When you work in the life insurance industry, more than likely one of your first assignments is to take the “10-course professional development program that provides an industry-specific business education in the context of the insurance and financial services industry.”  That program is offered by the Life Office Management Association (LOMA).

Those classes include a history of life insurance in the U.S.  That history begins in the early 1800s, when the industry was very young.  Businessmen were trying a variety of different approaches, looking for the approach that would both serve the needs of the insured while allowing the business to be profitable.  

The current life insurance business as we know it today evolved from those beginnings.

One quite different approach sounded very sensible:  a group of people would make small, periodic (e.g., weekly or monthly) payments into the plan.  The plan would then pay the funeral costs for each of the members of that group when he died.  

But it did not take long for it to become clear that the plan could not work:  unless the number of people in the group constantly increased, the plan would fail; it would inevitably go bankrupt and be unable to pay for any further funerals.  Participants would be on their own.

Using current payments to pay out money to prior investors is the definition of a Ponzi Scheme.  

Fast-forward now to 1935:  President Franklin D. Roosevelt (“FDR”) signs the Social Security Act into law.  

Those paying into the program … provide the money to be paid out to recipients.  Sound familiar?

Didn’t FDR know?  Or did he just not care?

Two facts were true:  first, the population of U.S. had been growing during its entire history; it could be expected to continue.  So, it could be argued, the flawed set-up would not run into its limitation and collapse.  

Still, the U.S. is finite in size.  It is only natural that at some point its population would level off.

Second, Roosevelt surely knew he would be long-gone at whatever future point in time that Social Security collapsed.  The failure of Social Security and its impact on the lives of millions of people would be the problem of somebody else.

Make no mistake:  FDR was a Socialist.  He called businessmen “economic royalists”.  In the midst of the Great Depression, he severely increased taxes, effectively seizing the money in private hands that would have been used by businesses to make the investments that would lead to economic recovery.  FDR was having such a detrimental impact on the U.S. economy that it was only after FDR died and World War II ended in 1945 and many of his policies were rescinded, that a real economic recovery in America could begin to occur.  And thanks to Presidents Truman and Eisenhower, it did.  In 1954, the U.S. economy finally reached its 1929 high point once again – and then continued to grow.

The point is that, as a Socialist, FDR would believe that government could somehow prevent the bankruptcy of Social Security, should it ever occur.  FDR would be certain that more government is the answer to all problems.  His actions throughout his Presidency reflected just that attitude.

Privatizing Social Security

How do we get out of the quandary of a doomed Social Security?  

Imagine that those paying money into Social Security were instead required, just like the payment of Social Security taxes currently, to pay that same amount of money into an IRA.  

A little mathematical analysis has shown that everyone, however much or little they earned over their lifetime, would have a monthly payment from their IRA greater than the current Social Security monthly payment after they retire.  

You could have more money than Social Security will ever give you.

And the money left over when you died?  You could leave it a beneficiary – to your spouse, to your kids, or to your favorite charity.

The Problem with privatizing Social Security

Only one thing stops Americans from privatizing Social Security:  Congress.  

Many years ago, Congress took notice of all the money piling up in the Social Security account.  Politicians, seeing money, naturally believe they have a cause which could be addressed, if they had the money to spend on it.  The Social Security money was staring them in the face.  Like candy to a baby, it was too much to resist.  

Congress passed the law creating the Social Security account.  It was a small step to make a change to their original law to allow them to use that money for their own purposes.  

If you were to count up the Socialists in Congress and the simple money-grabbers in Congress, versus those in Congress who would vote for privatizing Social Security, which side would you expect to win?  

As they say, if you have to ask the question, you already know the answer.

Congress created Social Security, with all its flaws, and Congress is the biggest obstacle to any real change – despite the fact that the taxpayers in every Congressman’s district would be better off.  ■