The Republicans’ Social Security Choice (Is it helpful to call it a 'Ponzi' Scheme?)

Gov. Rick Perry has drawn a lot of criticism for calling Social Security a “Ponzi scheme,” but the fact is that it bears more than a passing resemblance to one. In both cases earlier participants can only get their money back if new participants join; in both cases no wealth is actually created; in both cases the earlier participants get a better return than the later ones; and in both cases the system is unsustainable. But of course there are also differences. Ponzi schemes are run to make their originators a profit. The federal government is running Social Security at a loss that is set to increase.

And Social Security, unlike a Ponzi scheme, can be reformed to be made sustainable. Slow the growth of benefits sufficiently, for example, and the program’s fiscal gap will disappear. Its disincentive effect on saving, and on delaying retirement, would also diminish. But neither Governor Perry nor his principal critic, former governor Mitt Romney, has offered any specific proposals on Social Security, and both of them run the risk of setting back the cause of reform.

In Perry’s case, the risk comes from the combination of rhetorical maximalism with policy vagueness. He says that program is unconstitutional, a failure, and a lie. These claims would seem to imply that the program should be abolished. He has mused about the idea, and his advisers have refused to rule it out. But he has not endorsed it either, doubtless because he knows it would be an act of political suicide. As such, it would make it impossible for him to accomplish any practical reforms to the program and, for that matter, to accomplish anything else on his agenda. “Maybe it’s time to have some provocative language,” says Governor Perry. We hope it provokes him to explain how he would bring the program’s benefits in line with its revenues — and his proposals in line with his premises. In last night’s debate he wisely suggested that his campaign will not relitigate the political battles of 70 years ago. If he wants to move the discussion to the future, as he should, he needs to start talking about a plan.

Governor Romney correctly notes that the public, while aware that Social Security’s financing is unsound, remains extremely attached to the program. “Our nominee has to be someone who isn’t committed to abolishing Social Security, but who is committed to saving Social Security,” he says. But is he that man? At the debate he refused to say how he would save it. In subsequent remarks he expressed openness to raising the eligibility age, imposing a means-test on the program, and instituting voluntary personal accounts. But unless he unveils his own plan, the effect of his attacks on Perry will be to strengthen the political taboo against candid and realistic discussion of the program’s flaws. Romney has a choice to make: He can run as a realistic reformer, or he can say “me, too” to Democratic criticisms of conservatives.

What either or both of them should say is that Social Security is a program on which millions of Americans rely, that people who are in retirement or near retirement will not be asked to make a sudden change in their plans, and that to secure the program’s future the benefits formula will have to be gradually adjusted. As it stands, the feud between Perry and Romney is accomplishing nothing for anyone outside the White House.

In 1968 when I started working and the government started taking from me, I predicted to my mother, "Social Security will be the ultimate undoing of the United States." Who knew we would elect Obama first?

ML/NJ

Like all social programs, they use please of emotions and other fallacies to argue for them and vilinize all those that expose the economic dysfunction or human nature to abuse these systems. Like all social programs, it starts small but before long becomes a monstrosity. Like all social programs, it doesn't take long before these programs become political ploys for politicians to “buy votes,” legally.

Eventually these programs end up becoming like a big anchor around the economies ankle. Eventually governments find themselves in the odd predicament of playing shell games and robbing Perter to pay Paul. Of course those politicians that benefited from creating these schemes are long-long gone and you're left with people that are addicted or dependent on this scheme.

"Ponzi schemes are run to make their originators a profit. The federal government is running Social Security at a loss that is set to increase."

Are the editors at NR blind? There is no profit in a Ponzi scheme. The originators simply spend the excess money that is taken in. The federal government has also spent all the excess money taken in from Social Security taxes. There is absolutely NO DIFFERENCE

Most Ponzi Scheme's even if not detected by law enforcement will implode within a few years. However, Social Security though it is very similar to a ponzi scheme and will fail for the same reasons, because of it's vast size and far horizons is simply where this eventual collapse comes decades or even generations later.

There are some who truly believe that a system not tied to economic output, based on a transfer payment between those working and retired is sustainable. It's only a matter of time and when we do hit the end of the road, the solutions proposed will be increasing the ages of retirement, decreasing amounts, only paying a select group certain amounts (means testing), increasing the burden on those working presently... The way the decision will be made isn't based on who paid what for how long, rather it will be what benefits the policy makers have and which group can influence him most. Instead of a market and people choosing, it becomes a political decision. Those advocating these social schemes essentially believe this is the better form because it's somehow more socially just in their eye's. It's not a question “if,” rather just “when.”

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