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Quotation of the Day…

… is from page 463 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

The illusion of investment is maintained by giving the Social Security trust fund government bonds in exchange for the money that is taken from it and spend on other government programs.  But these bonds likewise represent no tangible assets.  They are simply promises to pay money collected from future taxpayers.  The country as a whole is not one dollar richer because these bonds were printed, so there is no analogy with private investments that create tangible wealth.  If there were no such bonds, then future taxpayers would still have to make up the difference when future Social Security premiums are insufficient to pay pensions to future retirees.  That is exactly the same as what will have to happen when there are bonds.  Accounting procedures may make it seem that there is an investment when the Social Security system holds government bonds, but the economic reality is that neither the government nor anyone else can spend and save the same money.

Eighty years ago this month (on August 14th, 1935, to be precise), Uncle Sam foisted on its subjects a scheme that would make Charles Ponzi green with envy.  And to help hide the hideous nature of this spending-other-people’s-money fraud, Uncle Sam maintains a scam called the “Social Security Trust Fund” – which is simply I.O.U.s written by the government to itself.

If you think that the Social Security Trust Fund represents real wealth for the American people held in trust by their agent, the U.S. government, go out right now and hire an agent and give him the following powers:

– he can regularly take a large chunk of your current income and spend it however he chooses on you; but

– for every dollar that he takes from you he must draft an I.O.U. requiring that you will repay yourself that dollar in the future; these I.O.U.s are stashed in a “Trust Fund” maintained by your agent; your agent assures you that this Trust Fund contains enough wealth to enable you to live comfortably in your retirement.

When you retire, you attempt to redeem your I.O.U.s.  Only then, lo and behold!, does the realization hit you that an I.O.U. that you owe to yourself is no wealth at all for you.  Those I.O.U.s are redeemable only if you return to work and then pay yourself, with your income, the value of each of your I.O.U.s.

You’ve been scammed by your agent, although you yourself bear much of the blame for being so stupid as to fall for his misrepresentation.