Social Security Is a Ponzi Scheme … But

July 9th, 2011

By Dan Miller

Social SecurityIt is claimed by President Obama and many others that Social Security retirement benefits must be on the cutting table during negotiations over raising the national debt limit.  It may happen, and then we will see which party does the better job of  playing the blame game.

According to this article,

Entitlement reform really won’t take off in earnest until the political class and the American public recognize nobody is “entitled” to the benefits all of us thought we’d been paying for all these years, any more than victims of Ponzi schemes are “entitled” to the earnings promised by the scammers. For Medicare, Social Security and other entitlement programs are Ponzi schemes in their own right — and it’s not as if Americans weren’t warned decades ago.

I disagree.  True, voluntary Ponzi scheme participants don’t deserve much consideration.  They should have known that the promised high returns were illusory and dependent on luring new suckers to invest so that some of the new investments could be paid out, as long as they came in, to earlier investors.  In many cases, they might even be considered to have been greedy.

However, most Ponzi schemes, unlike Social Security, have not been been backed by the United States Government; investments in other Ponzi schemes have not been siphoned off and spent for general government use; nor has participation in other Ponzi schemes been required by the United States Government.  Don’t want to make your Social Security “contribution?”  Tough, sucker!  In most cases, the “contributions” are deducted, involuntarily, each payday.  In other cases, pay up or we’ll git ya.

During much of my working life, I “contributed” the annual Social Security maximum.  As a partner in a law firm, I had no employer and hence “contributed” both employer’s and employee’s shares — the whole enchilada.  We also had employees,  lawyers (associates), paralegals and others.  I had to “contribute” my proportionate share of the firm’s “contributions.”  Without Social Security, I would have been substantially better able to save for retirement.

The compulsory nature of Social Security “contributions” and the purposes for which they were spent — without so much as a “by your leave, Contributor” or even a “thanks a heap, Sucker,” are important differences.  The Social Security “Trust Fund” has for years been a giant pig slop for our government to feed at to satisfy the political/ideological needs of our masters public servants.  No need to become unpopular by raising taxes; we have the big pig slop.

These factors should put Social Security retirement “entitlements” in a category quite unlike most Ponzi schemes and, indeed, unlike most “entitlements” for which the beneficiaries were not required by the Federal Government to “contribute” and then watch as their (non-existent) “contributions” were frittered away in whatever ways the party in power saw fit.

(This article was also posted at Dan Miller’s Blog.)

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One Response to “Social Security Is a Ponzi Scheme … But”

  1. Brian |

    Dan, a few things about the Social Security Act that I’ve written before, and I’d be kind of surprised if you didn’t know, but since at least Steward Machine Co. v Davis, the Federal government has been availing itself of the last clause of the first paragraph of Preamble to the Social Security Act.

    Not all, but certainly most, government folks are unimaginative, myopic clods who couldn’t see their hands 6″ in front of their faces at noon if they were standing on top of the Capitol Building. In the 1930s, when The Act was enacted into law, the life span of an American was 57 years. Few in the private sector had the foresight to know that that number would be moving upward, significantly, over the years; none in the government knew, and probably wouldn’t have cared if they did. Today, it’s nearly 80, and yet the age of collection remains 65. There is still one demographic which rarely lives long enough to collect SSA monies: black men, whose life expectancy is right at 65 now.

    The SSA is yet one example of many as to why the Federal government should not be involved in a great many things in which it has involved itself since the days of FDR’s New Deal Raw Deal: whatever the government does, it tends to do badly, and at a far greater expense than could be done by free markets.

    It has been said, foolishly, that the government can spend a dollar just like the free market can. The difference is that in order for Microsoft or you or me to spend a dollar, we must merely generate a dollar of income. For the government to spend a dollar, it must either print a dollar (actually, because of the rate charged by the Federal Reserve, the federal government must print about $1.07) or it must collect $1.25 or $1.30 in taxes. The tax man must get his pound of flesh; so, too, the money changer who moves the money from his left hand to his right. For this “privilege,” we must pay the government 20 cents of every dollar it collects in taxes.

    Only an utter fool in my age group (I’ll be 43 next month) expects to be able to collect social security at 65. It’s time that we sunset Social Security. If a country as “backwards” as Chile was able to do away with this sort of government “retirement” program, surely we can.

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