Thomas Sowell

 Current Senate hearings on "mandatory retirement" may have more than a little relevance to the huge question of how to "save" Social Security. Unfortunately, there is far too little attention being paid to the question of why Social Security requires saving in the first place.
 
The key problem with Social Security is that it has never taken in enough to cover all the pensions it promised to pay. Promises win votes but collecting enough money to pay for them does not.

 Should we be surprised that politicians take the easy way out by promising a lot and leaving it to future politicians to figure out how to pay for what was promised -- or how to disguise their welshing on those promises?

 We hear a lot about how changing demographics have created a problem for Social Security, since people now live longer, changing the ratio of people paying into the system compared to people getting money out of the system.

 But you don't see insurance companies wringing their hands about how they can't pay out the pensions they promised when they sold annuities.

 That is because each generation's premiums were invested to create additional future wealth to pay for that generation's pensions, regardless of whether the next generation is large or small. The big difference between private annuities and Social Security is that private investment creates future wealth for the country as a whole and Social Security does not.

 More total wealth through privatization offers some hope of solving the problem of inadequate wealth to pay the pensions that Social Security promised to the baby boomers. Otherwise, the government will have to welsh on its promises, because the amount of tax increase needed exceeds what is politically feasible.

 That is where so-called "mandatory retirement" comes in. That concept is as fraudulent as calling Social Security "insurance" when it has in fact always been a pyramid scheme, where each generation depends on the next generation to pay its pensions.

 There has never been any such thing as mandatory retirement. By contract or custom, employers have had a general practice of no longer employing people after they reached a certain age. But there has been no requirement that those people retire. Many -- if not most -- have in fact continued working elsewhere, often while drawing a pension.


Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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