Sizing Up Social Security
by Sean Corrigan
by Sean Corrigan
An Open Letter to Bill Gross
Dear Mr. Gross,
While I could not agree more with your contention that the issue, as presented, is one of political grandstanding, rather than of meaningful reform, and while I could also not be more in accord with the idea that the first step to restoring some semblance of economic balance to the world at large would be for the federal government to slash its deficit — preferably by means of across-the-board spending cuts (especially those of the Imperial kind) — I submit that, in a marked contrast to the refreshing good sense and clarifying insights with which you usually grace us, your economics are a little awry elsewhere in the piece.
Granted, today's goods and services cannot be stored for the benefit of tomorrow's seniors and so the future workforce will have to provide them afresh, but what you seem to have overlooked is that, by saving now — that is by cutting back on present consumption in favour of accumulating physical capital — tomorrow's workers could be made immeasurably more productive (in a real, not a BLS-hedonized, Fed-fudged sense) as a direct result.
Increasing the quotient of useful physical capital per head is, after all, the only way lastingly to increase overall prosperity.
The seniors, of course, would then have a valid claim upon some of these goods and services as the beneficial owners of this capital — an ownership which, might I suggest, would be best exercised in a fully private and wholly individual capacity.
Moreover, should the seniors — or their personally-appointed trustees in the investment business and their executive agents at the head of the corporations in which they are then shareholders — decide, their savings could be used to build up a stock of capital abroad, instead of in the US, to no obvious long-term detriment of any.
You see, US capital need not be proscribed from seeking out its best return anywhere in the world, nor need mass-scale immigration be fostered to offset any shortfall in the workforce at home (even if its hopefully-enhanced productivity were not to prove, per se, sufficient to compensate for its projected numerical decline).
Instead, the willing young workers of Asia, Eastern Europe — even, should they ever discover property rights and individual freedom, rather than gun-barrel "democracy" and collectivist Marshall Plan subsidies, those of Africa — could happily work thousands of miles away, pleasantly ensconsed among friends and family, while still remitting a due portion of the goods they turn out to their greying private shareholders and creditors in North America.
So perhaps the solution is to abolish social security completely, not to "fix" it.
Then, the footprints of government's heavy jackboots could be drastically shrunk, allowing more room for genuine private enterprise to flourish.
Then, realizing no-one's going to bail them out just because they've reached a certain age, the West's chronic overspenders would suddenly acquire a little of the beneficent religion of thrift. (PIMCO can't be s-o-o opposed to that, I'd guess!)
Then, the potential for intergenerational conflict would be largely eradicated as there would be no element of state coercion (via taxation or inflation) in the future distribution of resources, only one based upon the mutuality of free contract.
Then, these same Baby Boom profligates would have a direct interest in making sure their financial advisors were clued up and that corporate boardrooms were cleansed of rock star complexes and endemic agency problems, rather than relying on Greenspan and Wall Street to distort the process of entrepreneurship in their continual quest to boost stock prices the dishonest way.
Then, they would have an immediate interest in abolishing inflation and of instituting a more sound monetary system, so that their property rights were not insidiously infringed as a matter of routine.
Then, the fact that some good part of their capital was invested abroad would mean they would have no interest in vainglorious Jacobin militarism, only in "honest friendship" and "free commerce" with all nations.
Then, they could look forward to truly "Golden Years," content in the knowledge that their own prudence had given rise to a permanent and widespread material advance and that they would blessed as peacemakers, along the way.
All in all, not such a bad programme.
It's just a shame that, neither in your country nor in mine, will we ever elect a Leader with the vision or courage to spend his "political capital" in making sure the rest of us enjoy the munificence of more private physical capital, as your Founders so obviously and so commendably intended.
With best regards
February 5, 2005
Sean Corrigan [send him mail] is an investment analyst in Switzerland.
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