparing for work, and living more years after retirement. The number of people living past 100 is growing rapidly. I retired in 1991. Since then, my children’s generation has supported me. Now my grandchildren’s generation is also supporting me. If I live to 100, my great-grandchildren’s generation will be supporting me and also supporting my children. Perhaps I should do them all a favor and die now.

But what happened to all the money I paid into the social security fund? Wasn’t it invested so that the proceeds of the fund would support me now? No, it was “loaned” to the US government. But the US government doesn’t pay its debts. It spent the money and just kept on “borrowing” from the social security fund. The “fund” is a fiction. My pension is paid out of the social security contributions of the present working generations.

The free market alternative is obvious. Instead of investing in the fictitious government fund, you could invest it in some free market institution, which will be legally obliged to deal honestly with you.

If you pay into an annuity during your working years, you will have a pension for as long as you live.

A mutual fund of stocks and bonds can provide your pension in your old age. If you spend only the dividends in your retirement, you can leave the fund to your children to build up their pensions.

In each case your savings are invested in something productive which will earn dividends and interest for you by producing goods for consumption.

Paying into the social security retirement was easy when I started work back in the 1940s. As I remember it, my deduction was 3%, including the matching payment from my employer. Now, the total would be 33% if I were still working.

Phasing in a free market system, while still paying enough to cover the entitlements already committed to, will mean even greater taxation for the next working generation. The politicians haven’t yet found the political courage to start the transition. Will they ever? They may just paper it over with inflation, the stealth tax.

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