Posted on 09/16/2011 7:23:53 AM PDT by SeekAndFind
Proposition 1: In a Ponzi scheme, the people who invest early get their money out with dividends. But these dividends don’t come from any profitable or productive activity — they consist entirely of money paid in by later participants.
This cannot go on forever because at some point there just aren’t enough new investors to support the earlier entrants. Word gets around that there are no profits, just money transferred from new to old. The merry-go-round stops, the scheme collapses, and the remaining investors lose everything.
Now, Social Security is a pay-as-you-go program. A current beneficiary isn’t receiving the money she paid in years ago. That money is gone. It went to her parents’ Social Security check. The money in her check is coming from her son’s FICA tax today — i.e., her “investment” was paid out years ago to earlier entrants in the system and her current benefits are coming from the “investment” of the new entrants into the system. Pay-as-you-go is the definition of a Ponzi scheme.
So what’s the difference? Ponzi schemes are illegal, suggested one of my colleagues on Inside Washington.
But this is perfectly irrelevant. Imagine that Charles Ponzi had lived not in Boston but in the lesser parts of Papua New Guinea where the securities and fraud laws were, shall we say, less developed. He runs his same scheme among the locals — give me (“invest”) one goat today, I’ll give (“return”) you two after six full moons — but escapes any legal sanction. Is his legal enterprise any less a Ponzi scheme? Of course not.
So what is the difference?
Proposition 2: The crucial distinction between a Ponzi scheme and Social Security is that Social Security is mandatory.
That’s why Ponzi schemes always collapse and Social Security has not. When it’s mandatory, you’ve ensured an endless supply of new participants. Indeed, if Charles Ponzi had had the benefit of the law forcing people into his scheme, he’d still be going strong — and a perfect candidate for commissioner of the Social Security Administration.
But there’s a catch. Compulsion allows sustainability; it does not guarantee it. Hence . . .
Proposition 3: Even a mandatory Ponzi scheme like Social Security can fail if it cannot rustle up enough new entrants.
You can force young people into Social Security, but if there just aren’t enough young people in existence to support current beneficiaries, the system will collapse anyway.
When Social Security began making monthly distributions in 1940, there were 160 workers for every senior receiving benefits. In 1950, there were 16.5; today, three; in 20 years, there will be but two.
Now, the average senior receives in Social Security about a third of what the average worker makes. Applying that ratio retroactively, this means that in 1940, the average worker had to pay only 0.2 percent of his salary to sustain the older folks of his time; in 1950, 2 percent; today, 11 percent; in 20 years, 17 percent. This is a staggering sum, considering that it is apart from all the other taxes he pays to sustain other functions of government, such as Medicare, whose costs are exploding.
The Treasury already steps in and borrows the money required to cover the gap between what workers pay into Social Security and what seniors take out. When young people were plentiful, Social Security produced a surplus. Starting now and for decades to come, it will add to the deficit, increasingly so as the population ages.
Demography is destiny. Which leads directly to Proposition 4: This is one Ponzi scheme that can be saved by adapting to the new demographics.
Three easy steps: Change the cost-of-living measure, means test for richer recipients, and, most important, raise the retirement age. The current retirement age is an absurd anachronism. Bismarck arbitrarily chose 70 when he created social insurance in 1889. Clever guy: Life expectancy at the time was under 50.
When Franklin Roosevelt created Social Security, choosing 65 as the eligibility age, life expectancy was 62. Today it is almost 80. FDR wanted to prevent the aged few from suffering destitution in their last remaining years. Social Security was not meant to provide two decades of greens fees for baby boomers.
Of course it’s a Ponzi scheme. So what? It’s also the most vital, humane, and fixable of all social programs. The question for the candidates is: Forget Ponzi — are you going to fix Social Security?
— Charles Krauthammer is a national syndicated columnist.
cuban leaf: Heck, the bible says the life of a man is 70 years. Those that don’t die in childhood, that is.
bm - nor in the womb!
SS CAN be fixed for...by voluntary privatization, so that the suckers like me that have paid in for a long, long time don’t lose everything they put in and younger participants who have paid in something will get that something out.
Money, gold, or blood. Their choice.
That’s where privatization comes in.That becomes your choice and leaves room for higher profit (and loss, presumably, for risk takers and those that have private funds to bolster retirement) to be kept from being “raided.”
The present value of the money I have been forced to pay for SS is about 1.5 Million Dollars.
Write me a check right now, and I will opt out.
Yet the old folks expect that we’ll keep sending them our earnings.
of course not..I think the change would be for newborns and/or folks under 20 years old or thereabouts.
Social Security™ is WORSE than a Ponzi scheme because a when the truth comes out about a Ponzi scheme it ENDS! With Social Security™ your trapped in the lie with no escape under penalty of law.
Why can’t we vote people in who will pass a law.
Let the critters know it’s a one term deal unless they do the right thing,starting with the next election we dump the lifers in congress.
If every penny of my current SS tax is needed to find current retirees, what will they do when I get to keep half in my own account?
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I didn’t see anywhere ever, that every penny is needed today - general consensus is that it is still funded for several more years...but in any event, your money would still be used, but through a higher yield investment vehicle, allowing your money to produce more, not less. Where have you read that the funds are exhausted?
Everything I have read says there is another 20-25 years before it is broke.
Not true? According to who?
SS was running a surplus - more taxes collected than paid out - until ~2010.
Since then, every dime collected is paid out, and then some. The “Then some” comes out of the general fund.
You know, the general fund that borrows .42% of every dollar spent from the chinese.
One mistake that folks make, is that they believe in the myth of a SS trust fund.
The thing never existed - imagine you swipe your kids piggy bank, spend the money on booz, and replace it with an IOU, hoping you die before he notices.
That is the state of the mythical SS trust fund. The money is gone, the drunk died, either the kids pay it, or there is no money.
SO WHAT? Nobody was forced to buy into Madoff’s crazy scheme...that’s SO WHAT.
The question of whether governent can force you to buy a Social Security annuity is right up there with whether they can force you to by a health insurance policy.
HELL NO!!!
“One mistake that folks make, is that they believe in the myth of a SS trust fund.”
I can’t believe that any one in America believes in a “lock box.”
“if it ever existed; I’m still researching that”
Ping me if you find detailed information on that. I find that stuff fascinating.
Today, as you probably know, the government takes the excess SS taxes (or did up until a few years ago when the SS deficit started) and spent it, giving in return a bond to a special closed account that can’t be bought or sold on the open market. And.... as we all know, something that can’t be bought or sold is worthless.
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