"Retire the Depression"

That's the very apt title of Bob Tyrrell's piece today on reforming Social Security. Here's a quick take, but the whole thing is worth the click to read:

[Bush's] reform envisages an entirely different view of the citizen's relation to society. His reform envisages what he calls an "Ownership Society." Today's Social Security was born of a different era, an era in which government gives to the citizen. In today's era of markets and growth economics, the citizen creates wealth, owns a part of the economy, and gives to government -- ideally only a modest amount -- through taxes. After all, government's largess has little to do with growing a society. Peter Drucker said it best years ago. What government does best is wage war and inflate the economy.

Social Security, bred of the collectivist 1930s, could not return Social Security recipients as handsome a return as today's private investments portfolios can because its managers had no notion of the dynamic growth economy that exists today. Moreover Social Security was based on a funding plan that has almost completely disappeared. It was based on a population wherein 16 or more citizens were taxed to pay the benefits of but one Social Security recipient. But the post-Baby Boom generations that have followed have steadily produced fewer children, which is to say fewer sources of Social Security revenue.

Today only three citizens are available to provide the funds for the growing number of Social Security recipients. Things will soon be worse. We shall be down to a two-to-one ratio. But that is not the only problem facing the present system. The return Social Security recipients receive from a life of paying into the government's Social Security system is only about 1.4% of investment. That is a 1930s return on investment. At present estimates that rate of return will in coming years become a negative return. That is a Great Depression era rate of return. Private investment accounts pay out over 4%. The President's plan for reforming Social Security envisages that kind of a return. Moreover holders of what he calls Personal Retirement Accounts will be free to bequeath whatever remains in their accounts at the hour of their deaths. That cannot be done by today's Social Security recipients. If there is any money left over the government gobbles it up.