Tuesday, September 13, 2011

Ponzi Schmonzi

Updated - see below:

So now they're arguing about discussing Social Security - at last. It's darned disgusting to think that it's taken this long for anything like a real discussion of what's going on with that program to finally actually happen.

Everyone seems to admit that it can't work the way things are now, one Governor is saying it's a broken program that needs to be reformed and another Governor calls it a Ponzi Scheme. He's not really right, but he's not as wrong as everyone want to say he is.
Technically, Social Security may not qualify as a Ponzi Scheme - but we can sure see that it's not very far from a pyramid scheme or a multi-level marketing operation. Ponzi counted on a continual doubling of investors to fund the earlier entrants - that's why his scheme worked for less than a year, and how he got his name attached to one of the biggest scams of all time. Social Security counts on lots of present workers paying in to fund the benefits of fewer former workers (aka retirees)

This Guy says Social Security
"creates a strong link between the aged and the working-age population–today’s workers create the capital, the technology, and the wealth that will support tomorrow’s generation. Embedded in its…formulas is the notion that those of us who came before, whether they were teachers, accountants, homemakers, mail carriers, barbers, cashiers, or lawyers, have built up the productive capacity of our nation.
When the children of these workers come of age (along with new immigrants), they will earn their living from this infrastructure while also making their own contributions. As they do so, we will peel off some portion of their earnings to provide pensions for their forebears, just as those forebears did for their own predecessors…Social Security is thus an elegant collaborative solution to a universal challenge.”
 He's totally off his nut. If any of that crap drivel were actually true, then no one would have been sold the bill of goods that there are individual accounts where each worker's contributions go to grow in anticipation of retirement. That's why retirees think they are receiving the proceeds from their Social Security "contributions" (known more formally as Federal Insurance Contributions Act employment taxes). Former senator Algore told us he was going to move that money - that doesn't really exist - into a lockbox for us; that's right, folks, a lockbox!

What's actually in the Social Security accounts is a fiction of US Treasury debt - basically a promise by the government to repay the money that they borrowed from our "accounts" by spending it again. Spend that money again? Just because the feds think they can tax income over and over, they seem to have gotten it into their heads that they can spend the same money over and over as well (there's nothing in there to keep these crazy ideas out, I guess).

Here's the way it really is. Social Security isn't a Ponzi scheme, and it's not necessarily going to go under, because congress can simply change the benefits at any time - there are no guarantees, there are no individual accounts, and there's no lockbox.

Call it whatever you want - it's not something a rational man would count on.

I came across this article that came out after mine and seems to make some of the same points I did, (I'm not saying there's anything fishy, I'm just saying mine was first) but with a bit more nastiness than mine - more the way I wanted mine to come across when I wrote it in the first place but I was feeling too charitable at the time if you'll pardon the expression.

Posted by Lewis Cannon

Related Posts:
Raise Taxes Or The Old Lady Gets It!
The Straw That Turns The Camel's Stomach?
Pyramids and Satellites 
Parsing the Feds 
Parsing the Prez #2 

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