Social Security is no longer the Third Rail of politics. Which is perhaps too bad, though not for the reasons readers might imagine.
For now, it’s worth celebrating what’s abundantly true: growing numbers of Americans aren’t much thinking about Social Security as they plan for the day they’ll retire, assuming they will. This can be found routinely in news headlines, including a Wall Street Journal headline from this week: “401(k)s Are Minting Millionaires.” Well, there you have it.
Americans were never fooled. They intuitively grasped all along that there was no pot of gold awaiting them care of the federal government, nor did they really think a “Social Security account” awaited them. Instead, they seemingly intuited that Social Security was just another weak federal attempt to provide Americans with an income stream that would be paid for by existing workers, a federal government with taxable access to the work and wealth of existing workers, or as so-called Social Security “insolvency” indicates in the 2030s, both.
About the looming “insolvency,” it’s said here routinely that the latter is utterly immaterial to future Social Security payments. Social Security was always a taxation scheme for a Congress that wanted to get more from workers than it was getting. Evidence supporting the previous claim can be found in the fact that there’s no money sitting in the proverbial Social Security “lockbox.”
Instead, any overages collected by the federal government were quickly shifted to Congress and spent by Congress. Which explains 2035. When Social Security goes “insolvent,” Congress will simply make up for what’s not collected through general tax revenues.
What’s exciting in all this is that as evidenced by the rapidly expanding roster of 401(k) millionaires, Americans were always wise to the limp nature of the federal government’s retirement plan. Cognizant of it, they saved on their own for a much better retirement. And that’s only part of it.
As the abundance of ads from banks, investment banks, and mutual fund companies pursuing the wealth of Americans indicates, 401(k)s are not their only savings vehicle. What some naively refer to as the “financialization” of the U.S. is in truth evidence of yet more ways Americans are preparing for a tomorrow that the federal government can in no way provide for.
Which signals the true Third Rail of politics: American savings. While it’s laughably said that Americans don’t save, the headlines reveal something quite different. And since the totality of savings grows the more that unspent wealth is left free to compound, get ready for an electorate of millionaires and beyond muscularly demanding reduced taxes on retirement wealth amassed, along with substantially delayed withdrawal schedules as a way of limiting the federal government’s share of a savings and compounding bonanza. Better yet, watch this expansion of privately amassed wealth grow even more as people work longer thanks to automation removing the most backbreaking aspects of work from it, all as the best aspects of work that elevate more and more individual skills explode on the path to a happy, never-will-retire workforce.
Back to Social Security, it’s only unfortunate that it’s no longer the Third Rail in the sense that this monument to big, wasteful government paradoxically exists as a barrier to even bigger, much more wasteful government. That’s the argument within The Deficit Delusion: mindless as Social Security always was and is, it consumes a lot of the federal budget in a way that handcuffs Congress from coming up with new, much worse, much more costly spending ideas than the one that is no longer the Third Rail of politics.
Originally posted to Real Clear Markets.
