With apologies to Shakespeare, a Ponzi scheme by any other name is still a Ponzi scheme. Texas Gov. Rick Perry is just the first major political figure to have the courage to stand by saying what we all know to be true.
Former Massachusetts governor Mitt Romney says Social Security shouldn’t be criticized because so many people have been convinced to consider it a “successful” program. That it has been sold as “successful” doesn’t change the nature of the scheme; indeed, Ponzi schemes always look successful — or else they wouldn’t last.
Here is how the Securities and Exchange Commission defines a Ponzi scheme: “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” Sound familiar?
It is precisely how the Social Security system works: legal when government does it, illegal when Bernie Madoff does it.
Consider the first SS monthly beneficiary, Ida May Fuller of Vermont. According to the Social Security Administration, she paid $25 into the system before retiring in the late-1930s, but received nearly $23,000 in benefits. She hit the jackpot; her descendents got the bill.
The Wall Street Journal noted this week that “young people today are putting more into the system than they can possibly get out in retirement.”
For Social Security to be considered “successful,” one must carefully massage how to define “success” in regards to a long-term investment. The Social Security Administration employs bureaucrats by the thousands to administer a program that provides a smaller return on investment than a simple passbook savings account.
Would Mr. Romney and his family would consider “successful” any financial advisor they employed who provided them the same return on their fortune as the government has on Social Security? Absolutely not.
Social Security has only truly been successful in providing generations of politicians and bureaucrats with extra dollars to finance big government programs. The Social Security “trust fund” was drained empty long ago, replaced with IOUs from a government that could repay them only with higher taxes and shakier budgeting.
The program could be called “solvent” only as long as it has more people paying in than cashing out. That by law we are all forced to participate, with threat of jail if we don’t, doesn’t make the scheme alright. If anything, it makes it less so. (At least Mr. Madoff didn’t get to threaten his victims with time in the federal pen if they didn’t buy into his program.)
Social Security exists as a running scheme because of the threat of getting a late-night visit by a couple revenue officers. Just try not paying your Social Security taxes. In fact, the biggest fear proponents of the Social Security status quo admit is that the idea of giving people an option to leave would destrot the system. (Any financial product that relies on coercion can safely be considered unsound almost without further review.)
For seven decades the legal threat associated with non-payment, coupled with the numerical reality of more working young people than retired old people, has given the scheme the veneer of success. But it’s just a veneer; a thin one at that.
When Social Security began in 1935, the retirement age was set at 65, though life expectance was just shy of 63. Most people didn’t live long enough to qualify for the benefits for more than a few years, if at all. Today, people live many years beyond the entitlement collection age, and the population is aging.
The criticism associated with naming Social Security what it actually is isn’t much different than the tearful and angry response one finds from the victims of any scheme: They don’t want to believe they were had, or that they fell victim to a con-man.
In the case of Social Security, the con-man has been a long line of congressmen. They promised a retirement check, counting on IRS agents to fund the benefits with taxes levied on someone a little younger, who was being similarly conned.
Every reasonable plan proposed for years to transition away from the status quo Social Security system has included a solid guarantee of payments to current beneficiaries. All the fear-mongering to the contrary is a lie of the worst sort.
The con is way past up. A 1994 survey found more people believe they will see a UFO than in the viability of Social Security. Economists like the late Nobel Prize winner Milton Friedman have repeatedly warned of the inherent problems presented by the system.
Yes, the Social Security system is a Ponzi scheme. Finally, in Rick Perry, someone on the national stage is calling out the scheme for what it is. Now it’s time to explore ways to move beyond it.