The original Ponzi scheme was the brainchild of Charles Ponzi. Starting in 1916, the poor but enterprising Italian immigrant convinced people to allow him to invest their money. However, Ponzi never actually made any investments. He simply took the money he was given by later investors and gave it to his early investors, providing those early investors with a handsome profit. He then used these satisfied early investors as advertisements to get more investors. Unfortunately, in order to keep paying previous investors, Ponzi had to continue finding more and more new investors. Eventually, he couldn’t expand the number of new investors fast enough, and the scheme collapsed. Ponzi was convicted of fraud and sent to prison.
Social Security, on the other hand, forces people to invest in it through a mandatory payroll tax. A small portion of that money is used to buy special-issue Treasury bonds that the government will eventually have to repay, but the vast majority of the money you pay in Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay benefits to those “early investors” who are retired today. When you retire, you will have to rely on the next generation of workers behind you to pay the taxes that will finance your benefits.
As with Ponzi’s scheme, this turns out to be a very good deal for those who got in early. The very first Social Security recipient, Ida Mae Fuller of Vermont, paid just $44 in Social Security taxes, but the long-lived Mrs. Fuller collected $20,993 in benefits. Such high returns were possible because there were many workers paying into the system and only a few retirees taking benefits out of it. In 1950, for instance, there were 16 workers supporting every retiree. Today, there are just over three. By around 2030, we will be down to just two.
As with Ponzi’s scheme, when the number of new contributors dries up, it will become impossible to continue to pay the promised benefits. Those early windfall returns are long gone. When today’s young workers retire, they will receive returns far below what private investments could provide. Many will be lucky to break even.
Eventually the pyramid crumbles.
Of course, Social Security and Ponzi schemes are not perfectly analogous. Ponzi, after all, had to rely on what people were willing to voluntarily invest with him. Once he couldn’t convince enough new investors to join his scheme, it collapsed. Social Security, on the other hand, can rely on the power of the government to tax. As the shrinking number of workers paying into the system makes it harder to continue to sustain benefits, the government can just force young people to pay even more into the system.
In fact, Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.
In addition, at least until the final collapse of his scheme, Ponzi was more or less obligated to pay his early investors what he promised them. With Social Security, on the other hand, Congress is always able to change or cut those benefits in order to keep the scheme going.
Social Security is facing more than $20 trillion in unfunded future liabilities. Raising taxes and cutting benefits enough to keep the program limping along will obviously mean an ever-worsening deal for younger workers. They will be forced to pay more and get less.
Rick Perry got this one right.
Frankly, I’m surprised the designation is even being contested.
I’m not the biggest Perry supporter — his immigration stance and a history of cronyism get me nervous — but he’s right that we need to be able to have serious and candid conversations in this country, be the subject illegal immigration, racial preferences, the anti-constitutionalism of much of the modern justice system, or the dire economic predicament of the country, right down to its most glaring cause: unfunded and/or underfunded “entitlements” dangled in front of voters in exchange for political power.
So long as we allow the political class to avoid the issue — and many of “our” pundits do just that when they caution us against the “political consequences” of confronting tough issues (advice embraced, predictably, by Romney, and sadly, by Bachmann) — we allow them to govern beyond our interests and squarely within the scope of their own: the status quo.
Right now, the mood in the country has certain politicians mouthing the TEA Party line. But once elected, many of them will revert back to the DC mean.
We need to choose wisely and carefully. It’s not enough to elect a Republican. We have to elect a reformer and a conservative.
Simple as that. Otherwise, we all lose.
Michelle Bachmann is appalled by Mr. Perry’s characterization.
Desperation is a bad sign to show on the campaign trail. Pity.
Perry gets the big stuff right where cowardly Romney pussies out every time.
Bachmann is just looking for an opportunity cause her campaign is in the shitter.
She’s our very own Chuck Schumer. It was only a matter of time before she spared me the burden of revealing my opinion of her around here.
Perry is a good litmus test to see if it’s possible to tell the truth and still get elected. However, I have qualms about him as well, especially on immigration. He isn’t a proven statist like Romney (excepting the attempted immunization issue), but he kind of smells like one, at least a little. At least he has shown that he sort of gets it.
I would prefer someone more firmly classical liberal, though.
It’s being contested because it’s bad words. Such a nasty thing to say.
People have it drilled into their head that the thing to say about SS is that they’ve paid into it for all these years, and now it’s theirs.
*cue image of Paul Ryan pushing seniors over a cliff.
Tom Friedman must be happy to have found some Republicans who agree with him for a change.
I don’t know about the Chuck You! thing. But if Bachmann winds up joining her fellow Minnesotan on team Romney, I’m going to be very cross.
Bachmann has gotten bad advice throughout her run from whomever are her handlers.
I’ve heard her on Levin’s show a number of times. He has long called SS a Ponzi Scheme. She knows it to be the case, as well.
She put herself in the hands of these ridiculous political operatives who try to finesse and message and frame and create and triangulate specific appeal blocs. They’re one of the biggest problems with our politics in this country, and the candidate who breaks from these moderate-chasing professional worriers is going to wind up soaring.
Unless Cain-mania breaks out, it’s between Perry and the unannounced.
(Pawlenty endorsed Romney, btw. Not a shock to me.)
Doesn’t that tell us Bachmann doesn’t understand what she purports to understand? Or at least that she doesn’t understand how to apply in action what she purports to understand in theory?
Yeah, I saw that, bh.
Suddenly Romneycare isn’t a concern.
Weird how pointing out inarguable–and I mean mathmatically proven–problems with Social Security is seen as a mistake in judgement ON THE RIGHT.
I share Jeff’s view about Perry: the Texas miracle or whatever the hell they call it was a growth in government jobs and not an influx of private sector employment.
But on this, the fellow is spot on.
When he wouldn’t go after him in the debate it seemed to me that a chance for a VP slot was a much larger concern to him than Romneycare.
Doesn’t that tell us Bachmann doesn’t understand what she purports to understand? Or at least that she doesn’t understand how to apply in action what she purports to understand in theory?
I think it tells us – or in my case reaffirms – that while nobody seeks political office without a healthy dose of ambition, hers is quite an unhealthy dose.
Is that so, Roddy?
‘Cause I don’t know that it is.
Bh – why is it that so many simply accept the leftist MFM line on the TX jobs?
That would be Ed Rollins.
I wanna get me one of them Texas jobs one day
or maybe Atlanta
Bachmann called Social Security ‘a tremendous fraud’ in 2010
Call me crazy, but I really don’t see much, if any, daylight between “Ponzi scheme” and “tremendous fraud”.
Sorry, Michele, but pandering candidates are not really what we’re looking for this time around. Buh bye.
The “political consequences” of touching the “third rail” are ASSUMED. The hypothesis has never been tested.
In fairness to Bachmann, it’s an unnamed advisor providing all the quotes.
But if she’s foolish enough to damage her brand by following through with what this idiot is telling York instead of ducktaping the idiot’s trap shut, then yeah, she’s done.
In fact, I’d bet that the unnamed advisor is Ed Rollins, who has a history of saying stupid shit that hurts his clients.
I had the same thought as bh.
Also, I think what is most striking is when you start comparing Texas to anywhere else in the country. Damn few states are adding any private sector jobs. Quibbling over the dominance of Texas job growth by saying many were government jobs(when the state has added 4 million new residents since Perry became governor) seems petty to me.
She put herself in the hands of these ridiculous political operatives who try to finesse and message and frame and create and triangulate specific appeal blocs.
Never occurs to them that they ought to convert or persuade the squishy middle instead of pandering to them. But then that would require that you have convictions over and above “I ought to be elected.”
Over here holding my breath, etc.
In fact, I’d bet that the unnamed advisor is Ed Rollins, who has a history of saying stupid shit that hurts his clients.
Didn’t he just quit for “health reasons”?
“Never occurs to them that they ought to convert or persuade the squishy middle instead of pandering to them”
That’s what made Reagan the magnificent son-of-a-bitch winner he was.
I get the feeling Bachmann and the rest are more upset about “the tone” than the substance. They STILL don’t get it, two years after “I hope he fails” and TEA Party demands.
Americas working middle class, normally mild mannered when it comes to politics, have realized they are in a fight for their very lives against a very powerful, committed, and only recently open in their religious fervor elitists, who want to “fundamentally transform” America into something different than the constitutional republic we were gifted and prosper under.
The time for statesmanship and compromise is gone. We must have a general, that will attack the Washington bureaucracy with a meat ax.
And soon.
What Perry said:
Perhaps I should have said warrior instead of general, for clarity…
There was a type of “compound interest” that the system was dependent on, that being the compounding of growth of the GDP. That however is not enough. The privatizing of accounts, say along the system used in Chile or the one in that Texas town that opted out way back when you could do so, is the only solution. My Congressman from the mid-80s to the late 90s pushed hard for this but got nowhere back then when this would have been so much easier to solve.
This and other examples are the clearest indicators of our broken politics, no? Fully functioning politics addresses obvious problems as soon as those problems appear on the horizon. Fucked up degenerate politics won’t. See Churchill: Munich.
As I recall, Clinton actually proposed investing SS funds in his last State of the Union address, though being a liberal fuckwit, his proposal was for the government to do the stock picking.
Heard an interesting proposal on how to disembark from the SS Ponzi (I forget exactly where, some radio show or other) without everybody giving up what they put into SS.
1. Pick a date, call it Jan 1 2012 for sake of argument.
2. Everybody age 55 or older before that date, no changes. Benefits as now, payroll deductions as now.
3. Everybody below age 55 on that date, payroll deductions stop. No SS benefits to be paid.
4. Everybody below age 55 on that date receives a tax credit equivalent to their SS contributions to date divided by the number of years to their 67th birthday. They get this credit each year until they reach the age of 67.
It’s interesting in that it’s a way to get the retirement benefit part out of the mix. Doesn’t speak to the death benefit, disability benefit, and other stuff the the Social Security Admin does, but I thought this was a somewhat clever way to work out the reimbursement.
However, that would leave the government with a lot less money coming in (not a bad thing) and incentive to “fill the gaps” with new taxes and whatnot. I don’t see a proposal like this working without severe cutbacks in spending (again, not a bad thing) and a balanced budget law that Congresscritters actually obey.
Roddy, both you and Jeff G need to read this article:
Heh, Levin just said the whole liberal establishment is a ponzi scheme. They steal from one person, give it to another, and take their cut off the top like the mob.
Seems like a winning campaign to me…
you don’t do entitlements 1st. you hack at the vast big gov’t agencies 1st and get the private sector creating capital. the regulatory state is killing us now.
I’d tend to agree newrouter. I think the first order of business is to do what Governor Walker did to the public unions, on the federal level.
Something must be done with entitlements though, and damn quick. With SS we’re talking a collapse this decade, not mid-century.
The meat ax must swing wide…
LBascom
i don’t know what the timeline is for the entitlements. but the spending and the bureaucracy can be done quickly.
“but the spending and the bureaucracy can be done quickly.”
Well, aren’t you mr. optimistic!
Rick Perry will disappoint. Conservative small businessmen in TX hate him for the business franchise tax. A friend with a small (@ 4M/yr. gross) business described it this way: When Ann Richards instituted the BFT it was about $40. a year. Under G.W. Bush it rose to $400. a year. Under Perry, it’s $4000. a year. It’s a gross receipts tax, not a tax on profit. Perry and his Lt. Gov. David Dewhurst blocked real property tax reform. He has alienated the conservative base in TX with the Trans-TX corridor, Gardisol, etc.
On the plus side, trial lawyers hate him more. Will I vote for him over Obama? In a heartbeat. Just don’t think he’s all that.
“Well, aren’t you mr. optimistic!”
or a harding/coolidge bot
BH,
I think I need to retract my statement.
Apologies to all.
Roddy
Tuesday morning links…
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Perhaps I’m being simplistic about social security but isn’t it possible to abolish this scheme, grandfather those over a certain age to still get it and just make it part of the overall budget until the day comes that there is no one left who has been grandfathered? I don’t expect it to be there for me and my husband and it sickens me to think that my grandchildren will be enslaved to pay for something unsustainable. Having said all that, social security exists because like all programs it empowers politicians to hold onto power. That is the reason it will never go away on its own and will have to collapse of its own weight. They will never give up power voluntarily.