Microeconomics Assessment - Article Example

Writer’s name] [Professor’s name] [Course title] [Date] Microeconomics Introduction Many government run welfare programs usually need to change with time. Every country has one such program which needs to be privatized as it starts loosing it’s efficiency. Mostly economic factors play a major role in the requirement of such a change. The social security system of America is one such system. It has always helped the needy in the past, but due to the fast growing inflation and changing needs of the public it now needs to be privatized. This paper shall give an in-depth analysis of the reasons why the America’s social security system should be privatized. As privatization could lead to improvement of the before motioned program. Analysis Social Security is one of the biggest disasters of American history. In a country that was founded on the principles of Capitalism and free markets, this socialist program limits people's pursuit of happiness. According to Pasour (1996) Social Security is in reality numerous associated programs combined together as one and it is usually financed by a flat-rate tax of the pay of workers. It has a specific limit. The taxes are collected in a trust fund and supposed to be for the long term, so that it may help in providing the required benefits to the needy. The foremost programs in Social Security are: as follows a retirement pension which offers monthly revenue to retired employees and their spouses according to their pay and kind of employment. It may be considered as a pension in that the recipient is given a fixed monthly payment and the amount is according to the number of years the beneficiary lives. It even has a set of spousal and survivors benefit. This is given to the dependents and survivors of the retried employee. A spouse is eligible for a benefit equivalent to half the retired employee’s only when the spouse reaches sixty five years of age. According to Roland (2008) among everyone in the United States, there is a group of people who depend on social security the most. But this needy group of people gets least benefits from this program. The needy are may continuously crave for more benefits for retirement as the poor do not have much money for their survival. Due to the fact that these days Social Security has a low return rate, poverty has become something quite common in the aged population (Roland p23). Somehow the rich have more wealth and thus they have longer life spans and get more return from the social security. Since the rich have more money thy even give the social security more, and thus the people who suffer are the poor. However, if social security was to get privatized then the life span would not be much of an issue. Even the poor could obtain a property against their rightful benefits, and what ever benefits would be left would be handed over to their heirs after they passed away. A lot of poor people take help from this program to feed their families; privatization may assist the poor in earning money enough to support their families. They may even have a good opportunity to invest their savings in bonds. It is good opportunity for people who have always lived in housing projects and fed their families by food stamps. If the privatization is not carried not then the booed mentioned class of people will remain in this condition, as they will have no savings at all. Social Security is an unfunded pay-as-you-go system. According to Nuschler etal (2008) the plan is basically faulty and is based on the plan of the well-known illegal pyramid system. Many people claim that the constitution provides a "social safety net", because the preamble of the constitution states that the government should "promote the general welfare" of the people. The constitution then goes on to list the enumerated powers of the state. Nowhere in the list does it say that the government should provide a retirement of healthcare for the people. If the founding fathers wanted these programs, they would have provided a way to pay for them. The rate of savings in the United States is 26 percent of Gross National Product; the country of Chile saves 30 percent of their GNP (Rys 2010). With these two countries saving close to the same amount for their future, you would expect both to have similar results for retirees. America’s social security system provides insufficient outcome as compared to the least productive or successful private investment. The Country of Chile used to have the same system the US currently uses, but decided to let people invest their own money how they choose in the open market. Chileans pensions are 70 to 100 percent higher than under the old government system since the switch to a private solution (Piñera p1). The problem with social security is that it needs to be reformed. According to Roland (2008) Social Security's financial feels that by the year 2018, the system will go into the red. According to Rys (2010) privatization is also a good option as when Social Security starts to go into loss by the year 2014, there will be no savings in the program, and thus the government will have to start returning their IOUs so that the system can remain functional. Congress has set aside nothing to meet future Social Security liabilities. In fact, the federal government collects the SST, utilizes these taxes to pay existing beneficiaries, after this the leftover taxes are spent of various government programs. As no money has really been put aside for this intention, Congress will have to drastically increase public liability, cut expenditure or increase taxes. According to Gokhale (2010) in 2018, the government will be forced to either raise taxes, cut benefits, or both. By this time, baby boomers will be retiring, program finances will deteriorate even faster in the years after 2018. This means that by the year 2037, social security may not have sufficient funds to pay out to anyone anymore. The above mentioned Social Security debt is more than double the official national liability. It is larger than the total value of the United States gross domestic product. Social Security can be improved if it is privatized in a manner in which, it includes voluntary personal accounts. This may result in an increase of Retirement security, as it would help the poverty strike to save money. It would also improve retirement security for Social Security participants accumulated by means of the Social Security system, comparatively to a claim which is dependent on political decisions made by the government. Social Security has to be privatized so that it can provide inheritable assets. Improving the Social Security system by privatizing it can add helpful security for widows, divorced people, families which earn low-income and other old aged citizens who may have live in poverty. Privatization would help people to obtain to a higher rate of return, providing higher total estimated reimbursement to people with accounts as compared to those who have nothing The privatized systems of a lot of countries are obviously working better than the current US system. According to Roland (2008) many critics claim that the switch to a private system would be difficult to do. Chile, Mexico, Britain, and Australia have all successfully reformed their social security system into a non-government system. All four of these countries are now striving under their new private retirement systems. The main problem cited in privatizing social security is how to pay the people that have paid into the program their whole life. There is an easy solution to this. The American Government has many programs that it does not have to provide under the Constitution. The government could easily abolish unnecessary arms such as the departments of Agriculture, Commerce, and Education. The government also has surplus property that can be vended to support individuals who have to depend their entirely livelihoods on Social Security. According to Nuschler etal (2008) Social Security's website lists the number of agency field offices at 1,300; that's a lot of office space, and a lot of bureaucrats that wouldn't need to be paid. If countries less privileged then America can reform their social security system to privatization, then United States should try to attempt privatization of the system as they will have no issues in making it successful. The main reason for the current Social Security debate is that Americans are living longer than ever. According to Gokhale (2010) the social security program was designed in the 1930s when the life expectancy was 63, not its 77 or 78. After the baby boom generation retired in 2008, there is was tremendous overload on the system. There will a huge number of individuals drawing Social Security benefits, but not enough people working to support them and pay those benefits The future for Social Security looks grim, but there is some hope for privatization. The Republicans currently want private Social Security, and George Bush (2000) said "Don't treat Social Security like it's a federal program." In February of 1997 the Oregon state senate passed a resolution requesting that the state be allowed to opt out of the Federal Social Security program to start their own private retirement system. When the public find out that the social security program is going to be bankrupt, political pressure will increase on congressmen to enact a new program. According to Morris & Mcgann (2010) the government does not have any extra funds to pay for the benefits in the upcoming years. When workers pay taxes into FICA most of the money is immediately paid out to today's retirees. But longer life expectancy has created a problem. The average life span has become longer while the birth rates have decreased due to contraception or lifestyle change. Therefore, there is less of a percentage of the working class trying to pay for the ever growing retired class of Americans. If the program is privatized, employees will be able to put a 12.4% into their personally managed accounts. If the privatization takes place employees will have choice to invest in any company they want. Over the years the employees account could increase in it’s value, turn into a huge nest egg. After an employee has collected enough retirement funds, he/she can acquire a lifetime retirement annuity; this could help them pay a handsome retirement check. Congress has set aside nothing to meet future Social Security liabilities. So, in the year 2018, the government will be have to increase taxes, deduct the benefits, it may even have to do both. By this time, baby boomers will be retiring, program finances will deteriorate even faster in the years after 2018 (Morris &Mcgann 2010). This means that by the year 2037, social security will not have enough money to pay out to anyone anymore. If social security were privatized then the individuals would have a greater control over the funds. The government would still play a big role in the controlling interest just to make sure that the kinds of accounts that were being set up, so as to prevent fraud or abuse. One of the reasons that people who are pro-privatization use is that in doing so it will increase private savings. According to Roland (2008) Of course the retiree would then be responsible for investing that money himself or herself. Right now the public pays 5.0 percent of their pay to social security, if privatization was instituted then people would receive, instead of a 5.0 percent, they would receive a 5.5 percent return on their social security. By doing this people would in fact receive a higher return. First of all, it is believed that investing the money that would be paying one's bills in the future is just risky business. Stock markets are never definite and no one person can foresee what the future will hold. Even the best financial advisors cannot guarantee success in the market. The current Social Security System provides a guaranteed level of benefits and an array of protections that simply could not be purchased on the market. It may be understood as to why the experienced stockholder might support a fully privatized system but for the average person this system would probably result in a loss that would be felt for a lifetime. Even if a person had enough knowledge of the market that he/she felt comfortable investing their monies, the extra responsibilities of this new system would be excessive. According to Nuschler etal (2008) America’s workers currently pay 6.2 percent of their earnings to fund Social Security, this 6.2 percent is matched by their employers 6.2 percent. In other words, with a privatized system, workers would have to have enough discipline to set 12.4 percent of their earnings aside for their future. . Of course, there are advantages to a fully privatized retirement system. If one did not lose money in their investments, then basically the money that you would contribute to your privatized account would all come back to you in the end and would not be reduced. The Social Security System, however, varies greatly in the amount you would receive back during retirement. Most current retirees have received far more money in Social Security benefits than they paid into the program. One other great advantage of the proposed privatized retirement system is that you may choose your own retirement age. For those who do not like strict rules and regulations, this could prove to be a way in which they could choose the destiny of their future. Conclusion The original concept of the Social Security system was to develop a way to give financial aid to the aged by having them contribute part of their paychecks to this program, which would be partially funded by the federal government. This was the alternative to having the people of the United States pay taxes to finance their retirements, which would have been impossible, as they were too poor at the time to give up any more money in taxes. Work cited Bush George. George W. Bush on Social Security, issues 2000 retrieved from http://www.ontheissues.org/George_W__Bush_Social_Security.htm 23 November 2010 Gokhale Jagadeesh. Social Security: A Fresh Look at Policy Alternatives. University Of Chicago Press 2010 Morris Dick & Mcgann Eileen . Take Back America: A Battle Plan Harper; 1 edition 2010 Nuschler Dawn , Romig Kathleen, Haltzel Laura , Whitman B. Debra , Szymendera Scott, Cashell W. Brian , Tamborini Christopher. Social Security: New Issues and Developments, Nova Science Publishers, Inc 2008 Pasour, E. C., Jr. "Privatization: Is It the Answer?" In Private Cures for Public Ills: The Promise of Privatization, by Lawrence W. Reed. Irvington-on-Hudson, NY: Foundation for Economic Education, 1996. p12 Piñera José. The Success Of Chile's Privatized Social Security, Cato policy report 2010 retrieved from http://www.cato.org/pubs/policy_report/pr-ja-jp.html on 23 November 2010 Policy Press 2010 Roland Gérard. Privatization: successes and failures, Columbia University Press, 2008 p23 Rys Vladimir. Reinventing Social Security Worldwide: Back to Essentials Read More