Arguments for and against privatization

¶ … Against Privatization

Arguments for and against the privatization of the social security system

The social security system collects its funds from tax payers and with the aid of the federal authority. Its purpose is that of assisting the disadvantaged or troubled categories of the population, with the final purpose of creating and supporting general welfare. At a more specific level however, the system strives to offer aid to the retired population, the disabled, the ill and so on.

"To this end, the Act covers a wide range of programs, including retirement (old age) insurance, survivor's insurance, disability insurance, hospital and medical insurance for the aged and disabled, black lung benefits, supplemental security income, unemployment insurance and a variety of public assistance and 'welfare' services" (Sacks, 2004).

The social security system is a complex system, traditionally understood as the current contribution to the federal budget, with the expectation of receiving the money upon need, such as retirement for instance. Unlike the common system of accounts and credits constructed with this understanding, the social securities system is much different. It in fact collects money from the current tax payers, and does not save it for future use of those tax payers, but immediately distributes it to the categories which require it. In other words, the current tax payers constitute the source of the social security checks for the people currently in the system.

The idea was first implemented in 1935, as the American population was facing the disastrous effects of the 1929-1933 Great Depression. During that time, a large portion of the population was in dire need of social assistance, but the government did not have sufficient funds. President Roosevelt then decided to collect money from the workers and immediately redistribute it within the society to those who needed the assistance (How Stuff Works, 2010).

In this form, the social securities system would forever be able to finance itself, despite the initial lack of financial sources. This very characteristic of money raising and distribution constitutes the first argument in favor of maintaining the current system as it is able to finance itself gradually and in a sustained manner.

"Each generation of retiring workers would get paid by the people currently working, and therefore the system would fund itself forever despite the fact that the system had no money to start with" (How Stuff Works, 2010).

The second major advantage of the social securities system is that it offers assistance to a wide category of individuals. It even comes to a point in which the system impacts the lives of nearly all Americans, at a specific point in their lives. The system does not only offer assistance to the retired individuals -- as it is often assumed by the novice -- but to a wide category of individuals, such as widows and widowers, surviving underage children of the workers who had died, dependents of the beneficiaries and so on.

"Social Security helps not only older Americans, but also workers who become disabled and families in which a spouse or parent dies. Today, about 160 million people work and pay Social Security taxes and about 52 million people receive monthly Social Security benefits" (Social Security Online).

A third advantage of the current social system is that it only collects taxes from those who are employed, and the percentage of the funds collected from the wages are sustainable and affordable by the working community. In other words, with a minimum effort, long-term sustained benefits are created for the entire population.

Despite the advantages of the current social securities system, fact remains that the system also reveals a series of limitations. One of them is represented by the inability of the system to satisfy the necessities of the people in need of financial assistance. Take the simple case of the retired Americans, who live on social security. Their income -- in the context in which it is limited to social security -- is not sufficient to ensure a decent life style. In other words, the system is unable to adequately support the individuals, and these need to also ensure their pension funds from other sources.

"To have a comfortable retirement, Americans need much more than just Social Security. They also need private pensions, savings and investments" (Federal Citizen Information Center, 2005).

The current social securities system is complex and inefficient and, as the editors at How Stuff Works point out, it is no longer applicable in the current context of the dynamic and modern day society. This is explained through two elements:

1. The aging of the population. In the time when it was created, the working population was significantly higher than the retired population, meaning as such that it was easy to finance those in need of social assistance. The contributions of both employee and employer to the social securities system were not larger than 2 per cent. Today, as the proportion of the working people continues to decrease in contrast with an increasing proportion of retired people, this contribution is of 15 per cent. And in the context of the retiring baby boomers, it is expected for it to further increase in the future, generating additional instabilities and increasing federal deficits.

2. The means in which the retirement income is computed under the norms of the social securities system is inefficient and ineffective. The final result is also financially unappealing, even more so when the population becomes introduced to more efficient and financially rewarding alternatives, such as the 401K plan.

Overall, the social securities system was created in the first half of the twentieth century and it was able to serve the needs of the respective period. Today however, it is no longer applicable and it should be replaced with a more suitable system. One suitable alternative in this sense is constituted by the privatization of the social securities system, and the support for this alternative is generated by its ability to reduce several of the current systems' problems. For instance: