Thank you for your enthusiastic response to our March letter concerning the state of our monetary system and what we could do about it. Many of you took advantage of the special offering of the two-tape video documentary on the Federal Reserve System and found it extremely enlightening.
Equally frightening and closely related to our monetary dilemma is a program of systematic fraud which closely parallels what the government would otherwise call an illegal pyramid scheme, but which they have chosen to label as the Social Security System. This compulsory system of pay-as-you-go welfare has caught the nation in the grip of a disastrous J-curve (an economic term referring to a steep upward trend which feeds on itself and from which there is almost no recovery short of financial collapse). Several proposals have been made over the years to reform the system and several have been introduced in Congress. But until enough Americans wake up to the impending tragedy and demand action, not much will be done. This letter will remind us of what America's Founders would do if they were here today.
What Social Security Pretends to Be
A few years ago, Dr. Milton Friedman, Nobel Prize-winning economist, urged Warren Shore to do an in-depth study of the American Social Security System and alert the people to what is actually happening. The Warren Shore Study was published by the Macmillan Publishing Company in 1975 under the title Social Security: The Fraud in Your Future.
Shore presents an alarming array of misrepresentations which have been dispensed to the American people during the past 60 years. The Social Security Administration has published tens of millions of pamphlets and brochures making the following claims:
- That Social Security provides participants with an Insurance plan backed by the United States government
- That deductions from the paychecks of workers are "pooled" in a carefully monitored "trust fund" which guarantees an actuarially sound insurance program for participants.
- That the workers' employers match these funds and the employers' matching payments are credited to the account of each worker.
- That the latest amendments to the Social Security Act guarantee automatic increases designed to keep up with inflation, thereby making Social Security "inflation-proof."
- That Social Security is a perpetual protection against disability and unemployment, and guarantees a minimal amount of security for those in need when they reach retirement age.
What Social Security Really Is
For many years, students of Social Security have been attempting to warn the nation of the disaster course which the Social Security Administration has been pursuing. Warren Shore found their warnings were thoroughly justified, and their prognostications tragically accurate. Instead of the splendid fabric of security and protection described by the Social Security Administration, here is what the 60-year-old Social Security program turned out to be:
- Social Security was ruled by the courts to be nothing more than a glorified welfare program which is financed by compulsory "deductions" and distributed in a highly discriminatory manner, instead of being an "insurance program," in which the participants enjoy guaranteed rights.
- Shore found that payroll deductions were being poured into the general funds of the U.S. Treasury and spent indiscriminately to cover the current costs of government, instead of being pooled in a trust fund.
- The employers' matching funds are likewise poured into the general funds of the U.S. Treasury, instead of being allocated to the credit of each worker. They are written off as nothing more than an excise tax, or business tax, which is included in the price of the product, like any other "cost of doing business" item.
- There is an accumulation of government IOUs or U.S. bonds, which would not pay the costs of Social Security for a single year even if they were all cashed in tomorrow, instead of "funds" being "held in trust" by the Social Security Administration.
- The automatic increases actually add to the money supply by employing huge quantities of deficit spending, which aggravates the inflation spiral worse than almost any other single factor, instead of being "inflation-proof."
- Social Security is a year-to-year welfare program requiring annual budgetary support from the general fund, instead of being a perpetual guarantee of security and future protection. It could be terminated next year.
Two Things Every American Should Know About Social Security
Very few Americans are going to have the time to carefully study the Social Security System the way Dr. Friedman and Warren Shore have done. Nevertheless, every American should know at least two things about the system.
First, everyone should know the highlights of the documented background on the history of the Social Security System. It has been this writer's experience that only those who understand these facts can believe what has really happened. For others, the story is just too incredible.
Second, every American should know that there is a far better system of social security which could operate within the framework of the Constitution. Not only would it be constitutional, but it would provide the retiring citizen with many times greater benefits than the present system.
If any Americans doubt we can correct this disastrous course, we remind you of the example of Chile in South America.
In 1970 Salvador Allende Gossens, a Marxist Communist was elected president. His attempt to transform Chile into a socialist state ended in 1973 with a U.S.-supported, bloody military coup, in which Allende died. A military junta, headed by Gen. Augusto Pinochet, governed from 1973 to 1990.
The Amazing Story of Social Security Reform in Chile
During the years of 1978-1980, Dr. Jose Pinera was Minister of Labor and Social Security in Chile. He saw what government sponsored social security was doing to his people and headed the successful effort for a new system. He describes the situation in Chile this way:
"We faced a very similar problem to that of the U.S. Our pay-as-you-go social security system began in 1925, a decade before the U.S., and it was going bankrupt. So we had two choices. One was to postpone the crisis, by making some cosmetic adjustments; the other, to go for a real reform. We thought a real reform was the more responsible, the more serious way, to solve the problem once and for all and thus to save social security forever.
"What we did was to privatize it by allowing workers to opt out of the government-run system and contribute their former payroll tax to a pension saving account. So every Chilean worker now puts 10% of his wage -- tax-deductible -- into an account of his own. That money grows during all his working years -- until he reaches the retirement age, and at that moment he has accrued a huge capital of his own that provides him with retirement income. Therefore his pension depends on the savings accumulated during his whole life and not on whatever the government would decide. So that's the basics of the system: It's managed by private companies that compete in the market; they invest in quite safe mutual funds. The system has been running for 15 years and has been very, very successful."
One of the challenges in reforming Social Security is to sell it to the people. Dr. Pinera explains how they did it in Chile:
"It was a good idea, well communicated. The good idea was the pension savings account. The moment I began on TV, showing every worker a passbook where they could have their own money -- that they would invest it, that they would be capitalists in a way -- they began to like the idea. And then there were two key provisions. The first was that we guaranteed the people who were already retired that we would not touch their benefits. Because it would be completely unfair to damage your grandmother who is receiving a social security check just because I want to improve the system of her grandchildren. So every retired person had nothing to fear from the reform.
"And second, since we believed that our idea was so superior, we did not make it compulsory for the workers to move to the new system, but rather we instituted a very democratic choice. We told every worker, look, if you are in the old government-run system and you don't like the idea I am explaining to you, offering to you, then stay where you are. And to those who decided to move to the new system, we gave every one of them a recognition bond that approximately recognized their past contributions to the government system.
"And then we began a very intensive education and communication effort. I believe that if you have a better idea, you should have the courage to go in front of public opinion and explain it, and not take polls on whether you should do that or not. You are not in public life to get re-elected forever, but to do good. And that's what we did in Chile, and finally the people have come around and today, it is a very popular idea among the Chilean workers. The good news is that 90% of the workers chose the new system."
Dr. Pinera sees the Unites States as the key nation which can set the example for world wide reform:
"First of all, because you are the only superpower in the world, if this idea takes hold here, it will go to all the rest of the world. But also, because it can avoid a catastrophe in your own Social Security System. As you know, your demographics are much worse than ours. The Baby Boom generation will begin to retire in 2011, 2012 and at that moment, the unfunded liability of the Social Security system will be enormous. Further, your excellent doctors may be able to extend life even more. I have been reading some studies where they're saying that your life expectancy can increase dramatically in the future. And in that case -- you see, in a defined benefits system like this one, you assure people of a pension forever -- imagine when Americans begin to live to 90 years, this will be a catastrophe in terms of financial accounts. So the sooner you move to a defined contribution system like ours in which the pension depends on whatever you are able to save -- and therefore if life expectancy begins to increase you will save more, because you will know that you will need more capital in your account -- the better it will be for the U.S. and for the workers.... I have been following your election, and I believe this is a real bridge to the future." (Excerpts from an interview with IntellectualCapital.com on November 7, 1996)
Living Under a Sound System of Social Security
The financial advantages to reform are overwhelming. Instead of retiring with just a few hundred dollars a month under the present government system of pay-as-you-go welfare, here's what workers would enjoy under the proposed plan. Calculations are based on 8 percent compounded quarterly.
A worker averaging $1,000 per month would retire on $3,432.08 per month for the rest of his life and leave $514,812.47 for his family or other beneficiaries.
A worker averaging $1,500 per month would retire on $5,148.12 per month for the rest of his life and leave $772,218.70 for his family or other beneficiaries.
A worker averaging $2,000 per month would retire on $6,864.17 per month for the rest of his life and leave $1,029,624.93 for his family or other beneficiaries.
A worker averaging $2,500 per month would retire on $8,580.21 per month for the rest of his life and leave $1,287,031.17 for his family or other beneficiaries.
Thank you for your support of NCCS. May God bless your efforts to "Proclaim liberty throughout all the land, unto all the inhabitants thereof" (Leviticus 25:10)
Earl Taylor, Jr.