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Social Security - Pyramid Scam

January 21, 2009 - 12:00am
Richard Sutton by Richard Sutton


With the current economic trials facing the United States and the world, the idea of privatizing retirement has been (once again) dismissed as too risky for American retirees.

With millions of Americans concerned about the economy many Republicans and Democrats claim the ailing stock market shows that privately investing is "too dangerous" for we common Americans.

The Social Security system is based on a "business" model that is banned by federal law - but it must be safe and OK if the government does it.  The structure of it is the same as Bernard Madhoff's little scheme which has cost his investors (very roughly) 50 Billion dollars.  The money of new investors is used to pay dividends, etc. to older investors.  The problem with such a plan is that the company has no actual value and is entirely dependent on the constant flow of new dollars.

Even with it's cyclical declines the stock market pays long-term investors far better than the Social Security Program.  The average annual return on money paid into the Social Security system is 1.5 percent, yet throughout its history, the stock market has paid an average of 7.5 percent annually to long-term investors.

Even including the 1929 stock market crash, the Depression of the ‘30s, the bear market of the ‘70s, the recessions of the ‘80s, the corporate scandals of 2002, and the current recession, the stock market is still a far better investment than Social Security.

Americans could also invest their retirement money with very little risk, under most privatization proposals, investors could avoid the stock market altogether and direct their money into bonds, the money market and other low-risk investments (Treasury bonds have historically returned 5.3 percent a year).

Politicians should allow Americans to opt out of Social Security.

Related Content:

Financial Bailout - Nick Coons
Obama, FDR, and the Great Depression - Austin Raynor
Unfunded Liabilities and the National Debt - Richard Sutton

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