I believe the Social Insurance schemes in use in the U.S. and most developed countries have been, all things considered, a good thing - so far. As long as there was a built in balance between the input of funds from a tolerable level of taxes imposed on an ever growing workforce, and the output to retirees who, as a class, could expect their benefits to be paid by an always larger number of workers, the situation operated well.
The problem is that this situation is not permanently sustainable. Commercial financial schemes structured in this way are illegal - one could be sent to prison for operating one, because it is doomed by the inexorable arithmetic to ultimately fail, leaving both contributors and beneficiaries stranded after the collapse.
About a page back Thomas offered the dictionary definition of a Pyramid scheme, noting that, both in its structure and the manner in which the Social Security Program was presented to the American public by FDR during the Depression, it was in its essence such a pyramid scheme.
Thomas wrote:
pyramid_scheme
" A fraudulent scheme in which people are recruited to make payments to the person who recruited them while expecting to receive payments from the persons they recruit; when the number of new recruits fails to sustain the hierarchical payment structure the scheme collapses with most of the participants losing the money they put in. "
Granted, one could argue with the word "fraudulent". After all, FDR's strong side was the theatrical and rhetorical side of politics, not its systematic side. He may honestly have believed he was giving the nation a Good Thing (TM). But can you see how precisely this definition of "pyramid scheme" fits not only the nature but even the history of Social Security?
The situation today is that the inevitable collapse is now before us. Montana up in Canada, and all of us need and feel entitled to our promised benefits. However the supply of workers willing to be taxed at levels sufficient to pay these benefits for our retirements, now extended for more than a decade is, no longer equal to the demand.
The fact is that most developed countries face this problem - only the details and the time remaining before the collapse vary - and not by very much at that. Difficult as this may be for us to accept, consider how much worse was the fate of the generation of people in the former Soviet Empire, who found their promised social welfare protections almost worthless at the collapse of the hateful and hopelessly dysfunctional political and centrally planned economic system, which had taken their freedom in exchange for promises of security and equality which it could not fulfill.
Socialism itself is a giant pyramid scheme. Worse, by its nature and the nature of human beings, it destroys the incentives for the production of the wealth is so blithely promises to redistribute. It can appear to work for a period - while it consumes what has been built up by generations past, but an eventual collapse is generally inevitable. Attempts to extend its life generally involve even greater authoritarianism and loss of freedom, but even they fail. The facts of life and human nature are such that we must produce what we consume and either save for our retirements or continue to work.
Germany, after the reunification, faced a unique challenge in absorbing the formerly socialist East (GDR) into a vibrant capitalist society and economy in the West (FRG). There were enormous transfers of weath from the West to the East, but the largely successful adjustment was still difficult and took a good deal of time. This was an experience almost unique in the world, and I would be very interested to read the impressions of it from any of our German friends here -- Walter and Thomas, that's you.
