Sowell: It’s past time to get real about entitlement fantasies

People who are producing nothing can feel a sense of grievance against those who are producing much, and being rewarded for it, if our basis for receiving economic benefits is supposed to be what we are all “entitled” to, rather than what we have worked to earn.

One of the most misleading uses of the notion of entitlement is to say that people who paid into Social Security for years are now entitled to the pensions they receive.

Really? It so happens that I have put money into the same bank account for more than 20 years. But if I were to write a check for a million dollars today, it would bounce! The question is not how long you have been putting money in, but how much money you put in.

If what you have been putting into Social Security over the years is enough to pay you a $1,500 a month pension, but you were promised a $3,000 a month pension, how much are you entitled to? On what basis?

A pyramid scheme

Social Security was created back in the 1930s, during the administration of President Franklin D. Roosevelt, one of the shrewdest politicians who ever sat in the White House. Roosevelt understood that, if you could convince people that they were entitled to a pension under Social Security, it could become politically impossible to ever put an end to that system.

The pensions promised exceeded what could actually be paid from the money that was put in by the recipients. But the first generation to enter Social Security would have their pensions paid by money received from the second generation, as well as its own money. The second generation would be paid with money that included what was paid in by the third generation, and so on.

This is the principle behind a “pyramid” scheme, in which the first investors can get a big return on their money by simply paying them money received from subsequent investors. A private insurance company that sold annuities based on a pyramid scheme would be prosecuted for fraud, and its officials put in prison. But you can’t put Congress in prison, even when that is what it deserves.

With the money running out in the so-called trust fund for Social Security, reality is beginning to break through the fantasies, and is closing in on us.

We can be both realistic enough, and decent enough, to rescue older people who have been victimized by political fantasies. We can pay higher taxes temporarily to rescue them. But, there is no reason to bankrupt the country by keeping the fraud going forever.

Younger people can be allowed to opt out and arrange their own pension plans in the private sector, where the kind of irresponsible pyramid schemes that politicians set up are illegal.

But we don’t need to ruin the whole economy in order to preserve the illusions created by toxic words like “entitlement.”