Reform without fraud?

Paul Jacob

11/21/2010 12:00:39 AM - Paul Jacob

The biggest welfare state program is not a giveaway. Almost no one thinks of it as “state aid” or “political charity.” Most Americans think of it as their money.

The program is Social Security, and it is in trouble.

But since contributors to the program (just about every adult American) think of the benefits the program provides as theirs, when politicians talk about reform there emerges a certain amount of . . . negative political feedback.

Uproar, sometimes.

This may seem a pity. We may want to have what we idealistically refer to as “polite rational discussion,” but people don’t like to be stolen from. When people suspect their retirements are being bilked from them — by their elected officials, no less — they have every right to get upset. That’s not merely understandable, it’s to be expected. Maybe even admired.

But anger is no excuse for misinformation.

Unfortunately, Americans have never been given a full, honest overview of the Social Security program. Well, not by politicians, anyway.

Until a few years ago, politicians treated Social Security as “the third rail” of politics, the issue that, to touch, would kill one’ career.

But politicians are an interesting group of frauds, by nature, and “touch” Social Security they did. At no point in the program’s grand history were the funds the system collected invested like a real retirement program’s funds would be, in the market. No. From the very beginning its surpluses (and, early on, there were huge surpluses) were used by Congress to fund wars and giveaways and whatnot. And, as time went by, the original benefit package ballooned with additional items that politicians promised voters.

Indeed, our representatives and executives and bureaucrats worked together, mightily, to use Social Security as a vast pork project, a way to buy off our votes with our money.

Great system. For politicians.

In the ’80s, the thing was going broke, so President Ronald Reagan set up a special commission to suggest fixes for the system. The main thing the commission proposed was much, much higher FICA withholding. That is, higher “contributions.” (That last word is the program’s euphemism for “taxes.”)

The Supreme Court has long ago decided that, promises to the contrary, Social Security is not an insurance program, not an invested retirement pension, not a normal thing at all, but just another government tax-and-spend handout. We don’t legally own our promised benefits. Congress may change them at any time.

Look it up. I kid you not.

This sort of thing is not new. From the get-go, Social Security was set up as a pay-as-you-go redistribution system; falling into the trap of “Ponzi Scheme” fraud was inevitable. And now this world’s longest-running Ponzi scheme is winding down. It needs major reforms. No politician wants it to go completely bust on his watch. But, so far, no politician has really gotten very far with the thing most needful: Telling the truth.

The best way to sell major reforms to Social Security is to tell the truth about the program. Warts and all. Explain why its original structure had programmed in DOOM from the start. Explain how politicians made it worse, and then transformed it in the ’80s so that now it scuttles its very function, as a safety net: FICA withholding takes so huge a percentage of many workers’ income that it sucks away their ability to save for their own future.

And that’s just one way (of many) that Social Security serves as a blight, not a boon.

With the truth, politicians might be able to persuade Americans to set up a better system.

Without the truth — with the usual lies — politicians will just fiddle with the numbers, increase taxes, reduce a few token benefits, and re-set the fraud for another run.

But it may not run thirty years, this next time. It might not even last till the next bubble that politicians are setting up, now, to burst . . . on someone else’s watch.

The thing to remember — the tricky part — is that frauds usually unravel during bad times. It’s in the nature of frauds like Madoff’s and FDR’s to unravel only after a good run. Early performance does not guarantee later performance. Indeed, in these schemes, early good performance necessitates later bust.

It’s best understood arithmetically. Which probably explains why it is so rarely understood. Arithmetic is no longer an American core competency.

Which politician will dare really reveal and explain Social Security’s insolvency?

In recent years, a few have stepped up. What we need now is a cadre of honest, truth-telling advocates. Only by mastering the facts, insisting on the full context, and placing blame where it belongs (on nearly all past politicians, and most current career politicians), can we begin to unravel the mess that is today’s self-mocking titled program, “Social” “Security.”