Embracing our future by ignoring our past

Posted: Apr 06, 2009 12:00 AM

The Congressional Budget Office, the economic forecasting arm of the Congress, now reports that the Social Security trust fund is almost in the red. They project that the fund's surplus next year will be a scant $3 billion.

For perspective, CBO just 12 months ago projected that this same surplus would be $86 billion -- almost 30 times larger. Plus, the CBO estimated then that the fund would not be in the red for another ten years. Now it looks like it may be next year.

Beyond discovering that Social Security is in even worse shape than anyone thought, might there be a learning opportunity here?

As President Obama takes our government into the automobile business, the mortgage and banking businesses, the health care business, the energy business, and the environmental planning business, he is working on a basic premise.

This premise, of course, is that we'll be better off if we turn more of our lives and resources over to government bureaucrats to manage. Not only has this been tried many times. Every time it's been tried, it's been a complete failure.

But despite the consistent failures of government management, Barack Obama has America believing it will be different this time. He has turned up with an old, flea-bitten, worm infested mutt and everybody's excited that they are getting a new puppy. Yes, the man can sell.

The magic is so powerful that, as we set off to re-invent America, few are paying attention to the broken, bankrupt dinosaurs on our hands that are the products of our previous forays in exactly the same direction.

The first, of course, was Social Security. When Roosevelt signed it into law in 1935, he said it would address the problem that "the civilization of the past hundred years, with its startling industrial changes, has tended more and more to make life insecure."

His great idea for making our lives secure was to tax everyone working and use those funds to pay stipends out to those who are retired.

The social engineering made sense to many in 1935, when the country had 40 people working for everyone retired.

The problem with social engineering is that the world constantly changes, but government programs don't.

Among other things, over the years, life spans have increased and families have shrunk. From 40 working Americans per retiree in 1935, we're down to a 3-1 ratio today.

As the ratio of workers to retirees has dwindled, adjustments were made to taxes and the retirement age to keep the system going. But it is impossible for bureaucrats to keep pace with a dynamic world. Only free markets can do that, which is why they work so well.

Estimates are that the current payroll tax will have to at least double to pay for upcoming generations. Our young people now entering the workforce could get twice the return on their money with just a bank CD.

The last attempt to "fix" Social Security was in 1983 with a special commission headed by Alan Greenspan. It supposedly was going to fix the system well into the 21st century. Within ten years it was clear that it didn't.

The Greenspan commission came up with the idea of raising even more funds from the payroll tax to build a trust fund to deal with the increasing number of retirees per worker.

The fund has been a joke because as the money went in, our government just spent it. So now it's just a pile of government IOU's. Now even that fund is almost in the red, ten years earlier than government economists were projecting just last year.

Other government conceived and managed dinosaurs, Medicare and Medicaid, are in even worse shape.

Re-invent America by bringing government management to our auto, banking, energy, and health care industries? If you ignore all past experience, you might like the idea.

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