Scott Spiegel

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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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On Saturday President Obama magnanimously announced that he was willing to support cutting $33 billion from 2010 federal spending levels for 2011—which, for the mathematically challenged, is about 1% of infinity.

Congressional Democrats screamed that these cuts were way too large.  Republicans countered that the cuts didn’t go far enough and should be extended to $61 billion, which amounts to about 2% of infinity.

With current spending set to run out this week, the federal government faces a shutdown on Friday night unless Congress can agree on which of these piddly sums to cut from the budget.

Tea party supporters have been rightly insulted by these farcical negotiating positions, arguing that hundreds of billions could be saved just by, for example, eliminating redundant programs.

As Rasmussen reports, a majority of Americans haven’t been snookered into thinking these microscopic doses of fiscal austerity will do a thing to address our long-term budget crisis.

Meanwhile, the only Congressman clear-eyed enough to appreciate the extent of the crisis, knowledgeable enough to propose a plan to resolve it, and brave enough to stand up for his proposal in the face of Republican wishy-washiness—namely, House Budget Chairman Paul Ryan—and also not crazily isolationist on foreign policy (Ron and Rand Paul) has offered a blueprint called “A Path to Prosperity,” modeled after his 2008 “Roadmap for America’s Future.”

Ryan’s plan proposes phasing out Medicare by replacing it with vouchers and turning it over to the states, making major changes to Medicaid, and taking similar action with Social Security after these two behemoths have been wrestled to the ground.

The central irony of Ryan’s stance is that, as he claims, his is the only proposal that will help “save” these programs, whereas current entitlement obligations will, if continued at their present levels, lead to eventual insolvency.

While Medicare/Medicaid and Social Security are unsustainable, unconstitutional Ponzi schemes, and while our country somehow managed to survive 189 and 159 years respectively without them, I suppose we need to start somewhere.  I guess a Budget Chairman who wants to drastically reform these albatrosses in order to save them is as good a start as we’re going to get nowadays from a political standpoint.

Ryan’s plan proposes cutting $5 trillion from the national debt over the next decade, and eventually eliminating the national debt, all without raising taxes.

On Tuesday, Obama rejected a third stopgap offer from House Majority Leader John Boehner to keep the government open another week while budget negotiations continue.

Obama’s right—we shouldn’t settle for on-the-fly, seat-of-our-pants, week-by-week spending plans.  Republicans should hold their ground and not be afraid to shut the government down on Friday.

Some who claim to favor entitlement reform have counseled House Republicans to compromise with Democrats on this week’s negotiations, so that Democrats will work with them later on more substantial cuts like Ryan’s.  The Chicago Tribune counsels, “Better to declare victory at $33 billion, or whatever more Republicans can wrest from Democrats, and move on to the bigger picture.  Because sanity in federal spending isn’t going to be restored by dealing in billions.  It’s going to be restored by dealing in trillions…  A deal today on discretionary spending could lay the foundation for bipartisan agreement on the far more impactful issue of entitlements.”

So giving in to Democrats will create goodwill and set the stage for larger-scale cuts, whereas shutting down the government will cause Democrats to dig in further and resist compromise later on.

One question: Since when did Democrats respond to Republican compromise with magnanimous, reciprocal behavior?

Sensing that they’re about to win on the shutdown, dyed-in-the-wool leftists like E. J. Dionne are already crying, “The Ryan budget’s central purpose will not be deficit reduction but the gradual dismantling of key parts of government…  Americans are about to learn… how radical the new conservatives in Washington are, and the extent to which some politicians would transfer even more resources from the have-nots and have-a-littles to the have-a-lots.”  Ezra Klein whines that Ryan’s plan will mean “leaving the old and the poor without health care.”  These are the people who are going to be placated by giving in on minute cuts now into accepting huge cuts several months from now?

Republicans’ negotiation strategy, from Bush I to Bush II to Boehner, has always been: The other side asks for an inch; Republicans give a mile.  Democrats’ strategy is: The other side asks for an inch; Democrats take a mile.  See how fair and evenhanded things are!

To take just one recent example, Congressional Republicans begged Democrats to consider including medical malpractice tort reform, legalizing health insurance sales across state lines, and offering greater tax deductions for health care costs in their ObamaCare bill.  Democrats responded by ignoring all these ideas and muscling through their bill inappropriately using the budget reconciliation procedure after the enraged residents of Massachusetts denied them their 60th Senate vote.

Battling Democrats legislatively is like fighting terrorists militarily—you don’t show them how weak and spineless you are; you show them how ruthless and merciless you can be.  They don’t respond to anything else.



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Call Monday’s 2012 budget release the St. Valentine’s Day Non-massacre.

President Obama’s budget director Jacob Lew announced on Monday that he was presenting Congress with a budget that would compel the nation to “live within our means, but also invest in the future.”

Can we leave out “but also invest in the future”?

Why does Obama always append damaging clauses to seemingly responsible proposals?  Is it so that when he fails to do what he should—have us live within our means—and merely does what he wants—spend, spend, spend—he can say he at least kept half his promise?

In a press conference defending his proposal, Obama scolded Republicans about the need to have an “adult conversation” with him on the budget and stop being “impatient” about his failure to deal with entitlement reform.

Obama is enormously proud of the fact that he has pledged to freeze domestic spending for the next five years.  Since that means freezing spending at 2010 levels, which were 22% higher than bloated 2008 levels, Obama has done the equivalent of freezing the national diet at Michael Moore’s instead of Alec Baldwin’s.

Even Obama’s spending freeze applies only to non-defense discretionary spending, which makes up just 15% of the federal budget.  His proposal does nothing to address reform of Medicare, Medicaid, or Social Security.

Everyone knew that the bipartisan deficit reduction commission Obama sanctioned last year to “study” the federal debt and make recommendations was window dressing.  Obama never had any intention of following suggestions that were unpalatable for his base, such as raising the retirement age for Social Security or means-testing Medicare.

But the $3.73 trillion 2012 budget, and projected $1.65 trillion 2011 deficit, Obama unveiled on Monday set staggering, all-time records that shocked even his supporters.

Obama’s 2012 budget will cause our federal debt to jump from $14.2 trillion to $15.5 trillion, which will render the federal debt greater than the size of the entire U.S. economy for the first time in history.

By 2013, the federal debt will equal 106% of the U.S. economy.  That rosy scenario, by the way, will happen only if the next two years see the U.S. economy roaring back to life and demonstrating much higher growth than in recent years—which the Obama administration, with complete, non-self-serving objectivity, is absolutely certain will happen.

By 2016 the federal debt will swell to $21 trillion.

Obama claims his administration’s proposed 10-year budget outline makes “tough choices and sacrifices.”  What, specifically, does his budget sacrifice?  The expectation that he will ever get serious about our national debt?

Perhaps one sacrifice is Obama’s pledge to reduce funding to lower-income people to pay their heating bills.  How many of you realized there was a federal program in place to help poor people pay their heating bills?  I propose that if the average American didn’t even realize he was subsidizing a federal program, then trimming it doesn’t count as a sacrifice.

In defending their budget, Obama and Lew have displayed the air of surly teenagers who want to show their parents just how much they’ve suffered under the repressive rules of the house, rather than responsible adults who want to solve a problem.  Lew whined on Monday, “It’s important to note that we’re beyond the easy, low-hanging fruit.  We’re reducing programs that are important programs that we care about.”  (“But Mom, I made my bed—why do I have to clean my whole room?”)

Obama’s budget is so elephantine—no pun intended—even liberals are embarrassed by its sheer cowardice and unresponsiveness to financial conditions.  Obama’s deficit commission chairman, Democrat Erskine Bowles, complained that the budget is “nowhere near where they will have to go to resolve our fiscal nightmare.”

To the extent Democrats care at all about cutting spending, of course they want to slash defense appropriations.  Fine—but defense spending makes up only 20% of the federal budget, even with two ongoing wars.  Medicare, Medicaid, Social Security, and other “mandatory” programs make up more than 50%, and “discretionary” programs like the Department of Education and the Environmental Protection Agency make up another 20%.  If we agree to cut defense spending 10%, could we get Democrats on record favoring a piddly 5% cut in entitlement spending?

During the third 2008 presidential debate, when moderator Bob Schieffer asked the candidates what they would cut from the federal budget, Senator John McCain declared that he would use a “hatchet,” then get out a “scalpel” to finish the job—a response Senator Barack Obama ridiculed as too radical.

How about a hatchet, then a machete to catch everything we missed with the hatchet, then a 60-ton M1 Abrams tank over anything left standing?  Will Democrats finally get the message about the crisis we face after that?

As Indiana Governor Mitch Daniels put it in his speech at CPAC last weekend, “Our morbidly obese federal government needs, not just behavior modification, but bariatric surgery.”

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Liberals have generously treated us to a motley assortment of apologia for President Obama’s economy-wrecking fiscal policies over the past 19 months:

(1) The economy is doing fine (Ezra Klein)!  We should have expected the recovery to be agonizingly slow, and it is—hence, Obama’s policies worked.

(2) The economy isn’t doing well, but it would have been doing even worse without the stimulus bill (e.g., Mark Zandi, chief economist of Moody’s and bona fide boob).  Without a Keynesian spending orgy—or as Obama puts it, “moving the economy forward”—unemployment wouldn’t have stopped at 10% and might have risen to 12 or 13 or 15%.

(3) The economy is doing poorly, and it’s because the Democrats didn’t do enough (the ever-certifiable Paul Krugman).  The stimulus should have been much bigger, and financial regulations should have been much harsher.  To compensate we need “a second big stimulus, plus much more aggressive Fed policy.”

In contrast, conservatives have suggested the following interpretations of events:

(1) The economy is going to improve soon (Larry Kudlow).  We won’t experience a double-dip recession and growth is resuming, so we should be more optimistic.  Obama’s policies aren’t helping, but American ingenuity and entrepreneurial spirit are strong enough that we can recover anyway.

(2) The economy isn’t doing well, and Obama’s policies have made it worse (every other conservative on the planet).  Wasteful spending caused our debt to skyrocket and increased the chances of inflation; government takeover of private industries and burdensome financial regulations created an uncertain climate for investing and hiring that has prolonged the recession.

(3) The economy is doing poorly, and now is the time to discuss not only repealing Obama’s policies and ensuring that the likes of them never pass again, but undoing the policies liberals have inflicted on the nation since FDR under the pretense that once they were in place future generations would be too sheepish to touch them (Paul Ryan).  The impetus from the Tea Party movement should be used to revive talks about privatizing Social Security, Medicare, and Medicaid.

So liberals and conservatives are at a bit of a standoff over the fundamental economic principles behind their political strategies.  Who’s right?

Let’s see: economists have demonstrated, time and again, using common-sense reasoning, econometric modeling, and historical data, that increasing government spending yields less economic output than if government had left that money in the private sector to be spent, invested, or saved as those who generated it saw fit.

Economists have shown that increasing marginal tax rates counterintuitively decreases the gross domestic product, especially in the years immediately following tax increases.  Obama’s chief economic advisor, Christina Romer—who just retired over a conflict between her views and the administration’s—documented the effect of this negative tax “multiplier” using empirical data in a recently published economics article.

It doesn’t matter whether we accept Klein’s view that the economy is peachy, Zandi’s view that it’s doing badly but could be worse, or Krugman’s view that it’s doing badly and needs more Obamanomics.  All are based on the false premise that more government spending, taxation, and regulation are better for the economy than less.  (Hey—don’t Keynesians believe that spending lots of money on wars is a good way to revive the economy?  I guess Krugman will be admitting he was wrong about the Iraq and Afghanistan conflicts after all!)

People like Klein bemoan the fact that corporate profits are back up to 2006 levels while hiring remains slow.  Liberals present the question of our tepid recovery as an intractable metaphysical mystery incapable of being penetrated by mere humans; as Klein puts it: “That is the catch-22 of the recovery: Businesses will start hiring when the economy recovers. And the economy will start to recover when businesses start hiring.”  Answer: And both will improve when the government gets out of the way!

As for the varying conservative perspectives, which are the only ones remotely connected to reality and thus worth considering, Kudlow is right that the American economy is resilient.  Perhaps he’s slyly making the point that more optimism on the public’s part not only better reflects the state of our economy but may improve it via increased investment and hiring.  Kudlow’s perspective is largely predictive, rather than focusing on how lawmakers should bring about a faster and more permanent recovery (though he often discusses those issues as well).

Every other conservative in the world who believes that we shouldn’t stand for the “new normal” of high unemployment and unexceptional growth is correct that Democrats’ policies are making the recession worse.  Repealing ObamaCare, preventing cap-and-trade legislation, and stopping or reversing the scores of other nasty things Obama and Pelosi have planned for our economy are mandatory undertakings over the next six years.

But Paul Ryan hits the bullseye when he notes that it is desirable, necessary, and possible to go further.  Train wreck legislation like ObamaCare is worth repealing, but if Medicare and Medicaid are quickly running out of money, and Social Security is already in the red, why shouldn’t we go after every entitlement shibboleth?

What principle, applied consistently, would nudge us to nullify ObamaCare but leave Social Security, Medicare, and Medicaid shiny and intact?  Did our country survive and prosper before these programs were enacted?  Would we survive and prosper if we phased them out?  Might we prosper even more in their absence?

Ryan’s proposal is far from perfect—his main argument for the Roadmap to recovery is that it will keep our entitlement system solvent, and he doesn’t discuss eradicating entitlements once and for all.  Perhaps Ryan believes that talking about eliminating entitlements is too politically risky now, when even his Roadmap is audacious by today’s standards.  But Ryan deserves credit for having gone further than anyone else in Congress in working out the details of a plan that will help the country avoid a fatal insolvency.



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