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Creating Ants From Grasshoppers: Toward Privatizing Social Security

© Frank Monaldo

``When the winter came the Grasshopper had no food and found itself dying of hunger, while it saw the ants distributing every day corn and grain from the stores they had collected in the summer. Then the Grasshopper knew: It is best to prepare for the days of necessity'' — Aesop's Fable The Ant and the Grasshopper.

In the proverbial story of the ant and the grasshopper, children learn the value of hard work and saving for the future. The Ant works diligently through the productive days of the summer storing reserves, while the Grasshopper frolics the summer away squandering away time. When winter comes, the Grasshopper suffers for his improvident behavior.

In the real world, society has compassion for the Grasshopper and wishes to prevent future careless grasshoppers. We have therefore instituted a social security system that insures against destitution in old age.

When the social security system began, most retirees received overwhelming value for the money invested. The early retirees received benefits for essentially no contributions to the system. Those in middle age when the system began paid into the social security system for half their working lives and still received full benefits upon retirement. As the system has matured, the value for dollar invested has decreased. People are paying into the system for essentially their entire lives and the increase in the aging population is making it harder for the working population to support retirees. In 1950, there were 16 workers for every retiree. This number has shrunk 3.3. It will further shrink to 2 workers per retiree by 2030.

Given these stark prospects, there is now serious consideration to privatizing the social security system. Recently the CATO Institute has published a study suggesting that under such a system, low wage earners would be economically far better off. Even given historically modest rates of return and even assuming the worst possible circumstances, that a retirees retires just as the market crashes and reduces the accumulated value of investments, wage earners in every economic category are economically better off than under the current social security system.

If it can be shown that a properly structured privatized system can indeed provide the security and benefits of a publicly run system, the benefits would be greater than simply a larger retirement check. Under the government-run system, different populations are constantly at odds. The young would like to minimize payroll taxes while the old would like to increase benefits. The elderly have a depressing sense of dependency on the willingness of the others to be taxed. Young workers have a nagging notion of being taken advantage of just at the time that they might be trying to raise families.

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