Free Americans From Social Security Without Conditions

With Social Security, there are always reasons given to scrap it. Which is the problem. And that’s not an endorsement of Social Security. Quite the opposite.

As evidenced by how massive the financial services industry is, it’s already very apparent that the American people of all ages and economic backgrounds are fully aware of and avail themselves of the myriad services offered. In other words, Americans of wildly disparate financial circumstances long ago moved beyond relying on Social Security as their sole means of retirement.

What the above calls for isn’t Social Security privatization, but freedom from Social Security for those who choose it. If some or many want to opt out of the program in order to be free to plan their retirement without government help, they should be allowed to do just that.

To which privatization proponents have long proposed solutions to enable the opting out. They correctly remind us that over most time horizons the stock market has well out-performed cash and/or Treasuries, so let those who opt out of Social Security direct their 6.2% (along with the 6.2% from employers) into a safe, frequently government-endorsed account. The idea here is let people achieve exposure to equities in a blended account of stocks and bonds that would gradually lean more toward bonds as retirement age inches closer and closer.

The argument is twofold: per the 1960 Supreme Court case Flemming v. Nestor, Americans already don’t explicitly own their Social Security accounts. From there, the policy solution here is to once again “allow” Americans to opt out of what isn’t ownership in favor of ownership of a government-vetted private account. The mistake is in the solution. See above.

As evidenced once again by the massive size of the financial services industry in the U.S., Americans don’t need their hands held on the matter of retirement. They also don’t need to be “allowed” the “right” to opt into private accounts. They get it. Markets are wise, and the marketplace that is the American people is fully aware that private savings with exposure to equities well outperform vanilla investments.

Better yet, leaving government out of the investing side frees the freedom-focused in politics from the inevitable replies about equity-accented investing. While it’s certainly true that stocks well outperform cash or bonds over any reasonable time-frame, it’s worth pointing out that in 1966 the Dow Jones Industrial Average reached 1,000, but never rose above 1,000 for good until 1982. Over that sixteen year time-frame, stocks performed terribly in nominal terms, and exponentially worse in a dollar sense given the currency’s sickening decline.

Stocks similarly flatlined to varying degrees in the 21^st century. Lest readers forget, the Nasdaq Composite reached 5,000 in March of 2000 ahead of a major decline. It took 15 years for the NASD to rise above where it had been.

These market anecdotes are mentioned to the free thinkers on Social Security as a way of reminding them how inimical policy can be to freedom. With investment returns, and in particular stock market returns, there are always periods that can be used to disprove what’s true. So make the debate about freedom, not numbers.

The simple truth is that freedom is its own brilliant virtue, and it is suffocated when government requires by law that worker and employer alike join forced savings programs. Free people from Social Security because force is wrongheaded, at which point there will be more money for the prudent to direct toward savings if they so choose. The size of the financial services industry along with the genius of compound returns suggests they have and will do so, no coercion required.