Why does the Social Security system exist? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 25 August 2014
Why does the Social Security system exist? A  A  A

Ouzilly, France

Dear Diary,

We're still in the lazy days of August, with little going on in the stock market. So, let's use this time to look at deeper trends.

We left off last week with discouraging words. First, we noted the Social Security system is going broke 20 years sooner than forecast. It's already $15 trillion in the hole, with a deficit that's up 300% (mistakenly reported as 400%) in the last 5 years.

Second, we sympathized with our new dear readers. It must be difficult coming into a conversation that has been going on for so long. Especially when many of the ideas we are talking about are complex and confusing - at least to us! Many are those who have tried to understand economics and markets in a simple and definitive way. They've laid out their diagrams and made their forecasts. The grave yards and insane asylums are full of them. Because no matter how much you think you grasp...there is always more that gets away from you.

To remind you, we were wondering why the Social Security system exists. If government really were the parasitic zombie we think it is, why would it set up a retirement pension system that seems benign...and that now has the support of an overwhelming majority of Americans (especially those over 65!)?

Is it possible that modern democratic government really is a different institution...of, by and for the benefit of the people who are governed?

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Does it represent real progress in the life of mankind?

The answer we came to on Friday was 'sort of.' Civilization (including the rules and customs we associate with modern, democratic governments) makes possible trade, commerce and entrepreneurship. This allows people to become wealthy. Wealth allows them to build new and better weapons. Less civilized governments (dictatorships, communist countries, North Korea, Nazi Germany, Cuba) fall behind. Civilization triumphs because it pays.

Modern, more-or-less consensual and more-or-less participatory, more or less respecting property rights, and more or less predictable government seems to have evolved along with an increase in firepower. Firepower costs money. The freer (more civilized) an economy is, the more firepower it can produce.

As Thomas Jefferson observed long ago 'the government that governs best, governs least.' Civilized people neither want nor need much government. Instead, it gets in the way. The more they have of it, the less able they are to produce wealth. (And firepower.) That leaves little for the bullies, bossies and blowhards to do. So, they turn to 'Social Security'...and Obamacare...and Homeland Security - programs that appear to be set up to benefit the ordinary citizen.

Instead of a barbaric institution of naked aggression and force, government is said to have no further point or purpose but to make citizens' lives better. That is why we have the Fed. It is really a cartel of bankers who make sure they protect and defend the right of bankers to make a lot of money. But have you heard Janet Yellen lately? She says she is deeply...deeply...concerned about the plight of the unemployed!

Most of the public believes that modern government is merely a grand insurance program. It protects them. It defends them. It pays their medical bills. It provides an income during their working lives and a pension for their retirement.

More importantly, it flatters them. It convinces them that they are the real deciders...the captains of a superior civilization, the citizens of an 'indispensable nation,' without which the light of the world would be extinguished.

But there is a big flaw in this model. The feds' insurance business may be backed by firepower but it is dependent on voter support. The voters want more and more benefits. And they are not too picky about financial standards. The model works only so long as the economy and credit are both expanding. When those stop growing, the system goes broke.

More to come...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Why does the Social Security system exist?"

Girdhar Gopal Arora

Aug 26, 2014

The civilised society itself is the group of people that has assurance of self security and an honour for others' also. But what we see around is just contrary to this basic idea. These civilised groups are governed by the very shrewd class of people that exploit the faith of the people in the civilised system of society in one or other way- patriotism, dutifulness, tax for upgrading the poor classes and services and many mores. And the twist in the story is that the exploited ones let them to do so unnoticed and willingly. Democracy is one of the system of well literate illiterates or the otherwise and the shrewd class of people enjoy the lacuna in the system.

Dear Bonner, you are hammering on the questions that have not been asked as yet by the so called common man like me. I am asking you a question here too - "If this attempt of you to unfold some mysterious, dubious and malicious intentions of sophisticated governing class, is apart from the greed?"

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