Aren't national summits great?
America's foremost academicians, bankers, and mutual
fund managers gathered in early June at the government's request to
devise new ways to encourage a spend-happy public to save more. While
the 240 delegates to the National Summit on Retirement Savings agreed
that more savings are needed, they were reluctant to suggest policies
that would boost savings. It's always amusing when the government holds
these summits. While ostensibly organized to establish why Americans
aren't saving enough for their retirement, the gathering was little more
than another opportunity for academics to socialize and for the
government to look like it cared about the public. In actuality, nothing
was said that we didn't already know. The government employs economic
advisers who know very well why retirement savings are so puny.
At the summit President Clinton called on employers
offering 401(k) retirement plans to automatically include their
employees in the program unless specifically told not to do so. While
this little gem will surely, as Clinton put it, "affect a very large
number of people in getting them into the business of saving for their
own retirement ' " it doesn't quite seem to get to the root of the
problem.
What's Left to Save?
The savings problem begins with a lack of funds to
save. An active government is an expensive one, and that's exactly what
America has. When federal, state, and local taxes are counted, the
government confiscates about 40 percent of America's income. With only
60 percent of their paychecks at their disposal, wage earners have
little left to save after Uncle Sam has lined his pockets with their
cash.
The second reason people are saving less is the
government's inflationary tendencies. As the Federal Reserve erodes the
purchasing power of the dollar over time, the money people have stored
in their savings accounts loses its value, too. The $100 a family saved
in 1980 may only have the purchasing power of $80 today. In order to get
the greatest bang for their buck, individuals have the incentive to
spend their income as fast as possible. Even under the very modest
inflationary pressures we are experiencing now, the fading value of
savings creates a strong disincentive to provide for the future.
The third major reason people don't save for retirement
is that the government ostensibly does it for them! Prior to Social
Security's inception in 1935, people were responsible for providing for
their own retirement. There was no federal safety net. Either you saved
for your future; your friends, family, or charity supported you; or your
future was unpleasant.
When the government entered the picture, it usurped the
responsibility of its citizens to save for themselves. Individuals came
to rely on big government to provide for retirement income. In fact,
they became so dependent that until recently they couldn't even conceive
of a system whereby they provided for themselves.
This is where we find ourselves today. Social Security
is failing, as it inevitably had to, and the government is getting
worried that the safety net's holes might be too big to catch impending
retirees.
Now the government is pushing for citizens to go back
to the traditional method of providing for retirement-personal savings.
But how?
Workers must bear the burden of the failed Social
Security program's steep costs. The steadily increasing payroll tax
needed to fund the program is like a sack of bricks weighing down every
wage earner who wants to save for himself.
Older earners are accustomed to the idea that an active
government will provide future income for them. They are reluctant to
save for themselves, and resent the fact that much of their income was
squandered on Social Security benefits they will never see. Fortunately,
many young income earners recognize the Social Security fraud and expect
to rely solely on themselves in the future.
While getting Americans once again to accept
responsibility for saving for their own futures is no easy task,
eliminating Social Security and relieving the taxpayer's burden are
steps in the right direction. As Labor Secretary Alexis Herman said,
"The message to Americans is be prepared." Now let's provide Americans
with the tools they will need.
We can begin by abolishing Social Security. In just 15
years the system will start running deficits, meaning massive tax
increases if it is to be saved. Instead of raising taxes, why not simply
eliminate the program? Freeing taxpayers from Social Security means
allowing them to keep what they would have paid in to the faltering
system so that they can provide for a far better retirement.
Budget cuts in any area would be helpful. The more cuts
that are made, the more money that is left in the hands of people to
save. If given the freedom to do so, many Americans will invest their
savings in the stock market. In the long run, stocks provide
significantly higher returns than does Social Security and are a more
secure form of saving for retirement. Allowing Americans to keep more of
their money means giving them control of their futures once again.
No summit is needed to decide what to do. The
government knows the appropriate steps as well as you or I. The question
is, is the government willing to see its budget and power fall so that
Americans can have a secure future? Sadly, I predict no.
At the time of the original publication, Peter Leeson
was an adjunct scholar with the Mackinac Center for Public Policy, a
free-market research and educational organization in Midland,
Michigan.
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
October 1998, Vol. 48, No. 10.
Yourname@libertyhaven.com
