No, Social Security is not a Ponzi scheme. Discuss.

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Source:

Venn Diagram for Rick Perry: Social Security Is Not a Ponzi Scheme  (MoJo)

Category: Really, really bad calls, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

77 Responses to “Social Security versus Ponzi”

  1. USSofA says:

    So… social security is not a Ponzi because it is not intended to be one.
    Social security is not a Ponzi because it has and endless stream of mandated investors.
    Social security is not a Ponzi because of its tenure of operation.
    Social security invests in treasury bonds while a Ponzi relies on future investors.
    How could I have thought social security was a Ponzi.

    By the way, who will make good on those treasury bond when they come due?

  2. Moopheus says:

    I think people are susceptible to the ponzi-scheme rhetoric because they think that the program should operate like bank accounts–the money you put in is put aside for you. But of course, it doesn’t. Current benefits are paid from current receipts. Which is fine as long the program is managed well. It presumes a certain amount of economic growth, and there are some difficulties–the original planners didn’t foresee the expansion of the elderly as a percentage of the population. But this doesn’t make it a ponzi scheme in the usual sense. As the chart points out, it is possible to make changes to allow for changing circumstances. Getting everybody to agree on what those changes should be is the hard part.

  3. bill750 says:

    The graphic says it all. Unfortunately, no one will convince the crazies that Social Security is not a deliberate fraud.

  4. jaymaster says:

    I wasn’t clear on the lat post, but IMO there is no wrong answer to this.

    By the economic definition (from Minsky) SS is absolutely Ponzi. It is based on the hope of ever increasing worker salaries to cover ever increasing payouts.

    But by the realty of MMT, SS only depends on the ability of the government to print checks. Which it can certainly do.

  5. constantnormal says:

    Does Rick Perry participate in a pension plan? If so, then almost certainly, he is being defrauded via Ponzi scheme.

    1) is his retirement funded only by his contributions, and whatever contributions his employer makes on his behalf?

    2) if you answered “yes” to the above question, then are the past contributions into the pension by those participants who died or exited the plan prior to vesting either passed into their estate or returned to the entities who contributed on his behalf as a lump sum, or do they remain in the program for use by others?

    Otherwise, isn’t Rick Perry — or anyone else who participates in a pension plan — participating in a scheme that relies on either a continuously increasing number of participants, or a continuously increasing payment amount, driven by inadequate investment returns to satisfy the payouts?

    I think that pretty much every pension plan in existence — other than individual plans such as IRAs, 401-Ks, 403-Bs and the like — qualifies as a Ponzi scheme in Rick Perry’s bizarro world perspective.

    What I want to know is why, out of all of the interviewers who have questioned him on his views about Social Security being a Ponzi scheme, no one has asked him about how pension plans differ from Social Security? Or any of the others who apparently subscribe to this fantasy, like Mitch Daniels (who is an otherwise sane man who is well-versed in matters of finance, and knows full well that this is an ideological witch-hunt)?

    The world is quite full of lunatic clap-trap notions, we do not need more of them added to the stew. It is the duty of every thinking person to stamp out obvious lunacy like this, everywhere it is encountered, at every opportunity, regardless of their political persuasion.

  6. rip says:

    Is Social Security a Ponzi scheme? Maybe. That was supposedly not the original intent according to my limited reading of history. So this will outline my perspective on SS and what has been happening.

    Social Security was not an entitlement program. You and your employer paid into the program and upon retirement you were promised a payout based on the contributions made. Contributions went into the “SS Trust Fund”, a separate entity from the rest of federal government programs and funds. Your retirement payouts were based on actuarial calculations of contribution plus interest.

    Where the train jumped the tracks was when Congress counted SS contributions against the federal spending deficit. Congress spent the trust fund money and left IOUs plus interest. Supposedly. And the deficit picture looked much better. Pay-in far exceeded payout. Congress “had lots more money to spend”. Democrats and Republicans.

    The SS funding was tinkered with at least one time when contributions were increased significantly to ensure it would remain self-funding. At least one Senator was later quoted as saying that was the worst mistake he ever made. It just gave Congress more money to spend. And increased the deficit deceit.

    Clinton’s White House, after distorting the Cost of Living calculations because after bursts of inflation it became obvious payouts needed to be indexed accordingly, tried to initiate a campaign to attack SS because “the employed left to support the growing retired population would be too inadequate”. Forget the previous trust funding. It was as if SS was a pay-as-you-go plan, which it was not. I did a 100 year population statistical analysis that showed that such a substantial population shift was not the case. After providing AARP with that study, that argument was never made again. Now the argument can only center around “pay-as-you-go” versus the government fulfilling its obligations to those that paid into SS. Just as they have an obligation pay off Treasury bonds.

    What will they default on first?

    Bush II first enacted a stimulus “tax cut” that reduced payroll taxes. Obama continued that stimulus policy and has proposed expanding it even more.

    The net effect is it deprives the SS trust fund of funds it would otherwise accrue, to put more money in the pockets of employers and employees to boost consumer demand and favor businesses.

    That effectively makes the SS receipts/payout balance more severe in the upcoming years and will lend further argument to cutting benefits.

    Citizens are being denied the ability to pay into their accounts for the sake of boosting short-term consumption, only to have it accelerate the need to change SS, and reduce the likelihood they will fully receive their earned benefits. If the government wants to reduce tax payments as a stimulus it needs to find a more appropriate approach. Or be more straightforward about the consequences.

    Is the federal government going to reimburse the Trust Fund for inadequate pay-ins?

    The bottom line of what is happening is that the government is rapidly approaching the point where pay-ins are not going to equal payouts. And that is going to cramp their spending style. Forget about the funds paid in. They are spent. The promise is not going to be fulfilled.

    The alterations being proposed attack the issue by continuing pay-in and decreasing and/or delaying the amount the payees get back in return.

    Our politicians only want to discuss the issue of getting more pay-in than payout, and they will define the issue accordingly. That gives them more money to spend. And it belies the original promise and premise: you get your pay-in back as benefits. Otherwise, it’s just another disguised form of taxation.

    And then it becomes an “entitlement” program which will need “trimming” to avoid more responsible government spending and accountability.

    Our politicians have been extremely duplicitous about this. Out of one side of their mouth they say your payments are safe and secure, backed by the promise of the government. And out of the other side, they say cuts need to be made to balance the budget.

    Their only goal is to continue increased federal spending and favored largesse. Democrats and Republicans alike. They’d rather cut SS than eliminate lots of government waste and unneeded special interest subsidies.

  7. GeorgeBurnsWasRight says:

    To expand on what Moopheus said, many Americans don’t understand basic economic principles. For example, they think that when they deposit money at the bank, it somehow stays in their account instead of being lent out to others. The fact that “their” money is lent to someone else seems dangerous and even wrong to many people. Of course, they expect to be paid interest on the money they have “in” the bank, and they also expect to be able to borrow money from the bank to get a new car, house, etc. Where this money that they expect to be able to borrow comes from, and where the bank gets the income so it can pay them interest, are questions they never ask.

    Similarly, they think that they should get back at least as much in benefits as they paid in for insurance and taxes. And when most of them don’t, they decide they’re getting ripped off and get angry at “big” insurance companies and “big” government.

    Part of the problem is that our educational system doesn’t teach these basic economic principles. I graduated from high school around the mid-1960s, and I was taught far more about sex than about how our economy operates. (And the totality of my sex education in school could have been covered in two or three sentences.) And my grade school and high school were educations were excellent. (For the subjects that were duplicated in college, I was on average at the end of my sophomore year before I was getting new material.)

  8. BusSchDean says:

    USSofA: You are correct on multiple fronts (how good is that!).

    Intent to commit fraud is in fact part of the equation when determining a Ponzi scheme.

    Let’s see…the national parks, the highway system, funded scientific research, NASA, military preparedness, etc., all require a “stream of mandated investors.” Does that make them a Ponzi scheme?

    The tenure of SS — the fact that it has been transparent and financially viable for decades somehow is a negative? Somehow this is different from insurance?

    The use of treasury bonds, the value of which rests squarely on the shoulders of every American, is somehow a definite negative?

    Actually, the burden of arguing that SS is a Ponzi scheme rests with you. I look forward to your response.

    By the way, SS is also not a pyramid scheme.

  9. constantnormal says:

    The same people will “make good” on the Social Security Treasury bonds that will “make good” on every other Treasury bond in existence, including those supporting pension funds, insurance companies and anyone else who invests in US Treasury debt.

    You don’t have to believe that US Treasury bonds are a good investment to see this.

    When any ordinary pension fund fails to achieve investment returns adequate to manage the outlays, what happens? The fund operators are obliged to kick in more money. One cannot be blind to this, as a large number of corporate pension plans have fallen behind, and required the operators to kick in more money. It is a well-publicized phenomenon.

    I am not saying that Social Security and ordinary pensions are identical — obviously there are differences. But the basic operating principles are the same. If Social Security runs into a period where demographic shifts or a bout of inflation or excessive payout levels makes it necessary to increase the funding to maintain solvency, then funding is increased. If the public decides that the level of funding is excessive, then they can demand that either the investment performance be improved — and there are a number of ways to accomplish this — or that benefits be reduced — another option that is under consideration — or that the program be closed down and converted to a better plan THAT WILL PROVIDE ADEQUATE COVERAGE TO ALL OF THE PLAN PARTICIPANTS. Nobody to date has suggested such a course.

  10. machinehead says:

    ‘A Ponzi scheme is run by Bernie Madoff …’

    Stopped reading right there … useless twaddle from a biased twit.

  11. DeDude says:

    Social security clearly states where it’s money is and even predict for everybody to see that in about 25 years it will only be able to pay out 70% of the benefits it promises according to current law. Do Madoff do that?

  12. EAPoe says:

    I find it interesting that a blog entitled “The Big Picture” could so easily miss the big picture on Social Security.

  13. BusSchDean says:

    EAPoe..please enlighten the rest of us on the big picture of Social Security. Since, in my experience, this is a relatively informed and educated audience, one with a sense of history, they will likely look forward to your explanation.

  14. leveut says:

    Are there no similarities at all between the economic functioning of Social Security and the economic functioning of Ponzi Schemes?

    In the Madoff Ponzi Scheme, the investors thought they had their own accounts with their own investment money in them. They didn’t. In Social Security, the …”investors”…also think they have their onw investment accounts with their own money in them. Do they? Did their respective operators, Madoff and the Federal Government including both Executive and Legislative branchs going back decades, ever attempt to disabuse their respective “investors” of their misconception?

    The Madoff Ponzi Scheme, as with all Ponzi Schemes, was a pay as you go program. Current “investment returns” were paid with “current income” from “investors.” In Social Security, current benefits to retired “investors” are paid by current “investors.”

    While it has been true that until now, “current investments by current investors” has exceeded current benefits, the entity running the Social Security program, which is to say the Federal government, has spent the excess on “other things. ” In the Madoff Ponzi Scheme, the excess of current “investments” over current demands for payment from “investors” were spent on “other things”, things the trustee is attempting to recover by litigation. The Federal Government will have to repay the socalled Social Security Trust for the money it, the Federal Government, spent on “other things” on the SS Trusts demand for payment. It will “recover” those amounts by, taxing then current “investors” again, or borrowing the money from the Chinese, or reducing benefits, something Madoff could not do.

    To keep a Ponzi Scheme going, more and more “new investors” are required to support increasing numbers of “old investors”–the Scheme starts collapsing when there are too many “old investors” and not enough “new investors” to pay the promised returns. Part of the actuarial problem of Social Security is that, there are insufficient “new investors” to pay “investment benefits” promised to “old investors” at the rate the “old investors” were promised.

    If I remember correctly, the SS Trustee’s most recent annual report said SS will not have sufficient current FICA receipts to pay current benefits…this year. The Federal Government will have to ante up the difference.

    Madoff’s Ponze Scheme promised consistent annual returns of ~12%. His “investors” ended up not getting is. The Social Security System promises “annual returns” according to a current formula. Does anyone believe the SS formulas and conditions will remain in their current state such that all “investors” get “benefits” according to the current formulas?

    Is the Social Security program insurance? I say it is not, if only because it is not means tested and never has been. Insurance is intended to compensate for a loss, such as, a loss of income at retirement or in old age that would leave the person in appalling poverty. Under an insurance program, Ritholtz and John MeCain would never receive SS. While Ritholtz might not in the future, John MeCain does now. Check MeCain’s financial disclosure statements as to sources of income. SS was sold as an insuranceprogram, but it is not and never has been designed or operated as an insurance program.

    Is it “demonizing” Social Security to refer to it as a Ponzi Scheme, or is it demonizing those who refer to SS as a Ponzi Scheme because there are similarities that hit a little too closely to home?

    Social Security isn’t a Ponzi Scheme, because Ponzi Schemes are illegal and Social Security is a government program. And that’s The Big Picture.

  15. re: SocSec..

    Cash goes In (via Taxation), is Spent, and Replaced by “Promises of Future Taxation”(USTreas ‘Bonds’).

    What part of ‘being Looted’ is, too, difficult to Comprehend?

    http://www.thefreedictionary.com/comprehend

    http://search.yippy.com/search?query=Comprehension+is+Fundamental&tb=sitesearch-all&v%3Aproject=clusty

  16. Jojo says:

    Reading the original Mother Earth article, I came across the link below in a comment, which discusses the subject in some depth.

    =========
    Reports & Studies
    Research Notes & Special Studies by the Historian’s Office

    Research Note #25:
    Ponzi Schemes vs. Social Security
    http://www.ssa.gov/history/ponzi.htm
    =========

    The real problem with SS is that it depends on having an ever growing population of new workers paying SS taxes to fund the payments to retiree’s who are living longer than was ever considered when the SS plan was originally designed.

    But the lack of economic growth and the seemingly intractable unemployment (total unemployment is currently around 16 million if you use the U-6 numbers and over 6 million people have been unemployed for more than 40 months!) problem along with ever growing advances in automation (which reduces the need for additional workers) and continued outsourcing/offshoring of USA jobs (which reduces employment and taxes across the board) conspire against the SS system as designed.

    Either benefits are going to have to be scaled back, retirement ages eligible for SS increased and/or the upper limit on contributions increased to pay the ever increasing cost of SS in future years.

    It is hard to see how any of the above solutions could be embraced by our current crop of political hacks in Washington, D.C..

  17. theexpertisin says:

    Interesting exercise for the Ruling Class to muse.

    The Dems and their friends have rebranded tax increases as investments. Let’s call Social Security “Cash for Flunkers” and call a spade, a spade.

    I’m all for Social Security – as it was passed and intended in the 1930s. The add-ons to gain votes over the years have made it, by any name, an unsustainable farce.

  18. mark says:

    Social Security is not a problem. Medicare is a problem. So why then is Social Security under attack and not Medicare? Lots of well off people think they don’t need Social Security and don’t give a crap about those who do. Everyone but the super wealthy needs Medicare. The absurd cost of medical care in this country is a problem that desperately needs to be addressed (and wasn’t addressed by Obama or anyone else because of the power of the insurance, physician, hospital and pharmaceutical lobbies).

    Why don’t you focus on the real problem?

  19. Ken says:

    Social Security is a Ponzi scheme. It is essentially a transfer payment from one generation to another. Young and middle age workers are paying for the current and past retirees. Private ponzi schemes are voluntary, whereas in this public ponzi scheme, everyone is forced to participate. Otherwise, the entire scheme collapses. If it wasn’t a ponzi scheme, the money people contributed would be in a fund and even if a new regulation was enacted giving new generation to opt out of SS, the people who contributed to SS in the past would still get their money. Ironically, the so-called social security trust fund has no funds. It is a lie to deceive / confuse common people that their contribution is parked in a fund. The reality is completely opposite. All the contribution to the SS trust fund has been either paid out to past generations as benefits or spent by congress as part of reckless fiscal policies. The past generations has gotten 17 trillion dollars more than what they contributed to SS. The current and future generations are left holding the bag to pay for this deficit either via higher taxes or very less to no pay outs when they retire. Exactly like a ponzi scheme. Early entrants get all the benefits whereas late entrants get stuck with the bag. Just because it is a government policy and default intent is not to defraud, it doesn’t imply that it is not a ponzi scheme. Regardless of the intent, SS acts very much like ponzi. People with basic Math skills can easily see that the money just doesn’t add up. Social security was in the red last year. Not sure how long the red ink can bleed. May be forever. All the keynesians come out and say let’s borrow forever since the rates are so low. They forgot the low rates were the trigger for housing melt up followed by melt down. Government can either borrow to make good on SS obligations or change the rules (retirement age, etc.) on the fly or pay 10c on the $ for future generations or just allow helicopter Ben to print worthless money. In any case, future participants will be the biggest losers.

    Check out the following audio links. The guests are associated with Social Security and they more or less admitted SS is a ponzi.

    http://fetch.noxsolutions.com/schiff/audio/AndrewBiggs_071811.mp3

    Andrew Biggs, former principal deputy commissioner at the Social Security Administration & AEI resident scholar, on why data prove cutting government spending sparks economic growth.

    http://fetch.noxsolutions.com/schiff/audio/ChuckBlahous_020411.mp3

    One of two public trustees for Social Security & Medicare & author of “Social Security: The Unfinished Work,”

  20. gkm says:

    Flawed comparison. Refute.

  21. speaking of “Medicare”..

    A Bureaucrat Even a Politician Can Love
    Washington talks about getting rid of waste. Inspector General of the Health and Human Services Dept. Daniel Levinson actually does it

    By Elizabeth Dwoskin and Kathleen Miller

    “In 2004, Daniel Levinson was handed the kind of assignment that can make or break a career. A veteran government auditor who oversaw contracts at the not-so-exciting U.S. General Services Administration in Washington, Levinson was bumped way up the food chain to Inspector General of the Health and Human Services Dept., a promotion that put him in charge of rooting out fraud and waste in Medicare and Medicaid. At his old job his staff scrutinized orders for toner cartridges and office space. His new gig required him to police sprawling entitlement programs that pay out more than $2 billion in claims each day….”

    “…Eight years later, the professorial Levinson is regarded as one of Washington’s most aggressive protectors of taxpayer dollars. His investigations have led to more charges for health-care fraud than ever before—at least 1,233 this year, up 110 percent from five years ago. Since he took the job, his office has returned about $11 billion to the Medicare trust fund. “There has really been a sea change,” says Dennis Jay, who directs the Washington-based Coalition Against Insurance Fraud, a group of private insurers, state agencies, and consumer groups. Julie Schoen, head of the nonprofit California Senior Medicare Patrol, which educates the elderly about scams, agrees. “We have people call us angry about fraud now. They want to volunteer because they’ve seen these cases in the news.”

    HHS has gotten a lot of attention for using the federal False Claims Act to extract large settlements from pharmaceutical companies that advertise drugs for uses they’re not approved for, play down health risks, or pay kickbacks to doctors who prescribe their products. In 2010 drugmakers agreed to pay the government $1.6 billion to settle such cases….”
    http://www.businessweek.com/magazine/a-bureaucrat-even-a-politician-can-love-09152011.html
    ~~~
    WASHINGTON (AP) — Federal prosecutors hit Pfizer Inc. with a record-breaking $2.3 billion in fines Wednesday and called the world’s largest drug maker a repeating corporate cheat for illegal drug promotions that plied doctors with free golf, massages, and resort junkets.

    Announcing the penalty as a warning to all drug manufacturers, Justice Department officials said the overall settlement is the largest ever paid by a drug company for alleged violations of federal drug rules, and the $1.2 billion criminal fine is the largest ever in any U.S. criminal case. The total includes $1 billion in civil penalties and a $100 million criminal forfeiture.
    Authorities called Pfizer a repeat offender, noting it is the company’s fourth such settlement of government charges in the last decade. The allegations surround the marketing of 13 different drugs, including big sellers such as Viagra, Zoloft, and Lipitor.
    As part of its illegal marketing, Pfizer invited doctors to consultant meetings at resort locations, paying their expenses and providing perks, prosecutors said.
    “They were entertained with golf, massages, and other activities,” said Mike Loucks, the U.S. attorney in Massachusetts.

    Loucks said that even as Pfizer was negotiating deals on past misconduct, they were continuing to violate the very same laws with other drugs.
    To prevent backsliding this time, Pfizer’s conduct will be specially monitored by the Health and Human Service Department inspector general for five years.
    In an unusual twist, the head of the Justice Department, Attorney General Eric Holder, did not participate in the record settlement, because he had represented Pfizer on these issues while in private practice….”
    http://ethicsfollies.blogspot.com/2009/09/pfizer-to-pay-record-23b-penalty-over.html

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Pfizer+settlement+saved+Company

  22. slowkarma says:

    Why are people upset about Social Security and not Medicare? When you sign up for Medicare, you call Social Security to do it, and Social Security is the office that replies. I think people somewhat conflate the two, and not unreasonably. After all, the U.S. government fund that covers Medicare is just as specious as the U.S. government fund that covers Social Security. If you look up “lockbox” in the dictionary, you will find a picture of an I.O.U.

    And I’m gonna say this one last time, and one last time only: “Ponzi” is a friggin’ metaphor. Got that?

  23. arbitrage789 says:

    I think that the similarities are greater than the differences.

    People collecting benefits now will collect much more than the people who will begin collecting benefits many years in the future.

    Of course, the government has the power to tax. But only to the extent that the public will support it.

    Then, of course, the money can be borrowed…

  24. RW says:

    Referring to treasury bonds in the SS fund as “IOU’s” as if they were somehow different from any other asset backed by the full faith and credit of the United States or arguing those bonds are somehow “not there” in a manner less “there” than any other entry in the United States balance sheet is so far out in left field that it’s hard to even know where to begin the (re)education process …

    …so let’s settle the other issue: metaphors that illuminate or clarify a relationship can be useful and even important but when they obscure that relationship or attempt to make bullshit sound reasonable then they should be avoided.

    It made some sense to refer to the early years of SS as akin to a pyramid because the early recipients were receiving more than they paid in but that has not been the case for nearly half a century so any attempt to make that comparison now, metaphorically or otherwise, is not only scurrilous it is grossly misleading; a false analogy and a clear attempt to poison the debate.

    SS is a paygo system that experiences surpluses when revenue exceeds demand and that excess can be dispensed to recipients when revenue is less than demand. Functioning budgets have shock absorbers and SS is functioning, that’s it.

    When demand consistently exceeds revenues the shock absorber shrinks and one of three things will probably happen although none of them are mutually exclusive: Revenue will increase again via economic improvement or taxes or both, the government runs a larger deficit to make up the difference between revenue and payout obligations, or the contract is revised by law and payouts decrease (not stop, the SS fund cannot “go broke” unless the government officially dissolves it).

    Got that?

  25. Sopra Tutt1 says:

    Social Security is not a Ponzi Scheme, not because of what the graphic says, but because it’s not voluntary. Ponzi Schemes are voluntary, people put the money in because of their greed, lack of information or stupidity. Social Security collects the money at the point of the gun. People are forced to buy in by the government. For this reason Social Security is slavery, not Ponzi Scheme.

  26. thparadox says:

    Social Security is a “fraud” in the sense that it is a misrepresentation. It isn’t ACTUALLY a ponzi scheme…. but the effect is similar to a ponzi scheme.

    The same way that a ponzi simply diverts money from the late investors to the early investors, social security is diverting money from future generations to the present generation.

    It’s not a great analogy, but it’s not completely absurd either.

  27. V says:

    As I see it the argument isn’t so much about definitions of Ponzi’s as to what the purchasing power of social security will be in the future.

    So I guess it goes back to the same old inflation/deflation debate.

  28. dougc says:

    The reason that republicans attack SS instead of Medicare is that destroying SS will affect recipients who are mostly working class while attacking Medicare would affect doctors and corporations that benefit from the absurd cost foisted upon the american people. We have a health care system that is twice as expensive as Japan and far less effective.

  29. AtlasRocked says:

    Social Security is an un-sustainable scheme. If someone tried to run a private bank with the terms “You make a monthly installment, and we’ll try to pay you back some money for retirement – we don’t know how much it will be. Our president will tell you it’s a contract, but we really don’t keep the debts owed by this program on our ledger – so we can’t promise you anything at all, really.” I’d like to think a bank staff with that vague promise and deceptive bookkeeping would be arrested quickly. Call it whatever you want, but it’s not a sound retirement planning program – it’s a scam to get the get the kids to pay for the adults retirement and leave them with no more for THEIR retirement.

    Oh, one more thing – our caring, benevolent government decided to disregard the clear requirement for separate bookkeeping in FDR’s originally law, in the 60′s they decided to co-mingle the funds with the US Government spending to provide a lack of opacity, one of the 20 or so benevolence-focused, fiscally failing Western Democratic governments. And Bill Clinton bummed over a hundred billion from the fund to make his budget look balanced at the end of his term.

    Ok it’s not a Ponzi scheme – it just has a number of key characteristic of a Ponzi scheme.

  30. dougc says:

    Humorous Quote of the day or maybe sarcasm WAS THE PURPOSE, THE PRESIDENT THAT STARTED US DOWN THE PATH OF HUGE DEFICITS BY WAY OF CUTTING TAXES AND INCREASING SPENDING criticing previous administrations. Cutting taxes does not balance the budget

  31. DeDude says:

    Now if we elect Perry and the GOPsters to run the country then Social Security could turn into a scam; as they raid the trillions of dollars from the trust fund to pay for past and future (otherwise unfunded) tax-brakes for the rich.

  32. BusSchDean says:

    This thread resembles one not long ago with many of the same inaccuracies.

    SS is a social tax (neither voluntary — like a Ponzi scheme, nor slavery), much like taxes paid to sustain public education, the military, the highways, the national park, etc.

    SS funds have been raided by politicians. Had that not happened the argument about insufficient funds goes away. Real experts (not those with a political agenda) says that it can be sustained with a few adjustments. SS revenues and expenditures are transparent and relatively predictable (like insurance – unlike a Ponzi scheme), complete with actuarial tables, average life spans, etc. Insurance companies adjust their tables all of the time as they learn more about the people they cover. In terms of the raiding of the funds, the fault is not with the structure of SS but with who we elect. It is no different than if an insurance company spent its reserves on something other than covering its policy holders.

    The shape of SS is driven primarily by demographics. The picture of more and more workers filling in an increasing pyramid-shaped base is not just simplistic but inaccurate. Birthrates, life span, immigration, etc. all play a role. Of course none of this is true with a Ponzi scheme.

    It is true that current workers are supporting retired workers but that type of cross-subsidization (i.e., one sector of society supporting another) happens all the time. People without children subsidize those with children by supporting public education, some states get more federal dollars than the entire state pays in, the benefits of some social investments (e.g., national parks, NASA, etc.) last generations, which means taxes paid by the current generation bestow benefits on a future generation.

    SS actually has no key characteristics of a Ponzi scheme. False comparisons exist because they serve a purpose not because they are true. After teaching for many years I have found that, as in Cool Hand Luke, “Some men [and women] you just can’t reach,” especially if their real agenda is not their stated agenda.

  33. rootless says:

    @AtlasRocked:

    Your argument is purely polemical and ideological, but you have missed to explain why Social Security was allegedly an “un-sustainable scheme”.

    BTW: Have you figured out in the meantime what the relationship is between government spending and taxes is? Or are you still working on that?

    @Mark E Hoffer:

    Cash goes In (via Taxation), is Spent, and Replaced by “Promises of Future Taxation”(USTreas ‘Bonds’).

    What part of ‘being Looted’ is, too, difficult to Comprehend?

    Then any investment would be a Ponzi scheme or “Looting”, since any investment is based on promises of income from future cash flow. Which one is not?

    Of course, one can inflate the definition of a “Ponzi scheme” as much as to include everything, but then the definition becomes useless as a mean of communication. There is nothing wrong with a Ponzi scheme then, isn’t there?

  34. UncleMilty says:

    Perry isn’t the first politician to mix in a little hyperbole to make a point. Does anyone really believe he’s asserting it’s EXACTLY like a ponzi/Madoff scheme? I’ll bet the number is fewer than those who think SS is just like any other ligitimate pension plan. His point is that the whole construction of SS is deeply flawed and needs to be acknowledged as we move forward and deal with our massive unfunded entitlements.

    We could make a similar graphic comparing social security to a legitimate pension plan. If a corporation tried to run a pension plan the way SS is constructed, people would go to jail. But in gov’t, giving generous benefits to current voters and taxing future generations to pay for it is called “stimulus”, “compassionate” or “investments.”

    SS has as much in common with a ponzi scheme as our deficits and entitlements have with the euphemisms used to rationalize them.

  35. JohnT says:

    Well, BR, you should see by now that discussion is hopeless. People have emotional reasons for their beliefs that no amount of discussion can correct.

    I personally have been following the defamation of SS since 1995. I used to read the Trustees Report every year until I gave up a few years ago. I added my share of bits to internet posts, to little avail that I can tell.

    One basic emotion I have found that makes argument impossible is the fear of many people that they won’t get SS. They are going to be cheated out of it by the government, by the politicians, or their favorite bête noire. That fear makes them vulnerable to anti-SS arguments.

    Even I, in my 30s feared that SS would not be there for me. But at that time, I don’t remember the nastiness of the present time. The prevailing feeling among us was that at least the old folks today would be taken care of even if we weren’t. This was well before the Greenspan Commission Reforms when Congress had overcommitted SS.

    This is a widespread fear. Nevertheless, when I retired SS WAS there for me. It was there and has been there for every one of us who knew, just knew, it would not be. I suppose fear causes major disconnects with reality.

    Beginning in the mid-90s I read as much anti-SS as I could because I realized that anti-SS is POLITICS, not economics. A major source of anti-SS politics was Peter Peterson and his Concord Coalition, a so-called think tank. To repeat, it is a political argument that takes the form of economic argument.

    Peterson began by arguing for the end of SS. But he hired a public opinion survey company, whose report recommended that he drop “end” and instead argue “save”. I read that report with my own eyeballs on the Concord Coalition Website. Unfortunately, I didn’t snag it because I didn’t realize that so-called think tanks are Ministries of Truth that disappear unwanted history. But I’m posting here to testify that I did indeed read that recommendation.

    “Saving” SS played better to people. Almost nobody wants his SS ended, but saved. They will vote to end SS in order to save it. Saving eventually morphed into “reform.”

    Another big factor in anti-SS propaganda is public ignorance of financial basics. Most of us know nothing about Treasuries, or public finance. And we know nothing about how SS is financed. So it’s easy to tell us that US Tresuries are worthless IOUs. I have seen that expression many many times, not just IOUs but worthless IOUs. My feeling is, we should not have to know this arcana. I should be able to concentrate on my job as computer programmer, or sales manager, without becoming a finance and economics guru, especially if society wants me to perform my primary job well. That was the whole idea behind the division of labor in Smith’s The Wealth of Nations.

    BTW, I notice that nobody has mentioned a variant on the worthless IOU meme, that is SS’s Treasuries are not marketable. In the late 90s their non-marketability was a big selling point for worthless.

    At some time, not sure when but years ago, “Social Security” was replaced with “entitlement program” in anti-SS arguments. It is used as a pejorative. But in the mid-90s the SSA website had a disclaimer that SS was not an entitlement (I recall it used the word “right”). It could be modified and even revoked by the sovereign power of the Government. It put the individual citizen on warning. That notice was also disappeared. Again, I post to testify that I did read it on the Social Security Administration website.

    Also, SS is not an investment, it is an insurance plan. It insures the individual against loss of work due to specific factors, old age, death of a worker, and disability. It is not a pension either.

    And, SS payments are financed by a dedicated tax, not by those worthless IOUs. It is paid out of current income.

    Those worthless IOUs? They are a savings account initiated by the Greenspan Reforms in 1983. SS has always had a Trust Fund, but it was an annual checking account. The Greenspan Reforms added a savings account to the checking account. It was recognized that baby-boomer retirement would cause SS payments to exceed SS tax income. It was a question of demography. Those worthless IOUs were started to supplement SS tax income when the time came.

    A couple of words on anti-SS motive. Most people need a demon to explain things. As best as I can determine there is no one cause of anti-SS propaganda, there are multiple sources. I’ll list what I suspect from some years of observation.

    1. Partisanship. From SS’s inception die-hard Republicans opposed it. Their arguments to the public are recognizable today, essentially “you won’t get nothing from the Government.” That is, distrust.

    2. Ideology. By this I mean a sincere belief that the Government should not be doing this. That government is best which governs least.

    3. Greed. I don’t have specific names but I suspect there are people who hope to benefit by ending SS. There is a tremendous amount of money saved up in those worthless IOUs. Why should it go to retiring baby-boomers? Wouldn’t it be better if it were used to secure high-risk financial speculations? Think what startling new derivatives could be floated. Eventually, a high-risk gamble will win and think how much wealthier we would be! Basically, we keep the taxes and the worthless IOUs, just end payouts to the citizen, and instead pay more worthy persons and businesses. Wow!

  36. HEHEHE says:

    Whether Social Security is called a pyramid scheme, ponzi scheme, etc is irrelevant. Demographically it is unsustainable. The number of people taking from the system in the coming decades will far surpass the current account and the money generated by those paying into the system. It’s just a matter of basic mathematics and not political leanings that demand that changes need to be made – means testing, reduction in benefits, raising the retirement age. Of course implementing those changes would require there being rational grown ups running the country in DC and not a bunch of self-serving criminals.

  37. HEHEHE says:

    One more thing, how about finding a thought provoking graphic from someplace other than Mother Jones. 90% of the garbage in that rag is leftist whack job “journalism”. It would be like posting a graphic from Fox News.

  38. BusSchDean says:

    Perry and other politicians compare SS to a Ponzi scheme not because the system is deeply flawed. They make the comparison because as long seniors and soon-to-be-seniors believe the system is viable these politicians cannot get elected. Period. Thus they demonize a system that actually has a pretty good track record and can continue for many, many decades with some tweaks along the way. This has nothing to do with the viability of SS and everything to do with getting elected. History is full of such examples from our esteemed politicians.

  39. Bill Wilson says:

    Here is the Merriam-Webster definition of a ponzi scheme:

    “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks”

    That is a decent description of the housing bubble, but not social security. When Rick Perry writes a book claiming that social security is a ponzi scheme, he makes himself sound foolish, like when Joe Biden talked about FDR being on television.

    Personally, I think social security is an important program that helps capitalism work more efficiently, not less. When society doesn’t have to worry about elderly people having to eat dog food, you can close companies, and lay off workers.

  40. Greg0658 says:

    debate is status quos quickfix “dazed & confused for so long its not true”
    quickfix a growing disenfranchised population that can’t seem to dream of a way out of the quagmire
    create the situation that will fix the status quo > some kind of war
    Mark to Market this here right now = someones (group) book in the status quo

  41. econimonium says:

    Wow for a supposedly educated audience, the comments here are pretty pathetic. There’s no way SS even resembles a “Ponzi Scheme” although it make a nice soundbite for the minimally gray-matter activated. Or the “blinded by ideology” crowd.

    SS is Pay-Go. Period. There’s no “Ponzi” in that, as it is not intended to defraud, and it’s how ALL insurance works. You know even your car insurance. You take in money money from a pool as you go and your payout are supposed to at least equal the capital into that pool.

    Oh wait!! This is why you people don’t get Health Insurance reform because you don’t understand this simplicity! You see health insurance works the same way…except it hasn’t been working becuase there aren’t enough people in the pool to pay, so the rates keep going up. Get more people in the pool and then you can at least discuss cost containment. But evidently even the investor class can’t do simple math or understand simple principles…as evidenced by a lot the comments here.

  42. rd says:

    Social Security is a Ponzi scheme in the same way that virtually other asset (possible exception is agricultural land) is a Ponzi scheme.

    Stocks typically have a P/E multiplier of 15 because it is assumed that the company will exist for many more years, people will continue to buy its product, and somebody will want to buy that stock from you years from now,or it will have returned enough cash dividends to justify buying and holding it.

    Your house is worth much more than your annual equivalent rent because you assume that it will either be used by you long enough to pay for that rent over a lifetime or that somebody will be willing and able to buy it form you.

    In the end, we are entirely reliant on future generations to fund us in our retirement as we will require them to buy our homes, buy our stocks, or pay government taxes so we will get interest and principal payments on our bonds.

    Social Security is just one more example of this. The real question is: how do you do the actuarial analysis to justify the tax-future payment structure?

    Rick Perry’s arguments are a fundamental contradiction. His statements indicate that he does not believe that America has a future that could support Social Security, your house price, the stock market or almost any other form of retirement savings and investment. If you truly believe that Rick Perry is right about Social Security being a Ponzi scheme, then you need to buy agricultural land so that you can grow your own food for survival as civilization collapses around you. Even gold won’t be of much value then.

  43. number2son says:

    econimonium … well said.

  44. BusSchDean says:

    Bill W: Exactly. We seem to not agree as to whether or not elderly people eating dog food should be part of our future. The contradictions are everywhere, as when Republicans described the health care plan in terms of “death panels” and then that very Republican state of Arizona began cutting off life-saving health care to those unable to pay. The politicians on the other side of the aisle say and do equally foolish things.

    We have always been a country of debate – part of our strength. However, after a couple of decades of profligate consumer spending, unbelievable irresponsibility in the financial sector, and two wars we did not raise the money to pay for we have trashed an already challenging economic future. Hence debate becomes vicious, giving no credit for a good idea if it comes from the other side, seeking no compromise, admitting no wrong (as if politicians on each side are perfect). We are not in Mayberry anymore.

  45. constantnormal says:

    BusSchDean: I have to comment on your stream of very astute and lucid posts …

    “We are not in Mayberry anymore.”

    Yup. The sign says “Welcome to Potterville”.

  46. louiswi says:

    Good old boy Ricky Ticky Too is not about to let any details get in his way. Example, when he prayed for rain he overlooked the detail that Texas is where the rain was needed. God not being a mind reader just figured he’d put the rain where most people lived and lo and behold, 65 million people get swamped. Ricky “just got to lern to pay ‘tention to those darn details”.

  47. RW says:

    @JohnT, good comment — heavy on light, light on smoke — there are probably multiple sources for anti-SS opinion, some of which are doubtless sincere (although these also tend to be the least well-informed).

    @econimonium, yes, it’s pretty clear the anti-SS camp either does not understand how insurance (or more broadly Pay-Go systems) work or cynically relies upon misinforming and/or recruiting those who do not understand how Pay-Go works.

    Welcome to Potterville …although perhaps we should call it Petersonville.

  48. AlexM says:

    Thanks, Barry. Why do we have to go to a business blog to have someone finally call “bullshit” on Rick Perry?

    Free speech in this country has allowed propaganda disguised as “the truth” to be disseminated to the masses “fact free”. Not that I am against free speech, it is a critical component to our democracy.

    When self described “entertainers” such as Limbaugh, Beck, Savage, O’Reilly and politicians can lie, obfuscate, exaggerate the facts without fear of anyone calling them out, and these lies are repeated in the media echo chamber and become accepted as “the Truth”, (thanks, Goebbels, you would be very proud of your imitators) America reminds me of 1930′s Germany.

    Not only is Rick Perry not a debater, he is shown himself to be stupid. He was not ill-prepared for the debates, he arrogantly believed his own press releases. What a horse’s ass to come out and call SS a ponzi scheme, (it may be a lot of things but a ponzi scheme it is not) and he can be proud to have that turn of phrase in every obituary written about him and his presidential ambitions.

    I guess that there is so much propaganda disseminated these days by politicians and the media that promote them that it is unrealistic to think that any of it, even the most egregious, will be refuted.

  49. BusSchDean says:

    constantnormal: Thanks. I hate it when the noise intentionally blocks real information.

  50. AtlasRocked says:

    Oh great, the liberal policy advocates now have another reason to dodge debates: “They called it a Ponzi scheme, they must be crazy.”

    Guys, if it makes promises to people that it will pay their retirement, but the numbers of people coming into the system and those paying for it is GUARANTEED to be further and further unbalanced, then it may not technically be 100% Ponzi scheme, but it is not sustainable and not credible as a fiscal instrument.

    If you want to support it, then make it credible and honest: Change the promises to promises that can be kept, and stop depending on the future income to support today’s recipients. If you want to argue it’s just like insurance or reserve banking, then vigorously enforce bookkeeping used in those industries.

  51. Bill Wilson says:

    I think that neither liberals or conservatives are addressing this issue honestly.

    Conservatives are name calling and fear mongering instead of just proposing the adjustments that would keep social security solvent.

    I’ve heard liberals claim that social security cannot be touched because it is paid for through separate taxes. That type of thinking ignores reality and gets us nowhere. President Obama has had almost three years to propose adjustments to social security. We wouldn’t be having this debate is those adjustments were already made.

  52. dsawy says:

    I love the little aside in the description of who is running Social Security: “… Horace translator…”

    Yea, because translating satire written in a mostly dead language written in dactylic hexameter gives a man a firm grounding in actuarial mathematics.

    To the people who accurately deem Social Security “insurance” I would remind them of this: I (and probably you too) buy all types of insurance: Home, auto, term life, professional liability, etc.

    If I get to the end of the term of the insurance contract and I have not collected, I do not get my premiums back at all, much less with interest. I receive a benefit only if a qualifying event enabled me to make a claim upon my policy.

    While SS is deemed by the SCOTUS to be an insurance plan (Flemming v. Nestor, 1960), it is not run as a conventional insurance plan, ie, everyone who reaches the qualifying age is able to collect, and a whole lot of people who have not paid in (children of people who have paid in, for example) are able to collect. If it were really run as an insurance plan (insuring against poverty in old age), then we would means test it. If you have enough money to survive on your own, you would get either a reduced payout or no payout. If we’re talking of increasing taxes of the absurdly wealthy, why aren’t we also talking about taking away their eligibility to put their hands into the pockets of the less fortunate?

  53. wunsacon says:

    Anyone who chooses to call SS a Ponzi is just not worth listening to. Applying Ponzi to SS is implicitly defining the word so broadly that it can apply to other things it shouldn’t. It’s like using the word “femi-Nazi’s” and then painting oneself into a corner by standing behind the rhetoric and being forced to argue that feminists really are Nazi’s.

    (Oh, lord. I just Godwin’d the thread.)

  54. wunsacon says:

    >> By the economic definition (from Minsky) SS is absolutely Ponzi. It is based on the hope of ever increasing worker salaries to cover ever increasing payouts.

    No, for two reasons. First, we *can* lower SS payments. Second, you made this point:

    >> But by the realty of MMT, SS only depends on the ability of the government to print checks. Which it can certainly do.

    If people want to talk about *buying* power, then you’ll also have to consider that technology keeps improving our ability to use resources to deliver services.

  55. wunsacon says:

    Could you imagine if turned the Pentagon into a research organization into agricultural, medical, and energy sciences? Instead of throwing the elderly and disabled to the curb, people should be focused on ending corruption and war.

    And this hand-wringing over possible entitlement benefits insolvency 50 years from now is completely myopic. Austerians are fighting the last war. If we survive ourselves and our own inventions, in about 25 years computers will replace doctors and health care costs will drop to near-zero. Human labor will cease to yield an economic return. And society, if many of us are to survive, will have to organize itself very differently.

    Skate to where the puck is going. Not to where it’s been.

  56. RW says:

    dsawy is correct but rather than means testing — which would increase costs (administrative overhead) as well as introduce elements of welfare into a defined-benefit system — it would be easier, more efficient, cheaper and consistent with the original social agreement to tweak the tax code so that those who are better off pay a higher effective tax on their SS benefits (a relatively minor rule change could deal with this).

  57. gkm says:

    econimonium, interesting. So you believe Madoff’s scheme also wasn’t a Ponzi scheme because he didn’t set out for it to be a Ponzi scheme?

    Let me provide some education. Insurance is based on a probability of less than one. In the case of SS, the probability of payout is 100%. Therefore, SS is not insurance.

    In the case where you have such a guaranteed future payout, you accrue for it by directing income into an account to cover the future expense. If you dont, you have an unfunded liability. If , instead of presenting that unfunded liability on your balance sheet, you balance the books by stating you have an asset where you really don’t then that is fraud.

    Now if you want to get caught up in the nuance and minutiae of distinguishing calling that fraud something different from a Ponzi scheme, have at ‘er. Call it a Raspberry to Future Generations for that matter.

    The bottom line is the boomer cohort is hitting the SS lines en mass starting this year and the primary asset covering the SS liability is the full faith and credit of the US government which only means the taxpayers truth be told. Since there is no real plan to raise taxes or cut spending, ultimately the printing press is the mainstay of the “plan”.

    I’m quite sure Madoff’s books were balanced right up until the end and I’m also positive he’d still be in business if he had a printing press.

  58. ilsm says:

    The three legged stool of Ponzi:

    US congress, US treasury, federal feserves cabal of gambler banks.

  59. wally says:

    People who claim that SS will have an ever-increasing number of retirees supported by an ever-decreasing number of workers seem to only be able to peer a certain distance into the future… and no farther.
    The world does not begin and end with the Boomers. It will go on after they die off, and so will SS.

  60. wunsacon says:

    >> Since there is no real plan to raise taxes or cut spending, ultimately the printing press is the mainstay of the “plan”.

    Who has no real plan to raise taxes, gkm? The pluto-kleptocrats and their useful-idiot supporters who proclaim SS to be a Ponzi.

  61. wunsacon says:

    Nice set of observations from rd @ 10:11 am.

  62. wunsacon says:

    Similar observations from BusSchDean and probably others.

    But, don’t want to read the entire thread. Amazing how broadly some people want to define the Ponzi “brush” when it comes to a program/policy they don’t like. Some adults are evidently childishly incapable of observing meaningful distinctions between concepts.

  63. DeDude says:

    Social security is fully funded to give the promised benefits for the next 25 years. After that they will have to cut payments down to 70% of promised benefits. A loss of just 30% in about 25 years time does not sound like much at to anybody who have been in the stock market the past decade. To even talk about it as a pressing urgent problem now seems a little premature.

    The real fraud is what Perry, his GOPsters, and the blue dog “democrats” are trying to get away with. By calling social security a Ponzi and talking about how bad its situation is they are scaring people into thinking the program is in grave danger (when reality is a small 30% cut 25 years from now, if nothing is done). Having gotten the morons and sheeple to think that the program will go bankrupt and that they will “lose it all”, these scammers can dump “save” program and give people 40 cent on the dollar and still look like heroes (compared to the 2 cent on the dollar that they convinced people would be inevitable if nothing was done).

    The biggest victims of this scam are the middle class who after having paid huge sums into this program will find themselves suffering huge cuts in promised benefits, when the trust fund (build up by hard working people) is raided to fund previous and future tax cuts for the rich.

  64. Ronald Pottol says:

    As long as immortality is rare, SS is not a Ponzi scheme. Which is not to say it does not have issues.

  65. gkm says:

    “Social security is fully funded”

    From the SSA – The cash receipts collected from the public for the OASI and DI Trust Funds are invested in interest bearing securities backed by the full faith and credit of the Federal Government, generally U.S. par-value Treasury special securities.

    Wow. Are people being obtuse on purpose?

    The US government has taxed the receipts for the Funds away from the people and then doubled down the money back into all kinds of things that balance out to a huge deficit requiring more taxation. It’s like saying my Ferrari is fully paid for and I’ve got a 200% mortgage on my house – so there’s no problem.

    Apparently some are just incapable of understanding and some don’t want to understand, and I’m sure the responses will sort out who’s who. Unbelievable.

  66. jmay says:

    50 million Americans get a monthly Social Security or disability check.

    Most are elderly people who have worked hard all their lives. The checks give them security, independence and dignity.

    Millions of them have served our country in times of war.

    A majority of these people live check-to-check. They absolutely survive on this money.

    And the checks arrive, every month, like mother-flipping clockwork.

    Some Ponzi scheme.

  67. gordonq says:

    The Venn diagram is certainly meant as political humor. It’s “facts” on both sides have to each be taken with a grain of salt but many comments seem to accept them as fact. It’s a typical Mother Jones crap.

    Wikipedia’s opening statement on Ponzi Scheme: “A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation.”

    SS certainly doesn’t qualify as a Ponzi Scheme because the terminology doesn’t come close to matching. It just feels like a Ponzi to many participants. The Korean War was not a real war, it just felt like a war to many participants. From the National Archives: “Truman did not seek a formal declaration of war from Congress; officially, America’s presence in Korea amounted to no more than a “police action.””

  68. rootless says:

    @gkm:

    “Social security is fully funded”

    Some creative quoting.

    The US government has taxed the receipts for the Funds away from the people and then doubled down the money back into all kinds of things that balance out to a huge deficit requiring more taxation. It’s like saying my Ferrari is fully paid for and I’ve got a 200% mortgage on my house – so there’s no problem.

    Are you seriously claiming that there is no difference between debt of the US-government and a private mortgage?

    Whether there is an economic problem depends on the permanent income stream available to service the debt. What do you think? Is there a difference between the income stream of a government and the one of a private household, between the productive basis of a whole country that generates the income and the basis of your private income?

    As long as the productive basis of the whole United States generates enough wealth there shouldn’t be a principal economic problem to finance Social Security. Everything else is a political problem, not an economic one. Unless the productive basis of the US broke down. Then, yes, then there could be a principal economic problem to finance Social Security.

  69. AlexM says:

    Also, the right wing echo machine has worked to brainwash millions who now believe that they will never see a dime of SS benefits. SS is bankrupt! A ponzi scheme! It’s broken and should be privatized! The GOP loves that the bankrupt meme is repeated over and over and over again, as what they are really after is to privatize it and hand hundreds of millions of SS accounts over to the banksters who fund their campaigns. And many will go to work for once out of government.

    We are not only fighting ignorance, we are fighting the establishment GOP who whine about class warfare while waging an all out battle on Americans.

  70. gkm says:

    AlexM, that may be what some are saying.

    What I am saying is this: take the money back. In every Ponzi scheme the money goes somewhere. The victims lose but the money isn’t destroyed. The key to unraveling the scheme is to take the money back.

    That means taxing it back. Taking Hank Paulson’s island away from him. Relinquishing Angelo Mozillo’s assets from him. Relieving every pathetic snake of their ill gotten spoils.

    There are others who have benefited disproportionately from the outrageous monetary inflation. The creation of all this money has done nothing but make the folks that jmay speaks of destitute. This won’t affect the asset that underpin the money. Hank’s island will still exist for instance.

    The answer is a simple accounting entry to match assets with liabilities.

  71. Ridge Runner says:

    It is amusing to see all these references to “right wing echo machines” when it comes from Rick Perry, but then Paul Krugman must be part of the right wing echo machine:
    http://www.zerohedge.com/news/paul-krugman-social-security-ponzi-scheme-and-will-soon-be-over

    It is one thing (what thing that is we are not sure, but we have heard others say it, so like all good lemmings we will say it too) for Rick Perry to call Social Security a ponzi scheme. After all he is some crazy, foaming in the mouth conservative, as uber-Keynesian liberal Paul Krugman may call him. And that’s fine. What confuses us, however, is why Social Security would be called a ponzi by the same liberal noted previously: none other than Paul Krugman himself.

    Exhibit A, from a distant 1997, which perhaps one would have expected to remain buried:
    (source – http://www.bostonreview.net/BR21.6/krugmann.html )

    Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

    That was until he changed his mind and joined the “progressive” chorus line.

  72. zola says:

    What the *bleep*?!?!

    “By the economic definition (from Minsky) SS is absolutely Ponzi. It is based on the hope of ever increasing worker salaries to cover ever increasing payouts.”

    I don’t understand how arguments like this are considered convincing. Social Security will not necessarily have ever-increasing payouts because the group collecting it is not ever-increasing. The group *currently* collecting Social Security *is* increasing, but the generation following it is smaller, so after most of the boomers pass on, there will be a period of time where the amount paid out gets smaller.

    If the money is managed properly, there should be no problem, unlike with a Ponzi or Pyramid scheme where the first beneficiaries are the ones who make a killing and everyone else gets screwed.

  73. slowkarma says:

    A lot of the problem with this debate is that people insist on precise, niggling definitions (and treat common metaphors like they were a linguistic crimes) and ignore the elephants in the room.

    The elephants in the room are Greece (and maybe the rest of the PIIGS) and California. Do you think a version of their problems can’t afflict the U.S. as a whole?

    I (and others) call the SS and Medicare funds an IOU because there is no longer any simple way to fix them, and they are not self-righting. You can argue about “Ponzi” all you want, but what do you call the progressive bankruptcy of nations and states because they’ve made promises that they can’t keep, and they knew they couldn’t keep when they make the promises?

    They’ve also found out that there is no obvious political way to fix things — if you read Michael Lewis’ admittedly light-weight piece in Vanity Fair, about California, where I live part of the year, you can begin to grasp the dimensions of the problem. It’s almost as if the California population is knowingly driving the economy into the ground. They WILL NOT allow meaningful increases in taxes, nor, at the same, will they allow meaningful state benefits cuts. The state then survives by dog-robbing the counties, which survive by dog-robbing the municipalities, which in some cases are no longer surviving as organized polities.

    This cancer is already moving on to the national level, where the feds are dog-robbing the states to survive…

    The reason I talk about IOUs is that all the money for SS and Medicare essentially come from exactly the same place — there is no lockbox or separate funding; it’s simply taxes. Or at least it used to be. Now we have a situation, which I suspect will persist, in which one party, backed by almost exactly half the population, refuses countenance any tax increases whatever, and the other, backed by almost exactly half the population, refuses to countenance any benefits cuts. This can now continue for a while because the Fed has driven the cost of borrowing so low that the politicians of both parties apparently figure they can borrow forever…or until they retire, anyway…but they can’t.

    The people who say simplistically that it’s pay-as-you-go are wrong. We are quickly arriving at a time when we’ll be borrowing enormous sums against future taxes to pay for now; that will happen as soon as the new national medical plan goes into effect.

    This will end badly, just as it has in Europe and will in California (actually, it’s already ending badly in those places.) This does not have to continue very long…and I mean, perhaps not more than a year or two…to have really enormous consequences. If Greece goes down in a bad way, if China gets in even temporary trouble, the US economy will drop into an another recession and taxes will plummet and there will be screams for more “temporary relief” through government spending programs. By the time we get out of that, it may be too late to fix things by any conventional means.

    Can you spell “hyper-inflation?”

    There are some conspiracy theory people — who may be right — who have argued this whole thing is just a plot by politicians to make things desperate enough that the country will accept a VAT. Just what we need to shore up a shrinking middle class and a growing poverty class…a nice stiff regressive sales tax.

    JC

  74. DeDude says:

    gkm@7:13pm;

    The question is not how much is owed but the ability of the borrower to pay back. If Buffett purchases a Ferrari with a 200% mortgage on his house the Ferrari dealer is happy (he got the money so he is out of worries). The people owning that mortgage are also happy because they know the man is good for a lot more money than 2X the value of his house.

    The only question for Social Security is whether its trust fund is placed in safe papers and from what the markets say US government debt is about as safe as it gets out there. The Armageddon crowd may predict the imminent destruction of the US (as they have for the past 300 years), but if everything collapses then there are no other papers that would be worth more than the paper its written on.

    As said before if we elect Perry as US President then social security will become a Ponzi. If we elect people who will defend and strengthen it then it will be just fine.

    Ridge Runner@10:42

    So with Krugman you have to go back to 1997 to find him making a wrong statement. Heck that seems a lot better than with Perry where you just have to read the last 2 statements. Krugman for president!!!!

    slowkarma@11:40

    Actually the new national medical plan (health care reform) is adding another 8 years of life to Medicare by demanding that people who get income as capital gains pay Medicare taxes on anything above 200K/year. So rather than going broke in 2016 the Medicare trust fund is now solvent until 2024. Provided that the rich parasites and their little GOP sock puppets don’t get their will and repeal health care reform. If you depend on Medicare it is a hazard to your health to vote for a GOPster.

  75. Unsympathetic says:

    We need to have the discussion about the level of BENEFITS that we as a nation desire.

    Then, set tax policy to match that level of benefit.

    What’s that, Republicans? You’ll have to raise taxes, enforce wage and environmental tariffs, disincentivize offshoring, eliminate corporate tax shelters, stop all the nonsensical “free”-but-actually-jobkilling “trade” bills, and downsize the military?

    Tough.

  76. [...] discussed before, Social Security is not a Ponzi scheme. Here’s a helpful graphic (via) to [...]

  77. EAPoe says:

    BusSchDean – apologies for not responding sooner, I have been traveling and unable to check this thread. My point is simply that debating whether or not Social Security is a Ponzi scheme or not is a waste of time and besides the point. Much more critical is the projected increasing cash shortfalls that will eventually run through a trust fund that doesn’t really exist. As you said, this is a relatively informed and educated audience, one that would be better served by discussing a plan for sustainability, not responding to a person trying to make sensational statements to get elected.

    Based on reading your subsequent comments, I agree with your view of how social security could be put on sustainable footing and several other issues. Although I’m not sure it makes capitalism work better.

    As you can see, most commenters produce relatively lengthy posts, which is a good thing, but I was trying to make a simple point with a more succinct comment. I apologize for not making my point more obvious.

    Not sure anyone is going to read this at this point, but is there a way to connect with a commenter directly?