Herman Cain

PolitiFact Whiffs on Social Security

PolitiFact has a habit of missing the point, usually in a way that favors the left’s agenda. A good example is found in PolitiFact’s recent assessment of statements made by Herman Cain about privatizing Social Security:

During Monday’s Republican presidential debate in Manchester, N.H., former pizza executive Herman Cain touted an alternative to Social Security that has been operating for three decades in Galveston County, Texas.

“The city of Galveston, they opted out of the Social Security system way back in the ’70s,” Cain said. “And now, they retire with a whole lot more money. Why? For a real simple reason — they have an account with their money on it. What I’m simply saying is we’ve got to restructure the program using a personal retirement account option in order to eventually make it solvent.”

We’ll give Cain a pass on a pair of minor errors — it’s Galveston County, not city, and the program launched in 1981, not in the 1970s. Instead, we’ll cut to the bottom line: Has the program meant that participants “retire with a whole lot more money” than they would under Social Security?…

In 1981, employees of Galveston County — as well as those in two adjoining Texas counties, Matagorda and Brazoria — voted, after lengthy presentations and discussions, to withdraw from Social Security and initiate a system of individual accounts to provide retirement, survivor and disability benefits. Participants would contribute to their retirement accounts, supplemented by an amount from their employers, and those funds would be invested in annuities through a financial-services company chosen by a county-run bidding process….

…The Galveston plan is somewhat analogous to a 401(k) plan — that is, a plan designed to encourage workers to save for retirement — rather than a social insurance, or safety-net, program like Social Security….

Keith Brainard, the research director for the National Association of State Retirement Administrators, agreed that the Galveston plan is better for some types of workers, including those with long tenures.

But the “problem,” he said, “lies in Cain’s implication that Social Security should be a wealth-producing vehicle, when that’s not what it’s supposed to be. Social Security is supposed to be old-age insurance. That should be the emphasis of the program, not ‘retiring with a lot more money.’”…

…[T]here are some advantages to the Galveston plan — not just to the higher earners who get more out of the program, but also to the government entity running them. The Alternate Plan doesn’t face the same kind of long-term fiscal challenges that Social Security does, because it only promises participants the investment returns for the money they pay in to the system.

The downside, of course, is that the investments may not perform well enough to exceed what Social Security would have provided….

This is all misguided hogwash. I rate PolitiFact’s analysis as “wide of the mark.”

Social Security (SS) is neither a retirement plan nor insurance (as one interviewee calls it). Social Security is a transfer-payment scheme — some, rightly, call it a kind of Ponzi-scheme. It’s not fraudulent in intent, but it’s fraudulent in effect.

Today’s SS beneficiaries are not reaping returns from investments made by SS with their “contributions.” Their benefits come from the paychecks of today’s workers. And future SS benefits will come from the paychecks of future workers. (If you believe in the SS trust fund, which is nothing but a pile of IOUs, you must believe in the tooth fairy.)

Private retirement plans (and the occasional government plan, like Galveston’s) reap real returns and support economic growth through the purchase of corporate equities and securities. SS, on the other hand, inhibits economic growth by depriving workers of money that they could invest in equities and securities. Comparing real returns on private plans with the “returns” that Social Security extracts from workers is as meaningful as the proverbial comparison of apples and oranges.

There just ain’t no “returns” on SS, so it can’t be compared with a retirement plan that reaps real returns and contributes to economic growth in the process. SS can generate any kind of “return” that its political masters desire — because they have the power to extract the “returns” from workers’ paychecks.

Related posts:
Social Security Is Unconstitutional
Why It Makes Sense to Privatize Social Security
P.S. on Privatizing Social Security
That Mythical, Magical Social Security Trust Fund
The Real Social Security Issue
Social Security — Myth and Reality
Nonsense and Sense about Social Security
More about Social Security
Social Security Privatization and the Stock Market
Social Security: The Permanent Solution
Social Security Transition Costs, in a Nutshell
A Market Solution to the Social Security Mess?
Saving Social Security
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid