If you want to have a great and stimulating experience, read David R. Henderson's book "The Joy of Freedom: An Economist's Odyssey" (Financial Times Prentice Hall, 2002). In this wonderful, insightful and easy-to-read book, the author engages us in stories and events in showing us the enormous harm done by the government's interference in the marketplace. These have been my views as well, and I have often written about them in this column and elsewhere, but Henderson really drives these critical points home.
Specifically he discusses how private property rights and the marketplace contribute strongly to environmental protections, while government ownership and control does much less so, and how government intervention in health care and education are taking us in exactly the wrong directions. But the subject I most want to share with you today is Henderson's analysis of our so-called Social Security system.
He begins by introducing us to Charles Ponzi, who in 1920 widely advertised that he could double people's money within 90 days. Then he used later people's investments to pay "interest" to the people who had invested previously. In other words, this "chain-letter financing" was a fraud for which Ponzi's name has been synonymous ever since. But the only real difference between what Ponzi did and what the government has done with Social Security is that, by definition, the government's actions are perfectly legal.
There is no such thing as a Social Security "lock box," and never has been. Just like with Ponzi, from the very beginning the Social Security program has used the contributions from present workers to pay the benefits of prior workers. Of course that was wonderful for the earlier people, because many of them only contributed for a few years, and then received benefits for the rest of their lives. But now there are too many claimants for not enough future workers' payments, and the system is going broke.
Social Security started out slowly in taking people's money. In 1939, the payroll tax rates were 2% on the first $3,000 of income, and these contributions were split evenly between employer and employee. But as of 2001, the tax rate had risen to 10.6% on income up to $80,400. That means that, where the maximum tax was $60 at the beginning of the program (which would be $735 when adjusted for inflation), it was $8,077 in 2001.
But even if the program were not going bankrupt, its injustices abound. For example, if someone who is under the "pay-off" age of 65, but has paid into the system for years, has a terminal disease and even desperately needs money for expenses, that person is denied any payments at all. In fact, there isn't even a form for that person to fill out and submit to request payments. The same is true for anyone with a life expectancy that is less than 65; there is no provision for them to receive anything.
Another injustice is represented by the situation of some people like me. While I was a federal prosecutor in the U.S. attorney's office, after one year I was able to opt out of the Social Security system and into our own federal system. Then after I had paid into that system for my remaining time at that office, I was able to receive a full refund of all of my payments when I changed jobs.
The same was true for my time as a state trial court judge. Instead of paying Social Security, we had our own separate retirement fund, which has matching contributions by the state government. We paid slightly higher rates than those of Social Security, but that fund is now paying for my retirement program that I am due to enjoy for the rest of my life — in addition to whatever other Social Security benefits I have earned through my life's various other jobs. Yes that is great for me and I am not saying I will give it back, but I believe the entire situation is fundamentally unfair.
So what can be done? Henderson gives some viable suggestions. One of the most critical is to change the retirement age. This will be hard for many people to swallow, but it will be made easier if we all realize that we have been lied to consistently for years. The age for receiving full Social Security benefits has been 65 from the inception in the 1930s. But today the life expectancy for both men and women is (fortunately) considerably longer. So beginning now, that eligibility age should slowly be raised to age 70.
Then we should allow people to make various choices, depending upon their age and the "investments" they have made into the Social Security system. For example, all people now younger than 30 would simply be placed out of the system, and enabled to set up whatever private system they choose from this moment forward. In addition, anyone older than 30 who so chooses would also be entitled to opt out of the Social Security system for a one-time payment based upon a prescribed formula. And other people, depending upon their ages, could opt to stay in the system completely and receive the "promised" benefits when they reach age 70, or stop additional payments, and receive reduced benefits at 70, in addition to whatever other benefits they arrange for themselves privately.
But superseding all of this must be the understanding that we are adults, and that the government is not our parent. If some people want to have additional money to spend now, and pay for it by continuing to work late into their 70s, they should be able to make that choice. Furthermore, government should not have the ability to take our money from us, pool it in whatever manner it wishes, and give it back to us when and in whatever amounts it decides.
For example, during their terms of office, both Presidents Nixon and Johnson actually decided that Social Security benefits would be increased. Of course, this action gave those two presidents a major political boost, but the added payments to the recipients had no basis in fiscal prudence.
So now we are paying the price of the past lies and politics. But because we do not have the ability of never having implemented the Social Security system in the first place, or abolishing the system yesterday, all we can do is begin to abolish it now. That is Henderson's and my position.
Of course this is a complicated issue, and I have not been able to do it justice in this short allotted space. But if you would like to see more justification for this position and many more that are critically important for our great country, you could not make a better decision than choosing to read Henderson's "The Joy of Freedom." Henderson is right, freedom literally is a joy — and it also works — and his book could revolutionize your thinking and our world!
JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of "A Voter's Handbook: Effective Solutions to America's Problems" (the Forum Press, 2010), and can be contacted at JimPGray@sbcglobal.net or http://www.JudgeJimGray.com.