Monday, December 22nd, 2014

Mailbag: Social Security as a Ponzi scheme

A Ponzi scheme card?
A Ponzi scheme card?

Texas Gov. Rick Perry, stumping for president, has revived his description of Social Security as a Ponzi scheme, a claim we rated False last year after concluding Social Security is obligated to pay benefits, unlike shysters who run Ponzi schemes. Also, the way Social Security operates isn’t shrouded in deceit and it’s accountable to Congress and the American people. A Ponzi scheme is a crime.

Now it seems timely to share a fresh batch of reader missives per our judgment. They’re edited here for length and style.

"Ponzi schemes operate by expanding the pool of paying participants on one end, and depleting the benefits paid out on the other. Ponzi schemes eventually collapse as recruiting dwindles — that’s the weak link. That is a perfect description of the mechanism Social Security was designed around and employs for its survival. In fact, the only reason for Social Security’s long run is Congress’s ability to draft participants and manipulate payouts."

One reader targeted the notion that Social Security is accountable to the U.S. government: "Since when is the definition of anything determined by who approves or oversees it? The Gestapo was ‘accountable’ to Hitler … as well as to the German people ultimately since Hitler was VOTED IN … ELECTED in a democratic election! Social Security is a Ponzi scheme by definition. Bernie Madolf ain’t got nothin’ on the U.S. Government!"

Another pointed out that excess payroll taxes collected toward Social Security over recent decades were not put away for future needs, but spent on other programs: "I suppose it is not possible to convict those individuals in Congress who saw fit to divert SS funds into operating budget disbursements, i.e. those who perpetrated the ‘criminal enterprise.’ But just like the Ponzi scheme, later investors, namely current taxpayers, will be stuck with the bill to ‘make up’ the shortfalls in current SS tax income. So in some respects, SS is not a Ponzi scheme in that the government will pay ‘the late investors’ by redeeming the IOUs. However, the funds for redeeming the IOUs have to come from somewhere. In the case of the Ponzi scheme the ‘somewhere’ was the comment ‘Tough luck, your money is gone, live with it.’"

Another: "I would gladly trade my total Social Security ‘contribution’ to date to withdraw from the system. It’s a Ponzi scheme — a scheme that our government would never allow another financial institution to form."

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