Thomas Sowell

In both Europe and America, there are many people who get angry at those who tell them the truth that the money is just not there to sustain huge welfare state programs indefinitely. But that anger might be better directed at those who lied to them by promising them benefits that were inherently unsustainable.

Neither Social Security nor Medicare has ever had enough assets to cover its liabilities. Very simply, there has never been enough money put aside to do what the government promised to do.

These systems operate on what their advocates like to call a "pay as you go" basis. That is, the younger generation pays in money that is used to cover the cost of benefits for the older generation. This is the kind of financial pyramid scheme that got Charles Ponzi put in prison in the 1920s and got Bernie Madoff put in prison in our times.

A private annuity cannot play these financial games without its executives risking the fate of Ponzi and Madoff. That is why proposed Social Security and Medicare reforms would allow young people to put their money somewhere where the money they pay in would be put aside specifically for them, not used as at present to pay older people's pensions, with anything left over being used for whatever else politicians feel like spending the money on.

It is today's young people who are going to be left holding the bag when they reach retirement age and discover that all the money they paid in is long gone. It is today's young people who are going to be dumped over a cliff when they reach retirement age, if nothing is done to reform entitlements.

Yet the young seem not to be nearly as alarmed as the elderly, who have no real reason to fear. Try reconciling that with the belief that human beings are rational.


Thomas Sowell

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

Creators Syndicate