Why Social Security Is Not an Insurance

Social Security has been sold to the public as insurance.  The reality is that coercive redistributive welfare programs (Rothbard, Friedman) have been hijacked and repackaged as “insurance” by the progressive left to make these sound or appear politically palatable. 

Even legalistically, Social Security isn’t an insurance. American economist, author and professor Walter E. Williams explains at the Lew Rockwell.com (bold mine)

The Social Security pamphlet of 1936 read, “Beginning November 24, 1936, the United States Government will set up a Social Security account for you. … The checks will come to you as a right” (http://tinyurl.com/maskyul). Therefore, Americans have been led to believe that Social Security is like a retirement account and money placed in it is their property. The fact of the matter belies that belief.

A year after the Social Security Act’s passage, it was challenged in the U.S. Supreme Court, in Helvering v. Davis. The court held that Social Security is not an insurance program, saying, “The proceeds of both employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.” In a 1960 case, Flemming v. Nestor, the Supreme Court held, “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.”

Decades after Americans had been duped into thinking that the money taken from them was theirs, the Social Security Administration belatedly — and very quietly — tried to clean up its history of deception. Its website explains, “Entitlement to Social Security benefits is not (a) contractual right.” It adds: “There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense.

… Congress clearly had no such limitation in mind when crafting the law” (http://tinyurl.com/49p8fl2). The Social Security Administration failed to mention that it was the SSA itself, along with Congress, that created the lie that “the checks will come to you as a right.”

Here’s my question to those who protest that their Social Security checks are not an entitlement or handouts: Seeing as Congress has not “set up a Social Security account for you” containing your Social Security and Medicare “contributions,” where does the money you receive come from? I promise you it’s neither Santa Claus nor the tooth fairy. The only way Congress can send checks to Social Security and Medicare recipients is to take the earnings of a person currently in the workforce. The way Congress conceals its Ponzi scheme is to dupe Social Security and Medicare recipients into thinking that it’s their money that is put away and invested. Therefore, Social Security recipients want their monthly check and are oblivious about who has to pay and the pending economic calamity that awaits future generations because of the federal government’s $100 trillion-plus unfunded liability, of which Social Security and Medicare are the major parts.

I previously made the same argument against the local pseudo health insurance (Philhealth) here

Social Security Funds as Government Milking Cow: Spain Edition

I previously pointed out what seems as Ponzi financing scheme where the Spanish government has raided its pension reserve fund in order to boost Spanish bonds or to lower bonds yields, by buying up to government debt up to 97% share of its assets.

For the cash strapped Spanish government, this hasn’t been enough, as they squeeze money from the social security fund to finance state pension.

According to a report from Reuters: 

Spain tapped its social security reserve fund for the second time in a month on Monday, the Labour Ministry said, to help with extra summer pension payments as unemployment and retirement costs deplete government funds.

The government turned to the fund for 3.5 billion euros ($4.6 billion) on July 1 then for a further 1 billion euros on Monday. Spanish pensioners receive two cheques in summer and two over the Christmas holidays.

Spain was forced to tap the reserve for the first time last year to help pay pension costs, using some 7 billion euros.

Record high unemployment, which hit over 27 percent in the first quarter, and a growing number of retirees on a state pensions have put an unprecedented strain on Spanish social security funds.

Social security or pension funds have become a favorite tap for governments, especially for the cash strapped variety. These funds are not only subject to to government’s predation, they can also be used as instruments to effect political agenda. For instance, in the Philippines, government retirement fund the GSIS has been used as a tool to promote the popularity of the incumbent government via stock market purchases. Not only does the GSIS intervene directly via actual purchases, they also provide signaling mechanism to the marketplace by pledging to buy stocks at certain levels.

And like the Detroit saga, if the Spanish government defaults on their debt, pension fund beneficiaries will get cleaned out.

It’s sad to know how government tapping of or dabbling with people’s savings would eventually lead to hardships.

Video: Milton Friedman on The Social Costs of Middle Class Welfare

In the following video, the late illustrious Nobel Prize winner Milton Friedman eloquently deals with effects of middle class policies of higher education and social security which he shows as coming at the expense of the poor. (hat tip Prof Peter Boettke)

Notable quotes

(4:10) Social security is the case, as you may know, one of the most extreme case of misleading advertising that I know of. It is not social, and it is not security. What it is a combination of a bad tax and a bad relief program. A bad distributive program. It is sold as if individuals who pay social security taxes are paying for their own benefits that they are going to get later on. That’s the language in which social security administration sells it. That’s extremely misleading. What’s happening is that people today are paying taxes on their wages, people today are receiving payments from the government. The relations in which mr. X pays and the benefits for which he is entitled is very very small

(7:52) Taken as a whole, it’s a marvelous illustration of the tendency for legislation enacted for helping the poor, to turn out the way in which middle income people help themselves

Cartoon of the Day: Social Security and the Ponzi Scheme

Cartoon by Mike Lester

An apropos quote, which explains the cartoon above comes from Econolog’s Professor David Henderson

There are two main differences between Ponzi's original scam and the Social Security system. The first difference is that Social Security is run by government and, whatever its constitutionality and its questionable ethics, is legal. The second difference follows from the first: Whereas Ponzi had to rely on suckers, the government can and does use force.