The Parable of the Slothful Servant
A Moral Case for Privatizing Social Security



For most people, the purchase of a home is considered the biggest single purchase they will ever make, so the subject is naturally approached with caution. We look at a number of alternative locations and after searching carefully, we select an appropriate property within our budget, which offers the features, value and location we desire. Above all, we scrutinize the local area plans to ensure that the value of our property will be maintained and hopefully enhanced. This is the free market in operation.

However, most Americans make a purchase that can be larger than their home: their retirement plan. Over a working life of, say, 40 years, most Americans will pay out tens of thousands of dollars in Social Security contributions. It would be nice to think that people could take the same care in choosing a retirement plan as they do in making a house purchase. Alas, the government prevents such a possibility, because they compel everyone to choose the system that they so woefully mismanage.

As things stand, there is only one vendor of national retirement plans: the government. The American people have been allowed no choice about contributing to Social Security. Of course, if the government invested the public's money well, providing a good and safe return on it, one might not feel so bad about the lack of choice of pension plans. However, we should brace ourselves for some chilling revelations. The great Oliver Wendell Holmes described iconoclasm as "rough workbut the only way to get at truth." So it is. Tragically, a little-known scandal has been taking place which should have us howling with outrage.

First of all, just like the wicked and slothful servant described in the Parable of the Talents (Matthew 25: 1-30), the government has not been investing our savings wisely; our money earns no interest whatsoever. But that's not the worst news. Secondly, and much worse, the government has been stealing our money to pay the Social Security claims of previous generations, whose money it had previously stolen to finance, among other things, a failed experiment in big government. Thirdly, unless something is done quickly, the whole system will be bankrupt in a very few years from now, as the number of retirees increases above the number of those contributing to the system.

Each of these three revelations represents an immoral, outrageous tragedy in a free, prosperous and democratic society. When taken together, the subject of reforming and indeed, replacing Social Security cries out to us for the most urgent attention and complete reform. Social Security payments do not belong to the government. They belong to the individual, and are as much vested in the individual as our home and the money in our bank account. Individuals have a moral right of ownership over their Social Security accounts, and it is time the government acknowledged this fact, and cut the public free from their dominance. All people should have the basic right to choose their own retirement plan, just as they are free to choose which home they buy or at which bank they place their account.

It cannot be morally right for hard-working people to be forced to invest their precious savings in an organization of proven dishonesty, which not only fails to invest their money even at the most basic rate, thus denying them any interest, but actually steals their capital to repay creditors from whom it has previously stolen. The present Social Security system is grossly irresponsible, totally dishonest and fundamentally immoral. It presents a shameful example to the rest of the world.

For too long, we have continued along this dismal path, assuming that there is no alternative, that we must settle for a zero return on our money, and that we have no choice but to rely, with diminishing faith, on an institution that cares nothing for our well-being, but instead squanders our hard-earned money with impunity. The entire system is also completely anachronistic, based as it is on the tired, discredited belief that government can do things better than the free market. Thus, it is also antithetic to the principles of free enterprise on which this nation is founded. Congress needs to take an urgent, searching look at this mess. Some advocate adjusting the present system. That will not do; it must be abolished and replaced without delay, because the initial assumption is totally wrong: there is a much better alternative.

With what should we replace this broken-down and immoral system? The International Center for Pension Reform, headed by Dr. José Piñera, provides us a role model. Dr. Piñera was formerly Minister of Labor and Social Welfare in Chile and, in 1980, instituted one of the most successful retirement pension systems in the world, one which has also since been implemented in several other countries. Under this system, individuals pay no Social Security tax to the government. Instead, they automatically have 10% of their wages deposited each month in a retirement account. This account is the owner's property, bears the owner's name, and is fully transferable between the different institutions that compete for his business. This money is, of course, fully tax-deductible and people are free to invest up to 20% of their monthly income without paying tax on that money, depending on their budget. These competing organizations, known as Pension Fund Administration companies (AFPs), do nothing but manage pension funds.

AFPs are subject to strict government regulation to ensure that accounts are properly managed, that the money is well-invested in a safe, low-risk portfolio and that there is no fraud or mismanagement. Yet, they are not a function of government and cost the taxpayer almost nothing. They are accountable to the individual and send regular statements and performance reviews, just like any other financial institution that wants our business. Better yet, people's savings never enter the government's hands and therefore, cannot be stolen to pay the previous claims of others, as happens at present. The money in Pension Fund accounts is never used for any purpose other than the owner's pension, and will never revert to the state. Funds remaining after a person's death form part of his estate, just like his bank account and other property. The government guarantees a minimum pension, and also acts as the scheme's insurer, but such guarantees are funded from general revenue and are virtually never used.

There are several other benefits of the system. As a person's account flourishes, they can often afford to take early retirement; such huge sums invested wisely in the market place act as a tremendous stimulus to the economy, especially when compared to the present system under which the money never enters the market place but is stealthily hidden away in a bureaucratic government department and then quietly handed over to someone else; and a great deal of taxpayers' money is saved in administration, because private corporations manage the pension funds, not the government.

The transition would be simple: the government would issue a bond to every citizen reflecting the total amount they had paid into Social Security; this could be financed by the sale of the vast amounts of land and buildings held, on the public's behalf, by the government, much of which is currently redundant and the remainder of which will become vacant as the size of government is whittled down to a minimum.

The bond would be exchangeable only at one of the new independent Pension Funds, who would carefully invest the money that the person had already paid into Social Security over the years, and create additional wealth for the owner. It may be a challenge to make the transition, but it is false to believe that the choice is between making it or continuing as at present. The real choice is between getting the government out of the retirement pension business or to impose on America's children the burden of bailing out a ludicrous, bloated system, which will be totally bankrupt, both financially and morally. After the transition, each individual in America would have control over their own retirement account, deciding where it is invested and how much to contribute each month within the given parameters. More importantly, each of us will own our retirement account, and we will have the same property rights over it as we currently enjoy over other property such as land, homes and bank accounts.

There is no downside to this proposal. Everyone benefits. The public's money is well invested, our pensions are made safe and prosperous, and our tax dollars are saved. Better yet, the government is entirely removed from the pension business, a field in which it not only fails to excel, but in which it has been downright dishonest and which is totally unconstitutional; politicians would cease to use Social Security as a political football, and a person's retirement income would be based on their own work and on the success of the free market, not on the whims of politicians and the pressure of special interest groups.

Thus, as we remove the burden, the dishonesty and the threat of the present system, a vestige of morality will be returned to a small part of the American way of life. Perhaps it might trigger other steps in different areas towards a restoration of order. If so, unlike the outcome of the story of the wicked and slothful servant, instead of hearing the sound of wailing and gnashing of teeth, we shall hear the sound of thankfulness and rejoicing. Steve Myers © 1995, 1996, 1999, 2004, 2006