Perry’s Wrong: Social Security Is No Ponzi Scheme

For years, I’ve tacitly bought into the notion that Social Security is a big Ponzi scheme — collect a bunch of money from investors, then pay them from the money taken from later investors (after taking your cut). It’s a great scheme that’s only sustainable as long as you keep taking in more money than you pay out, but quickly becomes mathematically unsustainable. Social Security is, in many ways, similar.


But ever since Rick Perry started championing the idea, the more I find myself questioning — and openly disagreeing — with the comparison. It’s just not a fair one.


In a Ponzi scheme, the “investors” are conned into participating. In Social Security, the “investors” are forced, under penalty of law, to participate.


In a Ponzi scheme, the “investors” only pay what they can be convinced to pay. In Social Security, the “investors” are told how much they will pay. It started at a cap of 2% of income (capped), now it’s around 6.2% (capped much higher).


In a Ponzi scheme, the “investors” can eventually decide to cut their losses and stop paying in. In Social Security, you have to keep paying and paying and paying.


Finally, in a Ponzi scheme, the investors can report the scam to the authorities. In Social Security, the authorities are running the operation.


Here in New England, there’s a regionally syndicated talk show host (and newspaper columnist, author, and general gadfly) named Howie Carr. Every now and then, Howie talks about offering the government a deal: they can keep every single penny he’s ever paid into Social Security for about 40 years (he’s in his 50’s), free and clear, if he can be exempted from having to pay any more for the rest of his life. He’ll give up his retirement and survivor benefits if they’ll simply stop taking from him, and let him worry about his own financial future on his own.


On the surface, it seems like a hell of a deal. Howie’s somewhat cagey about his own financial circumstances, but I feel fairly comfortable that he’s paid the max every year for the past 20 years. That means that for half his working life, he’s paid about $126,000 into the system, plus whatever he earned prior to that. Round up and add in interest and what not, and let’s say it’s $200,000.


As is often explained, that’s “his” money, in “his” account. He’s theoretically entitled to claim it all, a bit at a time, when he retires. And if he lives long enough, he’ll make it all back and then some. Howie’s in pretty good health, and is financially secure enough to take care of himself in his old age. Apart from making enemies of some very bad people (he’s got tons of dirt on Massachusetts politicians and Massachusetts organized figures, of which there’s considerable overlap), he’s likely to live a good, long time.


So under the current system, Howie is pretty damned likely to end up costing the government money. But if they take his deal, they get all he’s paid, free and clear. The only reason for them to not take it is if they have plans that involve him not collecting all he’s due.


Such as imposing means-testing. Or raising the tax rate. Or raising the cap. Or raising the retirement age. Or he gets killed by some of the people he’s pissed off over the years — and they are legion. (Howie’s a very good gadfly.)


All of which change the rules on Howie, after he’s paid in for 40 years. No wonder he wants to buy his way out of it. Hell, he’s even kicking about it today (he tends to use his radio show to work out his next column.)


So no, Social Security is not a Ponzi scheme. It’s a Ponzi scheme adapted to being run by the federal government, which has the power to say that you WILL participate, you WILL pay whatever they say you will, and it’s not illegal because they say so.


Rick Perry is wrong for saying Social Security is a Ponzi scheme, and he should apologize.


To the spirit of Charles Ponzi. I think even that con man would be dazzled at how the government has built upon his scam.

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