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Social Security: Too Shady To Be Called a Ponzi Scheme

September 14, 2011 By: Scott Spiegel Category: Economy

Social Security Poster: old man

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Recently Republican presidential candidate Mitt Romney criticized fellow contender Rick Perry for labeling Social Security a Ponzi scheme.  Romney extolled the virtues of the soon-to-be-bankrupt program and vowed to support its continuance unconditionally if elected.

A Ponzi scheme, so named after white-collar criminal Charles Ponzi, involves a huckster collecting money from numerous investors who are promised a high or reliable return on their investment, with payments being made by future investors lured in by similar promises of financial gain.  The scheme is unsustainable, because dividends received are not actually invested, and are not equaled by the dividends promised to investors.  Earlier investors fare better than later investors, who lose their money once the scheme collapses.

Sound familiar?

Social Security, signed into law by white-collar criminal Franklin Delano Roosevelt, involves the federal government collecting money from all working citizens, who are promised a reliable pension when they retire, with payments being made by subsequent generations who are dragged into the program.  The system is unsustainable because, due to slowing population increases and politicians raiding the Social Security Trust Fund, most payroll taxes received are not actually invested, and are not equaled by the payments promised to retirees.  Earlier generations fare better than later generations, who will not receive benefits once the system collapses.

The history of Social Security’s establishment and implementation reveal that Governor Perry is wrong about the program’s being a Ponzi scheme.  It is much worse.

Social Security is bigger, by many orders of magnitude, than any Ponzi scheme ever enacted in human history.  It is the largest government program in the world, and the biggest component of U.S. federal expenditures.  Social Security is to the average Ponzi scheme what the Great Pyramid of Giza is to a traffic cone.

Social Security is involuntary, whereas Ponzi schemes are at least voluntary.  Though applying for a Social Security number is not technically mandatory to live and work in the U.S., the Internal Revenue Service and other agencies require it, which forces everyone to participate in the program, or makes their lives very difficult if they don’t.

Social Security is better disguised than a Ponzi scheme, and thus more insidious.  Unlike a Ponzi scheme, the true nature of Social Security is hidden in broad daylight, which lulls ordinary citizens into thinking it couldn’t possibly be as fraudulent or unsustainable as it is.

Social Security is longer-lasting than any real-life Ponzi scheme.  Whereas most Ponzi schemes are lucky to survive a few months, Social Security has continued for over 75 years.

Social Security’s insolvency won’t affect young, naïve, retrainable investors, but rather elderly people at the potentially neediest and most vulnerable stage of their lives.

All of the above negative consequences of Social Security are a direct result of its being administered by the federal government.

Government has access to billions of participants, trillions of dollars in capital, and decades of time to continue the ruse.

Government forces all citizens to participate, even if they’d rather keep their money, invest as they choose, and take their chances later in life.

Government gives Social Security its imprimatur—whatever that’s worth these days.  Most members of both major political parties approve of continuing Social Security more or less as is.  The program is referred to as the “third rail” of politics, meaning that if you touch it, you die politically.  It is as though Bernard Madoff were a major donor to both parties, and Congress refused to question his investment strategies because Madoff were considered the “third rail” of politics.

Government designed Social Security to increase its ability to control the populace, by forcing them to pay in when they’re young and healthy and then meting out or scaling back benefits when they’re old and infirm.  (By “government,” of course, I mean Democrats.)  The Supreme Court actually ruled, in Flemming v. Nestor (1960), that the Social Security Administration is not legally required to pay benefits to retirees who have contributed to the system their whole lives, if it finds itself in a pinch: “To engraft upon the Social Security System a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands…”  Would that everyday businesses were afforded the same “flexibility” and “boldness” to decide not to honor their contracts in order to better adjust to “ever-changing conditions.”

Supporters of Social Security only wish it had the air of respectability of a garden-variety Ponzi scheme.  Then we could send the fraudulent originators to jail, cut our losses, and start over.

Instead, we’re saddled for eternity with the mother of all entitlement programs, the granddaddy of confidence games, the oldest relic of the Seven Entitlement Wonders of the Modern World.  Even supposedly conservative presidential candidates—including, sadly, Rick Perry—are now duking it out to show how badly they want to preserve this fraud.

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