Mick Wright.net

To follow up on my last post, I thought you might like to see a mash-up of the chart I posted and the Dow Jones Industrial Average during the same period:

Again, I’m not an accountant, financial adviser or mathematician, but three things strike me:

1. The Social Security surplus seems to fluctuate just as much as, if not more than, the stock market. That would seem to negate the argument that allowing private investment accounts is a more risky proposition.

2. If the Social Security surplus falls, those actual dollars are gone and are never coming back. If the stock market takes a dip, diversified investors lose nothing unless they decide to sell low, in which case they’re still getting some kind of return on the investment, more than nothing.

3. The SSA is projected to enter negative territory within the decade, if not next year. When do you think the Dow is going to hit negative 6,000?

In early 2005, President Bush set out on a nationwide tour to promote what he hoped to achieve during his second term — reforming and stabilizing the Social Security program.

The Democrats flatly refused to address the issue, opting instead to accuse the Bush Administration of fear mongering. They unified their party, and the media, behind an ignorant mantra, “there is no crisis.”

If Democrats could convince Americans that there was no particularly dire problem ahead, then any attempt by Republicans to shore up the system could be painted as unnecessary, reckless, and harmful to senior citizens.

The problem was, Social Security’s insolvency was already painfully clear to anyone without an ideological blindfold. The Clinton administration had been issuing similar warnings since at least 1998.

Nevertheless, the Left’s brood of young, online activists marched in lock-step, rallying to the defense of the Democrats with a website called ThereIsNoCrisis.com, having registered the domain name in late 2004. Locally, it was promoted by the Lefty bloggers, including that listless hive of scum and villainy, The Flypaper Theory.

Visit the site today, and you’ll find only a generic placeholder page with links to random websites offering alternative medical cures, get rich quick schemes and a variety of other shady services. Not much difference, really.

The argument was that we shouldn’t do anything about Social Security because it would be drawing a surplus for at least another 12 years, and would be financially sound on paper for another 20 years after that, thanks to the Trust Fund — which was, in actuality, a filing cabinet filled with IOUs that the government had written to itself. Whatever tweaking Social Security actually needed wouldn’t be necessary for several more decades. And besides, Al Gore had championed a “lockbox” in one of the 2000 debates, so obviously President Bush had no credibility on the subject.

Instead, as Kevin Hassett reports in this week’s National Review, “the economy has been so bad that in February of 2009 Social Security was in the red.”

The chart indicates that the Congressional Budget Office now believes that Social Security will have essentially no surplus next year.

The problem is, the assumptions that give us that scenario are far more optimistic than the assumptions required to justify, say, a $787 billion stimulus package. Indeed, the chart is almost comical in its miraculous ability to skirt negative territory. In reality, Social Security will almost surely have a deficit this year. Such a deficit requires urgent reform…

But fixing Social Security now would get in the way of imposing card check, hiking taxes on corporations, and “reforming” health care this year. So Democrats are ignoring the problem.

As government looks for excuses to undercut free markets, it seems to be able to find a crisis everywhere it looks. Except for where the crisis is.

Such reform could have been implemented four years ago, at least starting us on a path to recovery. Instead, once again, the Left-wing Democrats chose political warfare over sound policy.

Eventually, however, they will get around to drafting a Social Security bail-out. And when they finally do, we can expect increased taxes, fewer benefits, or both, given that the Democrats’ default solution to every fiscal crisis is pumping more money into a failed system.

I’m not an accountant or an investment broker, and I’m not particularly skilled in mathematics. Just consider this a thought experiment.

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Let’s say you’re 30 years old in the year 2008, a bit younger than the U.S. median age of 36.7.

You will reach the full retirement age of 67 in the year 2045, 37 years from now.

Let’s also say that your annual income is $30,000 (somewhere between the median U.S. income of $25,795 and the mean U.S. income of $37,517).

Your Social Security tax is 12.4%, which equals $3,720 for the year. (Unless you’re self-employed, you only see half of that amount itemized on your paystub.)

Let’s say you invest an equal amount in a tax-deferred 401(k) or 403(b) retirement plan. And let’s say your mutual fund loses 39.12% of its value this year, or $1,455.26. So the year-end value of your retirement account is $2,264.74.

Let’s say that by some freakish circumstance, you earn the exact same amount each year until 2045, and your private retirement account accumulates an additional $2,264.74 each year, even though you continue to contribute $3,720 annually. At age 67, the value of your account is $83,795.38. Because of your reckless investment in the stock market, you lost $53,884.62.

On the other hand, your Social Security contribution was not invested in the stock market, so it did not lose 39.12% of its value. Instead, your Social Security contribution was paid out to current retirees or emptied into the general fund where it was spent immediately. Thus, your Social Security account lost 100% of its value, and its current value is $0. After 37 years, the value of your account is still $0. Because of your involuntary investment in the Social Security program, you lost $137,640.

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Well before the year 2045, the Social Security program will be officially bankrupt and will be spending more than it takes in*. So in order for you to receive any benefit from the program, you will need to draw from the investments of three or more future contributors, you may be required to wait a few additional years before you are allowed to retire, or your annual contributions along the way may have increased, or you will be guaranteed fewer benefits, or some combination of these. Under no circumstances can you expect to have your Social Security contributions invested for a gain, or even saved dollar for dollar.

However, there is a decent chance that your private investment will not continue to tank 40% each year, and instead will grow an average of 10% each year for the next 37 years, as it has over the last century. Thus, your $137,640 becomes $1,350,522.

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I suppose that’s why the Democrats want to raid your 401(k), pesky ignorance notwithstanding.

They don’t want you taking any chances with your money, not when they’ve got all this redistributing of your paycheck to accomplish.

What part of “when you spread the wealth around, it’s good for everybody” don’t you understand?

* The current estimate is 2017, the year SSA begins paying more in benefits than it collects in taxes.