ISIS: Thoughts on the President's Strategy

Last night was…odd.

President Obama, in yet another defining speech of his administration, presented his strategy for confronting the Islamic State in the Levant (ISIL), the crazed fanatics running around Iraq and Syria, cutting off heads, selling women into slavery, and financing their activities through smuggling, illicit oil sales, and good ol’ fashioned kidnapping ransoms.

To borrow one of the more colorful phrases of our beloved Vice-President, Uncle Joe, “This is a big @#$@ deal!”  This speech ranks amongst the most important of the President’s life.

The Administration’s response to ISIL has been…well, it hasn’t inspired confidence.  As ISIL marched out of Syria and across western Iraq, the President described them as the “JV” team. 

When ISIL conquered Mosul and gained control of its vital hydroelectric dam, President Obama took a cautious “wait and see” approach.  (He eventually ordered airstrikes in support of Kurdish forces, and we retook the dam, but Kurdish control of the dam remains tenuous.)

And, of course, there was the two-week vacation to Martha’s Vineyard, culminating in the President declaring, “We don’t have a strategy.”  Even Jimmy Carter felt malaise at that one.

(We’ll ignore the “optics” of playing golf and laughing immediately after announcing that an American journalist had just been beheaded, lest I be accused of piling on.)

So this speech was, in fact, a Big F’ing Deal.  This was the President’s chance to salvage a crumbling foreign policy and set the country on the path to securing his legacy rescuing an Iraq that is descending into chaos.

For those of you who missed it, the President outlined a strategy predicated upon four initiatives:

• ·      Airstrikes against ISIL forces operating in Iraq and Syria
• ·         Support for “partner forces” on the ground through training, equipping, and intelligence-sharing
• ·         Cutting off logistical and financial supports to ISIL, including foreign fighters
• ·         Robust humanitarian efforts

And my reaction after watching the speech, re-reading it this morning, and thinking about it over my morning coffee is…huh?

With most politicians, but especially with President Obama, we have to be careful to distinguish the style from the substance, and cull out platitudes from genuine policy proposals.  

As usual, the President’s style was near-perfect, and he delivered the requisite platitudes – lavishing praise upon the military, vowing to “hunt down terrorists wherever they are,” and waxing poetic about America’s promise and future – with appropriate gusto, resolve, and fake humility.

When it comes to substance, however, the President’s speech left me with far more questions than answers. 

To his credit, I think we at least have a strategy.  But is it a good strategy? 

As we examine the constituent parts, it is not clear it is a strategy that will work.  His approaches, which look so good on paper and sound so good in a speech, are fraught with very real dangers. 

6 Questions I still have:

1)      About that “inclusive government”

The President said, “That’s why I’ve insisted that additional U.S. action depended upon Iraqis forming an inclusive government, which they have now done in recent days.”  He was absolutely right to do so.

Here’s the problem: the new inclusive Iraqi government is neither new nor inclusive.  (See: Voltaire and Holy Roman Empire)

The new leaders are essentially a recycling of the old leaders.  The new Prime Minister hails from the same Shi’a secularist party as the old Prime Minister, who so purposefully and effectively alienated Iraq’s Sunni and Kurdish constituencies.  The new Foreign Minister is another old Prime Minister, and the new Oil Minister is the old Vice President.

It is a Cabinet “flush with warmed-over ministers from Maliki’s government,” said Wayne White, a former Iraq analyst for the State Department now with the Middle East Institute in Washington. “It’s hardly a signal that a major change in outlook is in the offing.”

To make matters worse, The Cabinet isn’t even finished.  The two most important posts – Minster of Defense and Minister of the Interior – have not been nominated, much less confirmed. These are the two key ministers who will be responsible for partnering with the United States…and we have little clue as to who will end up sitting behind the desk.

The Kurds have only reluctantly agreed to participate in the government…for three months. In fact, most of them were boycotting the proceedings in the cafeteria until shortly before the vote.  In three months, the political wrangling resumes, with no assurance that a unity government will be maintained.

As for the Sunnis…well, it will be nothing but a major miracle if they actually start trusting and working with this government.

2)      Yemen and Somalia are success stories?  As proof that his proposed strategy will work, President Obama stated, “this strategy of taking out terrorists who threaten us, while supporting partners on the front lines, is one that we have successfully pursued in Yemen and Somalia for years.” 

It makes one wonder when the last time it was that the President received a briefing on the state of affairs in Yemen and Somalia.   I’m no expert on either, but Yemen and Somalia are really rather awful places…which is probably why a mere 4 months ago the President authorized the continuation of various executive actions against terrorist elements in Yemen and Somalia, citing their “unusual and extraordinary threat to the national security and foreign policy of the United States.” 

What’s important here is that the President authorized those initial actions against Yemen and Somalia in 2010, citing their – wait for it -- “unusual and extraordinary threat.”  So our playbook for success in Iraq is mirrored on strategies in Yemen and Somalia that have not, by the President’s own words, changed the strategic nature of the terrorist threat in those two countries in over 4 years of operations?

If so, is the conclusion we can draw from our strategy in Yemen and Somalia that we will be playing Whack-a-Mole for years, and years, and years? 

If so, it is hard to square that strategy with the stated goal of “degrading and destroying” ISIL.  Instead, this approach looks an awful lot like containment.  

So which is it: are we destroying ISIL or are we containing ISIL?  This is a crucial decision, and one the President appears to have muddled.

 3)      Will airstrikes even work?

Airstrikes are great, at least until the ISIL fighters realize they just need to blend into the population and/or take human shields. 

The President said “we will hunt down terrorists wherever they are.”  Really? Wherever they are?

Does that include a house with innocent children sleeping inside?  Will we authorize airstrikes against a car carrying an ISIL leader in the middle of a crowded market? 

And what happens when – not if, but when – a Predator drone wipes out a wedding party, or a funeral procession, or just plain misses and takes out an entire family who had no idea they were living next door to a terrorist leader safehouse? 

Our airstrikes are great at killing people, but there is little evidence that they are good at counter-insurgency.

Finally, what happens if airstrikes don’t work?  The President ruled out ground forces.  This was a huge blunder, not because I want ground forces to go back into Iraq, but because he essentially just told ISIL, “If you can survive airstrikes, then you can survive.” 

Trust me, they can survive airstrikes

4)      About those “partner forces”

The President’s military strategy therefore depends upon an effective one-two punch: 

American-led airstrikes followed up by ground operations conducted by “partner forces.”

For those not familiar, “partner forces” is the euphemism for a wide variety of groups: the Kurdish peshmerga, the Iraqi national military, Syrian opposition fighters, Sunni militias in the west, and, ostensibly though rarely mentioned, Shi’a militias in central and eastern Iraq.

Here’s the problem: very few of those groups give a hoot about “Iraq.”  Given the history of the last, oh, 150 years, most of those groups are, quite understandably, more concerned about surviving the implosion of a state that they never really wanted in the first place (see: Churchill, Winston).

A couple of specific thoughts on each:

Kurdish Peshmerga:  The Kurds, our most reliable partners, have a wonderful saying: “No friends but the mountains.” 

To understand this phrase, it’s important to understand that the Kurds have been kicked around, usually rather brutally, for centuries.  As a result, they have developed a rather effective survival strategy of hunkering down in the mountains, eschewing permanent alliances, and always looking out for #1. 

The most we can hope for from the Kurds is that they will fight against ISIL fighters who threaten their territory.  That’s helpful, to be sure.  But we should not harbor any hopes of a grand Kurdish counter-attack that drives ISIL from the mountains of Mosul across the deserts of Anbar.  The Kurds will fight tooth-and-nail to protect their territory…and then they will retreat to the mountains.

Iraqi Military:  Yes, this is the same crack force that abandoned their weapons and ran as fast as they could from an ISIL that was less organized, less well-equipped, less funded, and less deadly.  And that’s after we spent 10 years training and equipping them.   

So why does the President think this time will be different?

Syrian Opposition:  While it is nice to think about the “Syrian Opposition” as a unified force in the field, the truth is there is no “The Opposition.”  There are many, many, many 

Oppositions: http://en.wikipedia.org/wiki/Syrian_opposition#Other_opposition_groups

How does the President plan on apportioning aid between the disparate groups?  What about those groups who we worry have some of the very same extremist elements that we are trying to defeat?  And what happens after we have armed them, even if we defeat ISIL and the opposition groups defeat Assad?  Have we truly learned nothing about the dangers of arming opposition groups who match our short-term interests but have little, if any, incentive to become our long-term partners?

Sunni Militias:  The President referred to these groups as Sunni “National Guard” units.  Lovely.  For those who have lost track – and it’s easy to do – the President is referring to the same group of people who led the original, Baath-Party-inspired insurgency immediately after the fall of Saddam Hussein, then joined forces with Al Qaida in Iraq (remember AMZ? ), then teamed up with us as part of the Anbar Awakening, and then – wait for it! – supported ISIL in their march from Syria to Mosul.  The best we can hope for is that they will be fickle partners, and even that would count as a minor coup.

Shi’a Militias:  Most of these groups are supported by Iran.  The good news is that, by the time we would have to rely on them, the battle is probably lost already anyway.  But you can bet your bottom dollar that Iran will be funding and arming these groups

So let’s step back and realize the horror of the picture we have just drawn: we are going to send tons of money and weapons to a bunch of different groups, none of whom want to work together, and who, in fact, want to actively work against each other as soon as humanly possible. 

Ultimately, what we are doing is helping to create neighborhoods and pockets of potential future combatants.  Political scientists have a term for this: Balkanization.  It’s not a good thing.  But this is precisely the force that we are feeding by trying to arm, train, and equip a wide swath of “partner forces” who have no real interest in being partners.

5)      Why the United Nations?

The President announced, “I will chair a meeting of the UN Security Council to further mobilize the international community around this effort.”

Um, OK.  I guess.

But why the UN?  Is he looking for a Security Council resolution?  That seems odd since the approval of military activities inside of Iraq rests with exactly one governing council: the government of the sovereign state of Iraq, who has already asked for help.  What possible legitimacy can the Security Council confer that the government of Iraq has not?

Ah hah.  See, it’s not legitimacy for strikes in Iraq that the President is after: it’s legitimacy for strikes in Syria.

Which leads us to our next question: what is the President’s diplomatic strategy for getting Russia on board?  The Grand Reset notwithstanding, we seem to have found ourselves in the middle of a new Cold War with the Soviets Russians. 

Vladimir Putin is usually as reliable a partner in “counter-terrorism” as you can find – although his definition of “terrorist” is a bit more expansive and usually includes political opponents, journalists, and business magnates -- but in the current dynamic, Putin has an enormous incentive to embarrass the President by vetoing any resolution before the Security Council. 

Russia’s use of a veto is especially plausible since part of the President’s strategy still includes the removal of Syrian President Bashar al-Assad.  Russia is one of Assad’s chief supporters, and it is difficult to imagine that Putin will support a resolution that implicitly backs Assad’s ouster.  Further, Putin probably hopes that the fight against ISIL takes up more and more and more of the President’s time, since the more we focus on ISIL, the more Putin can focus on annexing the Ukraine.  And Georgia.  And…

Right on queue, the Russian Ministry of Affairs sent out this Tweet this morning: 

#Lukashevich: We urge the United States to strictly comply with international law and to stop dividing terrorists into “good” and “bad”

This looks promising.

So in two weeks, chances are that the President gives a big speech where  a) Nothing really happens and b) He is humiliated by a loud “Nyet!” and any resolution fails. 

6) About that “broad coalition”

Word is that Saudi Arabia is letting us use some bases there for training and logistics.  Great – that’s very helpful.  And I hear that Albania is sending some equipment.  OK, that’s cool, too. 

And I’m sure Jordan and Kuwait will pitch in, as well. We can probably count on our British, Australian, Polish, and Canadian allies (among others) to step in and help with some transportation, funding, or intelligence sharing.

But what about regional partners? 

We need Turkey, but relations with Turkey are at an all-time low in the Post-World War II world.  Plus, are they really going to get behind a strategy that involves giving even more money and weapons to Kurdish forces, seeing as how the Turks have their own problem with Kurdish separatists?  But the problems with Turkey can probably get ironed out.

Here are the tricky ones: Iran and Syria.  To what degree will we cooperate with those countries?  We won’t at all with Syria, but what about Iran?  Are we just going to do our thing, and they’ll just do theirs? 

The problem with ignoring Iran is that it ignores a political reality on the ground: Iran holds far more sway with the Shi’a political elements in Iraq than we do.  And Iran has no problem, none whatsoever, with making sure that the US is bogged down in a fight in the west.  The 

President gave no indication about how he will handle this thorny issue.

So of the 6 countries that border Iraq – Saudi Arabia, Jordan, Kuwait, Syria, Iraq, and Turkey – only 3 of them are really interested in helping out (Saudi Arabia, Kuwait, and Jordan), 2 of them we probably can’t work with (Syria and Iran), and the last one (Turkey) is probably more likely to prank-call in an order of 95 pizzas to the Oval Office than to offer meaningful support.

But thanks for the help, Albania.

So those are my questions and concerns for the President.  The problem, as I see it, is that a failure along any one of those dimensions can sink the whole ship. 

Do we have a strategy?  Yes. 

Do we have a strategy that would work under perfect conditions?  Probably.

And now for the $25,000 question:

Can we actually implement the strategy? Almost certainly not. 

And in the absence of perfect conditions and a strategy we probably can’t truly implement, what is the backup plan?

Wisconsin Teachers and Pensions: A Question of Fairness

In Wisconsin, a brewing battle between the state public workers union and the Republican-controlled Statehouse and Legislature erupted into open warfare when Democratic lawmakers literally fled the state to derail the legislative process and prevent a vote on modest reforms to teacher's pensions.

Wisconsin, like many states, faces tough budget challenges. The current decifit is $3.4 billion, and, unlike its neighbor Illinois or big brother the Federal Government, Wisconsin is trying to do the right thing and get out ahead of the problem.

Gov. Walker, who swept into office by soundly beating his incumbent opponent, and the State Legislature -- which saw absolute shallackings for the Democrats, who lost control of both houses -- are beginning a series of reforms to get the budeget under control. One of their first targets is reforming public workers pensions. His proposals would save the state about $300 million per year.

The teachers' union, of course, cried foul and has staged large protests and the equivalent of boycotts. They argue it is a question of fairness.

I agree: this is 100% a question of fairness.

Wisconsin pension law determines the overall amount of money that must be set aside for pension contributions. Currently, the law mandates a cost of 5% of a teacher's salary plus 6.6% in employer contributions. That seems to make sense.

But here's the rub: that law only proscribes the cost required. In practice, teachers pay absolutely nothing to their pensions. The entire cost is borne by the school system, aka the taxpayer.

Gov. Walker submitted a relatively modest proposal that, heaven forbid, teachers should contribute something to their own defined benefit plan. He suggests the 5% that is allocated to the employee but is actually now paid for by the employer. In exchange, he promises no layoffs or furloughs.

For your average teacher, who makes $48,000 per year in salary (and about twice that in total compensation), this amounts to about $100 out of every paycheck. But, I'm always curious as to whether or not something like this a good long-term deal or if, in fact, the teachers are getting treated unfairly on this one.

I used the Wisconsin Pension System's online calculator to figure out what my monthly pension would be if I worked in the system for the minimum 25 years, retired at age 65, and my highest three years of salary were around $75,000 (which are fair estimates, according to other data). My total pension: $2,500. (Keep in mind I also get Social Security on top of this, for total retirement income of about $4,000.)

Using our handy calculator from ImmediateAnnuity.com, we find that this annuity has a cash value of about $400,000.

So what is the rate of return if I contribute $200 per month, for 25 years, and end up with $400,000?

12.75%

Seeing as how that rate of return is almost double what the average person with a 401(k) can expect to get in the market, this is a pretty great deal. The state -- aka, the taxpayers -- are still picking up 57% of the pension cost. And the teacher's union has filled the streets, howling protest that they might have to accept this horribly burdensome arrangement.

Meanwhile, an average person without a defined benefit package (e.g. most of us), would have to save about $500 per month -- or, if we made the same $48,000 salary, the equivalent of 12.5% of our paycheck -- to end up with the same $400,000 to purchase a comparable annuity.

This debate about pensions is, most definitely, a question of fairness.

Brady Hoke? Seriously?

I hate Michgian football. I mean, I really despise them. Losing to them eats away at my soul for the next 12 months.

That being said, college football is undeniably better when Michigan has a good team. It's good for the sport to have good teams in the Midwest, especially since the northeast has more or less stopped playing football, and 90% of the focus during the season is on teams from the SEC and PAC-10.

As far as I'm concerned, Michigan going 11-1 every year would be a great thing for everyone involved.

Rich Rodriguez was never going to work out. Never, ever hire someone who leaves their employer in the way he did to come work for you. Although he probably didn't expect to be named the Michigan coach while he was renegotiating his contract with WVU, the fact that he had just signed a contract means he should have passed. If that's how he treated his alma mater, what did you expect him to do to your program?

Michigan's AD, David Brandon, however, seems to have botched this one pretty good. First, it was obvious to everyone that, regardless of what Rich Rod did in the bowl game, the chances of him surviving until the following season were about zilch. Brandon should have done a lot more groundwork early on with Harbaugh or Miles (if those are the guys he was interested in). As it was, it looked like the search didn't get underway until the first week of January. And, of course, those two candidates ended up passing on the job. This was sloppy work by the folks at Ann Arbor -- just plain sloppy.

Second, enough of this "Michigan Man" nonsense. Heck, the guy who coined the phrase, the legendary Bo Schembechler, was himself not a Michigan Man. (He played and coached at Miami of Ohio before coming to Ann Arbor.) If you can get the right person for the job who also happens to be an alum, fantastic. But just because you are from the same place doesn't mean you are going to be a success (see: Charlie Weis). It is more important to get the right person than the right pedigree.

So that raises the question: why Brady Hoke? Near as I can tell, his leading qualification is that he was an assistant coach in Ann Arbor for several years. Other than, there is little to recommend him.

His greatest achievement was almost winning something at Ball State. In 2008, he took his team to 12-0 and a #12 ranking...before getting absolutely used and abused against Buffalo in the MAC Championship (42-24) and then suffering an even worse defeat against Tulsa in the GMAC Bowl (45-13).

Almost winning something is no reason to hire or extend a coach. (See: Charlie Weis)

His next best year was this year, taking a San Diego State team to 9-4 and a victory in the Poinsetta Bowl. It was a pretty good season to be sure, and it could have been even better: their 4 losses all came by 5 points or less. Still, we have no idea if that was simply a fluke or if he really did turn around SDSU.

His short-term accomplishments, therefore, are somewhat suspect. And his long-term record -- 47-50 -- is nothing to brag about. Plus, he has never been subject to the kind of intense pressure and scrutiny that comes with the Michigan job, both on and off the field.

Hiring Hoke seems like a complete leap of faith by a program that was so desperate to get a Michigan Man that they really limited who they considered. By the time things didn't work out with Harbaugh and Miles, they had to offer the job to Hoke.


I hope Hoke succeeds, I really do. But if I were a Michigan fan, I would be very leary of this hire...

~Go Irish

Social Security: Poor Rates of Return are Just the Start

In a previous post, I argued that Social Security is a terrible investment for workers. Simply, workers would do a lot better by purchasing 30-year Treasury bonds throughout the course of their careers to attain more value than what they derive from Social Security. My original intent was to have this next post contain proposals for fixing the system. However, I wanted to elaborate on the additional problems confronting Social Security. Next time I'll throw out some solutions, I promise.

Social Security is a program facing enormous systemic problems: not only does it produce poor returns, but the future entails negative returns for many workers; it is a wealth redistribution system that actually transfers money from the poor to middle class and even affluent people; and bankruptcy looms for right around the time today's children are going to their mailboxes looking for a check.

And those are just the major issues.

Before identifying possible solutions, it is worth looking at how Social Security actually works. Importantly, Social Security is a type of program called "pay-as-you-go." In other words, taxes that are collected today are used to pay benefits tomorrow. Today's workers are paying for today's retirees. Bernie Madoff went to jail for a similar business model.


Fewer Workers, More Retirees

Still, pay-as-you-go was not necessarily a problem when Social Security was created. In fact, it made a lot of sense: in 1950, there were 16 workers for every retiree. Also, the retirement age was 65 and the life expectancy for someone born in 1930 was 60. Not only were there more workers to support the system, but also retirees were unlikely to receive benefits for more than a handful of years (if ever).

But then the Greatest Generation decided to have babies. And boy did they have a lot of them. This baby boom would not in itself cause a problem if the Boomers had maintained a similar birth rate as their parents, but they did not. Fewer babies meant fewer workers. By 1960, the worker-to-retiree ratio had fallen to 5:1. Today the ratio is 3.3:1. By 2050, that ratio will have fallen to 2:1.

Think about that for a second: each married couple will essentially have the responsibility for providing for most of the retirement income of an elderly Baby Boomer because Boomers have been horribly irresponsible at saving for retirement.


Higher Taxes or Lower Benefits?

Even the folks at Social Security acknowledge that either taxes will have to go up or benefits will have to go down. Right now, the Social Security Administration is planning on benefits going down. As the Trustees report states, benefits for future retirees will only be about 70% of what they are today. They say this like it's a good thing and we should be grateful that there will be anything left at all.

Of course, this reduction in benefits just makes a bad deal worse, kind of like when Darth Vader threatens Lando in The Empire Strikes Back:

Negative Returns (or how I lost money in Social Security)

Remember Bob? Bob was our fairly typical worker. He has a bachelor's degree and worked from age 25 to age 65. When Bob could expect to receive 100% of his benefit, his ROI for his Social Security taxes was 2.5%.

However, according to the Social Security Trustees, those benefits are going to have to be slashed to 70% of what they are today. Let's re-run the ROI calculator with those new numbers:

Average Salary: $52,500
Years Worked: 40
Taxes Contributed: $6,510 (annually -- includes both employee & employer contributions)
Monthly Benefit: $1,526
Value of Annuity: $288,150

New ROI: 0.525%

That's right. If benefits are slashed to 70% of what they are currently, then Bob will be earning the equivalent of about one-half of one percent on his taxes. Of course, since inflation is expected to dramatically increase in coming years, this means his real rate of return will be negative. What a system!

Punishing Minority Working Couples (or How I transferred wealth from black workers to white stay-at-home moms)

Social Security is very effective at transferring wealth -- from young black men to old white women. There are two primary reasons: life expectancy and the so-called "two-earner bias."

Life Expectancy

A black male born today has a life expectancy of 70 years. A white female has a life expectancy of 81 years. A black male, therefore, is less likely to receive benefits for more than a handful of years after retiring. A white female, however, can quite easily receive benefits for more than 20 years.

As a study by the Urban Institute found, when one accounts for mortality rates and other factors, black males have a real internal rate of return of 1.99%; white females, by contrast, have a rate of return of 3.2%.

That might not sound like much, but let's consider what that means in real numbers. Say a black male and a white female both invested $50,000 for 40 years at their different rates of return. At the end of 40 years, the black male has $110,000; the white female has $176,000. These rates of return really do matter.

Two-Earner Bias

This benefits disparity is complicated by differences in earnings and whether or not both individuals in a family are working. As Washington & Lee Law School professor Dorothy A. Brown explains it in a truly fantastic paper ("Social Security and Marriage in Black and White"):

"Social security benefits will generally be lower for a two-earner couple than a single-earner couple with the same total household income. In addition, for two-earner couples, the greater the wife's contribution to household income, the less she receives in spousal and survivor benefits."

The reasons for the benefits disparity are complex, and for the details I recommend you read Prof. Brown's excellent analysis, but the 30-second version is that Social Security treats spouses differently depending on whether they have worked or not.

For example, say both Couple A and Couple B earn $60,000 total household income. Couple A is a single-earner, and therefore the wife receives a benefit calculated on his income. Couple B is a two-earner family, and each person earns $30,000. The wife receives a benefit based on each individual's lower earnings (compared to the single-earner), and her own benefit is limited because of what is known as the "dual entitlement limitation."

Prof. Brown cites a quote from the Social Security Administration itself on the impact this has on two-earner families: "In some cases, a two-earner couple can receive total benefits that are one-third less than an otherwise identical one-earner couple's benefits."

What a system!


Don't Worry -- It Won't Be Around Too Much Longer Anyway

This section does not require a whole lot of elaboration. Even though Social Security is running a surplus right now, that won't last. According to the Trustees, the Trust Fund will become insolvent (that is, start paying out more than it is taking in) by 2040.

By 2084, it will be broke. I will most likely be dead by then, so it won't matter a whole lot for my personal finances. But it does mean that anyone born in 1990 or later would watch the funds run out unless we dramatically revamp the program.

What a system!

Social Security: A Bad Investment for Workers

Social Security is often described as the "third-rail" of American politics: touch it, and you get zapped. Even more deadly than its effect on politicians' careers, however, is Social Security's effects on the ability of workers to retire comfortably.

There have been several studies over the last several years analyzing Social Security's so-called Return on Investment (ROI). ROI is simply a measure of how well your money has performed over a given amount of time. For example, say you invest $1000 for 6 years. At the end of six years, your investment has grown to $1400. Your total ROI is 40% or your annualized ROI is about 6.7%.

Measuring Social Security's ROI is tricky business. First, Social Security is not a retirement account like an IRA or 401(k). Those accounts are simply investments that have different tax advantages. The idea is to grow them as large as possible before you retire. Once that money is spent, it's gone forever. There is also no survivor benefit, aside from what your heirs would stand to inherit normally.

Social Security, on the other hand, provides perpetual income and insurance. Regardless of how much you paid into the Social Security system during your career, you are entitled to receive payments as long as you are alive. Additionally, there is a small cash benefit provided to your surviving spouse after you die, and your spouse may be entitled to receive a portion of your benefits after your death. Finally, Social Security is protected against inflation.

For these reasons, studies that compare Social Security to simple retirement accounts are hopelessly flawed. They undervalue the worth of Social Security benefits -- and as a result make it appear that the ROI for Social Security is exceptionally low.

A more reasonable approach is to value Social Security the same way one would value an annuity. While there are many types of annuities -- some good, some bad -- a basic, run-of-the-mill annuity functions similarly to Social Security. After you purchase the annuity, the carrier has an obligation to pay you a defined benefit each month (based on the size of the annuity), plus a survivor's benefit if you have purchased that option.

Using this approach, the Wall Street Journal's Brett Arends calculated that the value of the annual average Social Security benefit would be worth about $250,000 as an immediate annuity with inflation protection. This seems a fair valuation. It is simply based on what it would cost a 66 year-old retiree to purchase an immediate annuity that pays out $14,000 per year for the rest of the individual's life.

Mr. Arends also points out that Baby Boomers have been notoriously bad at saving for retirement: "[F]ewer than half of workers have saved even $25,000, and only a third have saved as much as $50,000. Forty-four percent have saved less than $10,000, and a quarter have basically nothing saved at all."

Now that's scary.

But workers have been saving for retirement, in a way. First, they pay 6.2% of their wages into Social Security (matched by an employers contribution of 6.2% as well). Second, many families have mistakenly bought into the notion that "your house is your biggest asset" and consequently have most of their wealth tied up in where they live.

The burst housing bubble should hopefully put to rest forever the notion that continuously rising housing prices will be enough to finance your retirement. That leaves us with a return to the first savings option of most workers: Social Security.

So what is the Return on Investment in Social Security? And how does it compare to other options?

First, let's take an average worker, Bob. Bob started working full-time at age 25 after receiving his Bachelor's degree. According to the US Census Bureau, Bob can expect to earn $2.1 million from the time he is 25 until he is 64. That translates to an average annual salary of $52,500 per year over 40 years.

Bob himself pays 6.2% each year of that salary, and his employer makes a matching contribution. Each year, Bob and his employer pay $6,510 toward his Social Security benefit. When Bob retires at age 66, the Social Security Administration estimates that his monthly benefit will be $2,181. His annual benefit will be $26,172.

What would that cost as an annuity? According to ImmediateAnnuity.com, Bob would need to pay about $425,000.

We now know how much Bob and his employer have paid into Social Security, as well as the real value of his Social Security benefit. We can do some fancy arithmetic to find the ROI Bob would need to earn on his $6,510 annual contribution to Social Security to reach $425,000.

The answer? 2.25%

Yes, Bob and the employer are getting ripped off. What this number means is that in order for Bob to have the equivalent in 40 years of $425,000, he would only have to invest his money in instruments that genererate a palty 2.25% in interest each year.

Even if we just base our calculations on Bob's contribution and ignore the cost to his employer, the ROI only goes up to around 5%. Even in this era of historically low interest rates, a 30-year Treasury bond is yielding around 4.25%.

In other words, the ROI for Social Security really, really stinks.

How much monthly income would Bob get if he were left to his own devices and were able to purchase an immediate annuity with the money he otherwise would be paying to Social Security?

Let's assume that Bob were able to invest his money at an average annual return of 7%. While this is a respectable return, it is well below the S&P historical average of about 9%. Of course, Bob -- being a savy investor -- is going to make his portfolio more conservative as he gets older, so he's OK with the lower yield.

After 40 years, Bob would have saved approximately $700,000 -- not including his employer contributions. With that $700,000, Bob purchases an annuity with survivors benefits.

His monthly income? $3,700 per month, or $44,400 per year. For those keeping score, that's 1.7 times the amount of his Social Security check. And at half the cost to the private sector.

Social Security reform is coming, one way or another. Regardless of the social merits of Social Security, as a financial proposition, the program stinks. If we want to preserve the legimitate positives of a social security system, our elected leaders must get away from the current Ponzi scheme-inspired business model.

Stay tuned for a future post outlining my suggestions to create a viable, durable system that makes sense for America's workers.