HomeArticlesEconomicsEnding U.S. Pension Fund Bubbles


Ending U.S. Pension Fund Bubbles — 3 Comments

  1. Making a break from the past and learning from our mistakes will take perhaps another generation or two. Retirement pension funds were intended to reward the steady and long term contributors to the success of a business or firm. Pension funds would include savings from the workers and an employer’s percentage of matching dollars. Along the way it became clear that retirement funds could be invested and not just left to sit idle. Naturally, invested retirement dollars would take on varying degrees of risk. Companies that fell into misfortune would stop contributing matching dollars into worker’s retirement accounts. Surprisingly, pension fund liabilities of some bankrupt companies were taken over by the government. In this way taxpayers would eventually become responsible for the retirement promises of bankrupt private enterprises. It is interesting how the government got into the business of insuring the risks of private enterprises. Perhaps at the time FDIC made a lot sense. However, in light to the recent 2008 fiscal crisis and the subsequent $billion dollar bailouts, the role of government as the insurer of private enterprises has come into serious question. I hope this isn’t confusing. There is too much history to cover in a short posting. The idea of insurance seems to be at the heart of how the government got into the business of social security insurance – public and political management of citizen’s statutory retirement savings. Furthermore over the years, the politicians transformed social security into a wide range of entitlements. Finally, these entitlement promises and costs have become so great, they will endanger the solvency of the country in about a decade. This is the stark result of many decades of failed leadership in Washington DC. If social security were an airplane then it is in a death spiral heading for a crash landing. The rich and wealthy are heading for the exits with their parachutes. The remaining passengers seem strapped in their seats as the airplane makes its descent. The majority of taxpayers are feeling helpless in the situation. Can a committee of passengers simply rush the pilot’s cabin and take over the controls and avert disaster? Needless to say, there are a lot of prayers being said in the coach seating section. Strangely, many passengers haven’t a clue of the danger. By analogy, the US situation can be compared to a damaged heavy bomber returning from a mission over enemy territory. Engines are smoking from enemy fire, there are casualties aboard and the fuel is leaking. The question is whether this plane make it back home or not. The captain and crew have to make a life or death decision to jettison everything possible to lighten the aircraft to keep flying; and, hopefully make it back home. Every pet project including the kitchen cabinet might get tossed overboard in order save this nation. So, what are they thinking in the pilot’s cabin?

  2. Robert, you analogy is vivid. While I have many problems with the way Social Security is structured, I believe it has a well-intended purpose and that it can be restructured and saved.

    It is important to distinguish between Social Security and two types of government pensions, one being “defined benefit” and the other being “defined contribution.” The defined benefit pension is the type that is based on a ponzi scheme and ought to be outlawed.

    The problems with Social Security are twofold. First of all, it should not be the government that manages this for everybody, but just for people who can’t prove they have their own plan. The government’s universal plan encourages people to consume now and not plan for the future because they can fall back on Social Security. This is bad from a moral standpoint, as well as an unnecessary government expense of administrating such large amounts of money.

    However, the Social Security system is based on the idea that it will pay out from an existing fund, not from the next generation. The problem here is that the “fund,” while it exists on paper, has been stolen from to the tune of over $3 trillion dollars, thereby putting an actual burden on the future.

    The solution will be to allow all responsible people to invest in private funds, proven to exist and well regulated. Then those people who cannot prove such funds can be taxed and go on the government’s plan.

  3. “… government’s universal plan encourages people to consume now and not plan for the future because they can fall back on Social Security. This is bad from a moral standpoint … ”

    As it seems a perfect universal safety net that would catch … everyone who falls due into misfortune … would encourage some people to act irresponsibly. So, the question, what is the moral responsibility of the so called ants who prepare in advance for times of scarcity, towards the so called grasshoppers of the world? For some advanced civilized nations this remains a highly debated question with wide ranging moral and ethical implications. A national safety net is a social compact between citizens and providers. As the provider, the government managed safety net cannot be implemented without some understanding of limiting conditions. America’s social security is a safety net that has over reached and expanded beyond reasonable limits. It’s been fraudulently managed and it’s unsustainable. Transforming or restructuring the social security system is like trying to reform the IRS, the Federal Reserve or the
    DOE. According to the oracles, a crash landing is inevitable and there will be casualties … in the Socratic sense. No one wants to bear the ultimate burden of public foolishness. In the case of Socrates , personal fate was placed in the hands of … the unknown will of divinities. America is on its way of the Athenians unless we can evoke the will of greater Gods. Our children will continue to contribute to SS while knowing it is a failing program. It would be prudent to instruct them to have alternative plans for saving for a rainy day and for future retirement. Those plans should include the admonishment to stay close to ways of Nature and self sufficiency. Finally, to make sure to have a good and trustworthy accountant.

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