by Rod D. Martin
December 15, 1997
When, several weeks ago, this column called for the privatization of Social Security, showing in great detail how every American could retire on twice their working-years income, it did not make its opponents on the Left happy. Feedback was swift: “how dare you play with people’s futures,” demanded one writer. “Under your plan, if the stock market crashed, millions of old ladies would be turned out on the streets to die,” shrieked another.
This was exactly the response we’ve all come to expect from liberals: shrill, emotional, and dumb. It also showed an amazing ignorance of the market’s ability to create different solutions for different needs. While the Left has forced nearly every American into its one-size-fits-all Social Security Ponzi scheme for half a century, it has completely failed to grasp the immeasurable creativity of Adam Smith’s invisible hand.
Fortunately, others have not been so blind.
Taking advantage of a loophole in the Social Security Act, three Texas counties — Galveston, Brazoria and Matagorda — established private retirement systems in 1981. Horrified, Congressional Democrats closed the loophole two years later, preventing other counties from following suit; but every public employee in the three Texas counties, 5,000 in all, has been part of the private system ever since. The results are amazing.
The private system works like an annuity. Employees are taxed at the same rate as workers everywhere, but instead of sending the money to Washington, the counties ask large insurance companies to bid against each other for the right to manage their retirement funds for one year. Each insurance company offers the counties a guaranteed rate of return on their investments, and the highest bidder wins.
Employees are vested immediately. Since they own their account, they can take it with them if they switch jobs. They can increase their contribution to a maximum of 20 percent of their income, all tax-deferred, and take their choice of a lump-sum payment or monthly checks upon retirement.
The results have exceeded all expectations. In some years, the guaranteed minimum annual return has been as high as 12 percent; it has averaged 6.5 percent since 1981. This is in contrast to Social Security’s paltry 2.2 percent return, a net annual loss when adjusted for inflation. Burt Jamus, a county employee in Galveston who voted against privatization, says in the May-June 1997 Policy Review that the program is “a blessing from God.” Under current projections, the 40-year-old middle manager will receive $5,474 a month upon retirement. Under Social Security, he would have received $1,042.
Employees say they love the death and disability benefits most. While Social Security pays an insulting one-time death benefit of $255 — less than the cost of a pine box — the private plan pays triple the worker’s salary up to $150,000, but never less than $50,000.
This saved Wendy Colehill’s life. Her husband Bill, a sanitation worker in Galveston for 12 years, died in a car wreck, leaving Wendy and their three-year-old son. Under Social Security, she’d have been penniless and homeless, another victim of liberal “compassion.” She cries as she tells of the $126,000 death benefit she received days after Bill’s death, allowing her to keep her home, rear Bill Jr., and even go back to school to learn a trade.
Liberals decry privatization as too risky: every American will have a different retirement plan, with different risks and rewards. This terrifies Leftists: they can’t imagine a world where Washington does not centrally plan everyone’s life. But the economic diversity they fear is our liberation. Those who follow the Texas counties’s path will not be as wealthy as others who accept more personal risk, but that is just the point. Whether to follow a cautious or an aggressive course should be our choice, not the choice (as now) of a liberal bureaucrat.
Bottom line: it’s our money, and anything we do with it is better than trusting the false hope of Social Security. It’s time for the left to quit making excuses for breaking the Eighth Commandment. Theft is theft, and it’s time to return to Americans what is rightfully ours.