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.
“Dr. K is, as usual, confused. Social Security isn’t much more mandatory than the classic Ponzi scheme.”
You mean, except one is voluntary and the other is mandatory?
The key phrase in your contention is “as long as people keep voting to be forced.” The similarity to the Ponzi scheme is that the suckers don’t know their money is gone until it’s too late. And for many over 50, that is what has happened.
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. Some will volunteer to put some in (just as some overpay income taxes to get a rebate at the end of the year, even though the rate of return is dismal) even though they know it will NOT perform well. The fix, as you say, involves not promoting it as a “ promise to care for everyone.”
Under 40 can opt out.
Over 65 still collect.
50 - you get to keep paying, and never collect.
Got it. I vote no.
If you can get your hands on an old copy of William F. Buckey's Up From Liberalism (1959), you'll get a surprise. Near the end of the book, after examining the issue, he concludes with the same proposition that you offered.
Only back then, there was no ZeroCare and entitlement crisis to gird people. Barry Goldwater tried that approach in 1964, and in so doing got burned.
Krauthhammer assumes that people can continue to work till way pass 65 and THEIR COMPANIES WILL CONTINUE TO EMPLOY THEM.
Ever hear of SAVINGS?
Live modestly, save, and not be a ward of your fellow taxpayer for decades of able-bodied retirement?
I don’t think anyone is suggesting they raise the age tomorrow.
Delaying 15 years will simply kick the can (accumulate trillions in debt), and screw those who are paying in now, who have no hope of enjoying the same benefits of those they’re funding.
What is the life expectancy of those that make it to 60?
As usual, Krauthammer defends sociopaths.
Social security is an intergenerational money transfer
that was screwed up by corrupt people for whom
there is neither accountability nor transparency.
It is NOT a Ponzi scheme but has been made one by
corrupt individuals and THEIR schemes.
You don’t ‘fix’ a Ponzi scheme. OK so it will just be a slightly better ponzi scheme?
“50 - you get to keep paying, and never collect.”
I don’t know where that was suggested, but no, 50 you get the option to privatize your account going forward. And you do collect what you have put in.
Then why haven't they fixed it? Bush tried, and it got shot down. Thus far, it is has been a political poison arrow. I hope that Americans will wake up to the fact that Social Security simply cannot keep going the way it has been.
RE: Ever hear of SAVINGS?
Yes, it’s called Social Security, money which was promised to people if they PAY INTO IT ( which they do, FORCIBLY ), and which they were promised when they paid in that they could get by age 62 ( and fully by 65 ).
“I’m suggesting that aside from avoiding disruption to current and imminent retirees, the age should be floated annually to ensure ZERO BORROWING to pay SS benefits.”
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.”
Can you cite the quote where she said any such thing?
Indeed. Unfortunately, older people have been forced to pay into this money they could have been saving.
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.
Absolutely not. Means testing is just another phrase for "spread the wealth", AKA communism/socialism. We need to be moving away from that obviously destructive policy, not embracing it.
The solution is simple - end the program, reimburse everyone that has paid into it, and allow private, tax-free programs to replace it.
Bush had it right people should be able to keep 50% of their Social Security in an account that you can’t draw from until retired.At least you would have more than what the feds could give you.
The draw back is congress couldn’t dip it’s paw into it,must be why they will never pass such a law.
The solution is simple - end the program, reimburse everyone that has paid into it.
RE: The draw back is congress couldn’t dip it’s paw into it
Why can’t we vote people in who will pass a law stating that Congress CANNOT EVER touch any money in Social Security to pay for current expenses?
We keep talking about this so-called lock box for the longest time (without doing a darn thing about it).
It has now become a Saturday Night Live joke.
See here (starting from 9:20)
http://www.youtube.com/watch?v=5BAx6Ib81Y4
Just because people are living longer doesn’t mean they are able to work longer. You can’t pull people out of nursing homes and tell them to get a job just because they have a pulse.
Your second sentence is desperate hyperbole.
PS: You’re allowed to SAVE your own money if you want to retire earlier than the taxpaying workers can afford to support you.
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