San Diego — To be honest I’ve become bored with the incessant failure of people to simply read a dictionary or look things up on dictionary.com if they have no books and their subsequent misuses and missunderstanding of terms. A few posts back I went to the trouble to define some of the major economic models from capitalism to fascism to socialism to communism. Still those terms are tossed around as if the user has no clear idea of what they really mean. Sometimes they are defended with the same lack of clarity about their meanings.
And that brings me to Rick Perry and his use, both in his book and on TV of the term “Ponzi Scheme” to describe Social Security. Charles Ponzi’s name became famous when it became attached to a type of money making scheme in which early participants made their money off of the contributions of the later entrants. The problem was that although it worked great for some, it was proved, unfortunately for later entrants, that it was not sustainable forever and so at some point newer entrants were guaranteed of just contributing money to pay the top tier and no one was coming in behind them to pay THEM back. And so it was essentially outlawed which is why Bernie Madoff went to jail.
So does social security fit that model? Let’s see… Workers are forced to put money into the fund and their payments go to pay for the retirement accounts of older workers who have retired. Under the theory that the workforce will always increase exponentially and endlessly then the plan ought to work perfectly, i.e. there will always be workers to come in behind in sufficient numbers to keep the scheme going. And following WWII that was indeed the expectation. The truth is nearly all insurance is based on that model to one degree or another with the exception that statistically there will be even early members who will not need to draw any money fromt he fund and that keeps things afloat.
Alas, history, especially recent history has not borne out that expectation of endless growth int he workforce. A relatively static workfoce cannot maintain such a scheme especially in a world of the now floating dollar (which was not the case when social security was instituted) and the consequent inflation to ANY degree that makes the newer contributions worth effectively less than older ones even if the dollar amount remains constant.
And with the current blip in the workfoce numbers where, by the time the smoke clears, nearly a generation’s worth of workers will have been serious un- or under-employed, coupled with an increase in baby-boomer retirees, any gap in the contributions will hasten the natural collapse of the scheme. It already has.
Worse, Al Gore’s infamous “lock box” was a lie at the time he spoke about it. Congress years ago simply stole all the money in the Social Security to pay for other things. The amount that ought to be there is “there” only on paper but is actually part of the general fund and has been for some time. And how is that general fund doing? If we are multiple trillions of dollars in debt then that fund is non-existent for all practical purposes because any money we make is really an asset of our credit holders until such tme as the incoming revenues match the outgoing liabilities because the debts have all been paid off. That is how debt works and despite the false and hollow claims to the contrary, anyone who has ever been in debt beyond their revenue knows it. And knows further that they are technically bankrupt whether or not they file for relief. And every penny they now continue to go deeper in debt, simply adds assets for the lendor who, if they demanded to cash out, would hold legal and ethical claim to everything we have and more because everything we have could not pay the debt completely.
Only by NOT paying the debt principle and only paying on the interest do we have enough money left to payout social security liabilities. But that means if we did not borrow another penny the debt would continue to rise on interest and even so, with even minor inflation, the diminished workforce and increased retirees means the remaining amount to pay off social security continues to diminish until it has no more money (nor is there money for anything).
For the investors who lost money — lots of it — with Charles Ponzi and his con-men descendants, one thing can be said for them: they never forced a single participant to join the scheme. Those were willing, greedy, looking for a fast track to the big score type of investment gambler and when they lost it all were upset but really could only blame themselves. Of course in an increasingly entitled population they complained to the government who saw another chance to increase citizen dependency and prosecuted the scheme managers but there was no money to give back because it had been used as promised, to pay off the early participants.
But the scheme is basically the same. You contribute to pay money to older participants and expect even newer participants to pay for you. But that is the very heart of a Ponzi scheme. You tell me how it differs from social security. So the only question remaining is, “Can you trust the government more than you could Charles or Bernie?” Not hardly since they have already raided the cookie jar. And so far they clearly are incapable of running any large business or bureaucracy (can you spell “Post Office” or FEMA?). Even if they were all highly ethical and trustworthy, they simply are not competent.
Moreover in social security your payments are not voluntary as they were for Ponzi; the government forces not just you but you and your employer to channel funds into the scheme to give it money it can, because there is nothing going into that “lock box,” do with as they will. Do you not see the money trap this has created for the government and ultimately for the workfoce required to depend on the outcome?
This has been a toxic issue for politicians. Anyone, including Perry who dares to suggest there is a problem that needs to be addressed does so at their own political career’s peril. But the people who turn against them and will vote against the ones trying to get a public spotlight on a very serious problem will, in the end, become the ones to pay for that narrow minded parasitical stance, and pay big time.
The people who have been paying faithfully if at gunpoint over all these years have accepted a contract with the government that needs to be honored even at the cost of government workers’ own pensions. (Speaking of which, is it not a bright red flag that congress, after deciding what was good for YOU, opted out of the program for themselves…???) But for new workers, it is clear that old system is broken and some new approach needs to be discussed, examined, and put into play before the day comes when they too will have continued to put into a scheme that has no money to pay them back when they retire.
I am not yet on board with the Perry campaign but I can tell you this: Perry doesn’t owe an apology to the Social Security Administration, he owes one to Charles Ponzi for comparing his voluntary scheme to the government’s mandatory one.
BTW, the travel site is now up and can be accessed from the links to the lower right.