Human Trafficking DC Style

Originally Posted At Forbes.com
By Lawrence A. Hunter, Ph.D.
December 16, 2011


In last week’s column, I remarked on Frédéric Bastiat's remarkable insight into the real nature of government, what he called “legal plunder:”

“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” 

One reader, who apparently follows my scribblings, commented:

“You forgot to add ‘except for social security’ because you like that form of legal plunder. Everyone is against ‘government spending’ except when it is for them, yourself included.  So why do we all not just confess our mutual love of government spending and agree to actually pay for it with taxes instead of the current system of borrowing.  The Democrats’ plan of ‘tax and spend’ makes so much more sense than the Republicans’ plan of ‘borrow and spend.’”

The reader is digging me about my long-standing opposition to cutting Social Security benefits for current retirees, either directly or by subterfuge, such as low-balling increases in the cost of living by changing the way inflation is measured. The latest such artifice is the bipartisan proposal to reduce annual Cost of Living Allowances (COLAs) by substituting the so-called Chained Consumer Price Index for the current CPI measure of inflation, which, contrary to the politicians’ disinformation, already understates price increases faced by old people.

The reader’s criticism is fair in light of the apparent inconsistency, and although it proves to be specious under closer scrutiny, it is worthy of a serious response.

First, I do not exclude Social Security from the long list of entitlements that must be reconfigured to get government out of the business of doing what people can do better for themselves.  However, as I have explained before, my experience in Washington convinces me that this reconfiguration must be done prudently—so as not to hurt old people caught inescapably in the entitlement net—and it must be handled adroitly—so as not to leave us all worse off than we are now.  Hacking seniors’ benefits and raising workers’ taxes is neither careful nor adroit.

Second, Social Security is plunder but it is not the simple case of smash and grab that most government spending is. It is a debilitating Ponzi scheme with a vicious twist.  It is involuntary.

Where Bernie Madoff’s marks are concerned, I am all for the principle of caveat emptor—you pays your money and takes your chances.  No one held a gun to their heads to participate.  Government has, however, held a gun to the head of every worker for the past 77 years, forcing them to participate in Social Security.  Not just to make a one-time bet or “investment;” rather workers were forced to pay into the scheme each and every payday of their working lives.  No choice; no exceptions.  And, to make matters worse, every time they paid the government payday extortion, they dug themselves deeper into a hole, which guaranteed most of them would become dependent on government in the future when they were most vulnerable and least able to fend for themselves. 

If ever there was a case of government behaving as a predacious do-gooder, Social Security is it. Enslaving workers during their productive years so they can become government dependents during their retirement nourishes the state at workers’ expense; it is the very definition of plunder.  But lamenting that fact, and raging about it now does nothing to help today’s seniors get out of the dependency trap in which they are ensnarled. It’s too late for them.  And, lashing out at the government’s past extortion by cutting current retirees’ benefits is truly cutting off seniors’ noses to spite politicians’ faces.  If ever there were an instance of blaming the victim, this is it.

Social Security, therefore, is neither analogous to a private Ponzi scheme nor to a one-off, thief-in-the-night heist.  It is more a kidnapping than a simple theft, and it leaves a lifetime of irreparable damage.  It is, in fact a form of human trafficking—no less than slave labor.  Washington forces workers to toil for the government master so it can afford to bestow largesse on retirees it releases from bondage when they cease being productive for the state.  Politicians call this “beneficence” and crow about how they take care of their former serfs in their old age.

The former serfs, now dependents, support the program because after a lifetime of paying extortion to the criminal state, they feel rightly that they have “earned” the retirement stipend the government bestows upon them. The notion that Social Security benefits were “unearned,” a canard particularly beloved by many Republicans, has a legacy in truth but no longer is true.  In the early years, retirees received benefits far beyond what their working-years’ contributions would have justified, i.e., far more than those payday contributions to Social Security could have earned alternatively in private, market investments. 


Chart taken from the Cato Institute

Today, however, the tax most workers pay has grown so large (a combined employee/employer rate of 12.4 percent) that the real rate of return workers can expect from Social Security is far less than what they could have earned had they invested that 12.4 percent of their wages (or even half of it, for that matter) in private investments, even in the safest, low-yielding FDIC-insured bank accounts or inflation-indexed Treasury bonds.

On average, workers retiring today on Social Security can expect to receive a real (inflation-adjusted) rate of return in the neighborhood of two percent. By contrast, the safest, low-yielding inflation-indexed Treasury bond yielded more than three percent throughout the working years of a worker who retired in 2008, 50 percent more than Social Security will yield him.  Notwithstanding the left’s political rhetoric about how safe Social Security is compared to private investment alternatives, the fact is that not only is Social Security a bad deal in terms of rate of return, it is also very risky, as past actions and the current bipartisan fever to cut benefits reveal, because Social Security benefits are subject to change any time at the whim of politicians (See Flemming v. Nestor, 363 U.S. 603, 1960).

The two-percent average real rate of return on Social Security, moreover, hides the fact that some workers receive much lower returns, in some cases even negative returns (e.g., low-income, single, African-American males born after 1959 can expect a negative 12 percent rate of return). Future retirees of every type will receive even lower rates of return, falling below one percent with more instances of negative returns before long. 

There are three ways to deal with the plunder of Social Security:  1) Let it collapse like a Bernie Madoff scheme, which will produce automatic benefit cuts on the order of 30 percent; 2) Cut benefits and/or raise taxes to make up for the shortfall, which will only prolong the bondage under worse conditions and push back the day of reckoning; 3) Offer worker serfs their freedom by providing them a voluntary option to exit the program with a sufficient share of their current “payday contribution” to Social Security to save and invest for their own future.  For those workers who are too old to take advantage of the exit option and for all current retirees, there is no moral alternative to making good on the promise the government made them, legally binding or not: Pay all the benefits promised to them, in full and on time; cut the rest of government however much is necessary to do so.

Anyone who proposes cutting Social Security for current retirees is either playing a deep political game to scare seniors into demanding the continuation of the coercive Ponzi scheme for current workers, or they see nothing wrong with trafficking in human labor in the name of social security and the greater good.

Comments

Add a comment