Bush's Market-Liberal Scam
President Bush began his second term with a big push for "Social Security privatization." I put the words in quotes to point out that neither his plan, nor any mainstream plan, is actual privatization. What he proposed was the gradual replacement of a publicly funded welfare program — those premiums you pay are really just taxes — with a mandatory private scheme.
Before we go on, let me explain. Let's say the government provided you lunch every day. The food was bad and the price for taxpayers was sky high. So instead, some Beltway policy wonk suggests that government not do this anymore. To be sure, lunch will be eaten. In fact, government will force you to both pay for and eat lunch. To assure its quality, government will designate certain spots where you will eat. It will have authorized restaurants and meal packages.
The plan is proposed by people calling themselves "market liberals." They say it is a step in the right direction, toward freedom. From the point of view of everyone else, what do you think? It's not like you can now skip lunch and save the money. And who can't but notice that there is a large sector of lunch-providers that now have a stake in the program? The lunch business is being subsidized in a big way. We might even say that the previously private lunch industry has been nationalized.
I'll stop the analogy there without discussing what happens when the lunches deliver food poisoning, and there is an inevitable public outrage. Here we can move directly to the real world. Let's say Bush had actually achieved his goal of creating private accounts that you are forced to contribute to, and a sizable swath of the American public had invested in safe mutual funds spread across many sectors.
What would have been the result? Look at the state of the financial markets.
The Bush administration would have holy Hell to pay. The public would have turned against the "market liberals" who gave us this scam. Capitalism would have been denounced as having generated yet another shock-therapy failure. Investment standards would have been ever more regulated. The companies that held most of the "private" funds would be declared too big to fail. The subprime bailout would have become a full-bore stock market bailout. This would have been declared the ultimate failure of free markets.
I think we can be pleased that Bush was unable to muster public enthusiasm for the program. And why wasn't he? Not because it would have still resulted in a forced program. That wasn't the issue, even if it should have been one issue. There were the inevitable fears that Bush's program would lead to cuts in Social Security payments. But more important, news began to leak out that the Bush administration hadn't been wholly honest about the transition costs of switching from a socialist to a fascist system. Indeed, none of the advocates of phony privatization have been honest about this.
Here's the problem. Those paying massive taxes into the system now are also paying the current receivers of Social Security. Once you cut away the rhetoric and fancy finance, it works exactly like a regular welfare program, taxing you to pay him. The outlays are growing exponentially, having doubled in ten years to the point that it rivals the budget for war and empire. To divert the incoming funds to some other project would blast an amazing hole in the budget, which would have to be covered by taxes or debt or inflation. We are talking here about perhaps $12 trillion, so this is a serious matter. Is it any wonder that neither the advocates of faux privatization nor the Bush administration want to talk about this?
Just raising the subject of the transition exposes the whole lie of the system. It is not social insurance. We are not paying premiums, which we later collect as an income stream. Current recipients are collecting current taxes. Just realizing that — and focusing on the transition prompts such a realization — gets to the heart of the Social Security lie.
People ask, what is the way out? There is the easy answer — abolish it completely and instantly — or Ron Paul's more politically viable answer, which would permit current payers to opt out of the system completely. Those who opt out surrender all claims on future benefits. The current recipients could be paid. Yes, this would cause a financial crisis, and probably prompt a rethinking of the ridiculous idea that people ought to retire at 65, which is very young by today's standards. Moreover, there would be two giant steps in the right direction: the majority would be completely free from the Social Security stranglehold, and it would be suddenly obvious that the system is a transfer program pure and simple.
All that aside, what Bush decided to do, in the end, was nothing at all. That's a terrible choice until you consider what he might have done. It's hard to be grateful for anything during the Bush presidency, but the failure of a phony privatization that would have discredited free markets is one.
Llewellyn H. Rockwell, Jr. is president of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Speaking of Liberty. See his Mises.org archive. Send him mail. Comment on the blog.
See Lew's warning about the Bush scheme from 2004: "Save or Else."