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Social Security no Ponzi ploy

By Jay MacDonald ·
Tuesday, September 20, 2011
Posted: 9 am ET

Let's cut to the chase regarding Texas Gov. Rick Perry's outlandish assertion that Social Security is a Ponzi scheme: It just ain't so, with a Texas-size period.

The fact that Perry's remark garnered cheers from a largely tea party crowd at last week's GOP presidential debate only illustrates that neither the governor nor the tea partiers know much about Ponzi schemes or Social Security.

As an astute op-ed in the St. Petersburg Times by academics William Holahan and Charles O. Kroncke points out, a Ponzi scheme preys on those whose greed overrides their common sense.

Each group pays money to the proceeding groups, guaranteeing outsize returns to the early investors only so long as each subsequent group is larger than the one before. When this becomes impossible to sustain, the scheme collapses.

Ponzi schemes, like fungus, only grow in the dark; it is essential that all internal workings remain secret. Just ask Bernie Madoff.

Transparency has never been a failing of the Social Security Administration, which churns out truckloads of data each year, from annual trustee reports right down to those cool updates that tell us how much we've earned toward retirement.

The authors say the only secret lurking underneath that mountain of data is that Social Security is remarkably solvent. Far from a Ponzi scheme, Social Security is a pay-as-you-go insurance program into which most workers must participate by paying part of their paycheck as a premium against poverty in old age. Oh, the nerve of big government!

What does each generation receive from the previous? Nothing less than the "physical and knowledge capital of the nation" that enables them to produce the national income, out of which their parents will take a piece. The victims of a Ponzi scheme enjoy no such reciprocity.

Naturally, the first recipients of Social Security received far more in benefits than they paid in. Now, with the graying of 77 million baby boomers, Social Security will need a hand since the subsequent generation numbers just 47 million. An imminent Ponzi collapse, you say? Nah. Analysts predict that demographic imbalance will right itself by 2060.

That's why President Ronald Reagan set up a trust fund with Treasury bonds to tide the program over. As homework, perhaps Gov. Perry would like to compare Ronald Reagan to Charles Ponzi?  

Falsely labeling Social Security a Ponzi scheme isn't crying fire in a crowded theater, it's tossing lit matches into the front row where the kids sit. Now knock it off.

The only scheming going on with Social Security involves the inflammatory rhetoric of a Texas politician desperate to be elected.

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End the Ponzi Scheme
September 21, 2011 at 8:18 am

Ida May Fuller pays in $24.75, received in benefits $22,888.92. How's that for outsized returns for an early, or first, one to be paid out.

Second case, non-working spouse, never pays in a dime, yet collects based on spouse's income. How exactly do you compute a return on investment on that one? Worse still, multiple spouses can claim on the same taxpayer, so over a 40-50 year working life, 3 perhaps even 4 others can collect off of a single working taxpayer.

If you're so convinced that the system can survive, then let me out of it. It's a sham, and I'll never see a dime of the money stolen from me.

September 20, 2011 at 1:08 pm

I can see Bankrate getting more partisan by the day, you guys aren't even trying to hide it any more. The fact is that many people today, not simply those first recipients, are recieving far more than the taxes they have (or will) pay in. It's time this program gets retired (yes pun) in favor of something more economically sound -- and it's high time to limit the program's benefits to those who would otherwise truly live in poverty. In its present form it's being used to buy the votes of seniors who were too short-sighted to save enough to live comfortably in their later years. A great many recipients don't truly need the check they get, but better my lifestyle, and my childrens', suffer rather than these seniors pay the piper and live the lifestyle they (haven't) planned for.