Saturday, September 10, 2011

Why Rick Perry is wrong - Social Security is not a Ponzi Scheme

For years, I've mistakenly thought of Social Security as a Ponzi Scheme.  I was wrong.   
What's a Ponzi Scheme, you ask? 

Here's the U.S. Securities And Exchange Commission's answer:

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.

During the recent Republican debate, Texas Governor Rick Perry made a stir by declaring that Social Security was a Ponzi scheme.  Lamestream Media outrage immediately blanketed the earth.  Animal shelters were working overtime because of the MSNBC Talking Heads having multiple litters of kittens all over their desks.  If I remember correctly, Rachel Maddow and Chris Matthews stood and ceremonially tore their garments and dipped their foreheads in hot vats of black ashes.  (I've got it Tivo'd at home, and will correct the names if necessary.)  Mitt Romney, in a white heat to look like the responsible adult in the room, rushed to the program's defense.  New York Timesians have gathered to reconcile their faith with the inconvenient evidence of Ponzi-ism. 

I laughed and laughed.  I shouldn't have. 

According to Reason magazine, my current source of infallible doctrine, Social Security isn't a Ponzi scheme.  Here's why:

1)  Ponzi schemes take money from new suckers and use it to pay older suckers.  Social Security collects money from new victims, uses some of it to pay previous victims, and spends the rest on stimulus packages, Cash For Clunkers, TARP, wars, prisons, slop, slush, and kickbacks to supporters and government drones.  Trillions of dollars from the Social Security Lockbox have been looted in this manner. 

2) Ponzi schemes attract their money through fraud and lies.  Social Security funds are collected at gunpoint.  If you disagree with that statement, try not paying for Social Security. 

3) When Ponzi schemes run out of suckers, they collapse.  When Social Security starts running low on suckers?  The men with guns simply raise your rates.  Here's the Cato Institute:

In fact, Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.

In 1950, every retiree had sixteen Social Security victims working to support him.  We now have only three suckers working to support every retired sucker.  In 2030, it'll be only two suckerw working to support every retired sucker.  Look for the men with guns to increase your rates. 

So.... according to Reason magazine, Social Security is not a Ponzi scheme (in the Bernie Madoff sense of the word). 

It is something much, much worse. 

I regret my previous error

The vintage poster came from here. 


CenTexTim said...

re: #3 ("When Social Security starts running low on suckers? The men with guns simply raise your rates.")

If SS is running low on funds then why is obama proposing to cut the rates? Surely the Smartest President Ever wouldn't do that just for political gain...

Nick said...

The SS Trust Fund hasnt been raided. There is no such thing as a SS Trust Fund. Its like unicorns and goblins.

SS is a promise to pay benefits out of future tax revenues. Government bonds are a promise to pay benefits out of future tax revenues. Nominally, the two revenue sources are different - SS from FICA taxes and bonds from general tax revenues. But the distinction Is a fiction.

If SS revenues run dry, then the government will make good the promised benefits from general revenues. And, as we've seen in the so-called "Trust Fund", government will freely use FICA tax revenues for general expenditures.

It was the FICA revenues that were stolen, not the Trust Fund. The Trust Fund still has the same promises to pay in it.

FICA is a tax and SS is an expenditure - nothing more or less. If there's a link between the taxes paid and benefits received, it is, at best, tenuous. FDR used the tax and expenditure functions of government because he knew he'd never get a true, fully self-funded retirement insurance program past the US Supreme Court.

The Whited Sepulchre said...

But, but, but....It's supposed to be going into my account !!