The ‘Ponzi' Sound Bite (Thomas Sowell)

Creators Syndicate ^ | September 20, 2011 | Thomas Sowell

[jazusamo]

Many in the media and in politics have gone ballistic over the fact that Texas Governor Rick Perry called Social Security "a Ponzi scheme." Although many act shocked, shocked, as if Rick Perry had said something unthinkable, Governor Perry is not even among the first thousand people to call Social Security a Ponzi scheme. Not only conservatives, but even some liberals, have been calling Social Security a Ponzi scheme for decades. Moreover, neither the media nor the politicians who are carrying on over the use of the words "Ponzi scheme" show the slightest interest in any hard facts that would tell us whether Social Security is or is not a Ponzi scheme. It is a "gotcha" moment, and that is apparently what some people live for. What makes this nonsense become fraud is the insinuation that calling Social Security a Ponzi scheme means advocating that people who are depending on Social Security be abandoned and left with nothing to live on in their retirement years. That is the big scare — and the big lie. People getting Social Security checks are going to keep on getting those checks. Nobody has advocated anything else, or would dare to cut off a financial lifeline for millions of people. What is at issue is the particular mechanism through which people can be provided for in their retirement years. Some politicians loudly proclaim that they want to "save Social Security." But programs exist for people — and it is the people who should be saved. Whether or not the checks that retirees continue to get say "Social Security" is beside the point. The point is that they keep on getting the money they need to live on, whether that money comes from a different institution or from Social Security. The fundamental problem of Social Security is that the irresponsible way its finances are set up, and the changing demographics of the country, mean that there is simply not going to be enough money in its trust fund to pay today's young people what they are legally entitled to, when time comes for them to retire. The money is just not there, some of it having been spent for unrelated purposes. Making up a growing shortfall, as baby boomers stop paying into the system as they retire, and start drawing money out of the system, would mean ever-increasing burdens on the taxpayers that the taxpayers are unlikely to put up with. Social Security worked fine when the small generation from the 1930s received pensions from the money being paid in by the larger and more prosperous "baby boom" generation that followed. It worked fine when the average life expectancy of the first generation was not long enough for most of them to collect Social Security checks for more than a few years — if at all. Declining birth rates and greatly increasing lifespans have created havoc with Social Security's finances, which are based on having the first generation's pensions paid with money collected from the second generation — and the second generation's pensions paid by the next generation, etc. Any private financial scheme set up in a similar way would be illegal. That is why Charles Ponzi went to prison. The politically expedient way of dealing with the situation is to "save Social Security" with short-term fixes that kick the ever-growing shortfall down the road for some later Congress to deal with — or to be overwhelmed by, when voters refuse to pay ruinous tax increases to keep the system going. Another way to deal with the problem is to give younger workers the option to set up privately-owned retirement accounts instead. These accounts would be beyond the reach of politicians, and based on each generation setting aside money for its own retirement. Studies have shown that private accounts would pay retirees far better than Social Security. Meanwhile, people currently depending on Social Security can continue to get what they were promised, even if that requires taxpayer subsidies for the current generation of retirees — as distinguished from subsidizing unending generations to come. These are the kinds of options that need serious discussions, instead of "gotcha" sound bites. Sound bites are usually not very sound, and they are an irresponsible way to discuss serious issues.

[jazusamo]

A voice of reason on this Social Security fiasco.

[jazusamo]

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[Baynative]

[rockvillem]

If only Thomas Sowell could have been our first black President . . . .

He also has lived the historic African-American experience in the US, which BHO never experienced. BHO has lived the affirmative action experience. So sick.

[reaganaut1]

Since I am not running for office, I can say that I DO advocate substantial cuts in Social Security for current recipients. Collectively they have voted in the most elections, and they are more responsible than anyone. If they did not realize that they were participating in a Ponzi scheme, it’s their own fault for not paying attention.

As a practical matter, it may be necessary to exempt current recipients, but there isn’t a moral case for doing so.

[HiTech RedNeck]

Say “Social Security” and most people stop thinking.

If Perry had the issue focus grouped, he’d probably find it helpful to the reception of his message to allude strongly to the fact that this warning isn’t at all original with him, though he may be the most prominent politician to date to dare raise this torch. Also he would do well to announce in his campaign appearances how he proposes the pickle to be gotten out of without concentrating the pain on a small segment of Americans.

[brytlea]

Sure because 100% of them voted for the wrong person! Do you actually think before you type?

[smoothsailing]

[reaganaut1]

Sure because 100% of them voted for the wrong person! Do you actually think before you type?

Yes, I do, sarcastic Freeper. Exempting current recipients from cuts just means that people like me who are decades from getting SS# will suffer bigger cuts. Why shouldn't current recipients bear some of the pain?

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[pepsionice]

I would suggest the easiest first step of doing anything...is to simply rename it. Call it anything else you desire, except Social Security. Make it a simple 3-line bill which anyone could read. Once you get the name change accepted...then things start to become easier to modify bits and pieces from that point on out.

[hosepipe]

NOBOdy.... nobody has tried to PROVE SSA is NOT a Ponzi Scheme..
WHY?... because it is one.. everybody knows it is one.. trying to prove it isn’t.. is just SILLY..

SSA is a PURE Ponzi Scheme.. not to speak of PURE socialism..
Come to think of it.. SOCIALISM is itself a Ponzi Scheme..

The governments of England, France and Germany are Pure Ponzi Schemes..

Obama is a Ponzi artist..

[jazusamo]

Amen to that!

[Baynative]

There is no question that the SS system has it's problems. I attribute that to the lack of attention by the American public that allowed congress to use the money to buy themselves votes.

When the system began about 35% of the retired people in America lived below the poverty line. Now the number is about 9%. Taking benefits away from those who are receiving them should not be considered. It would upset many lives of senior citizens who have learned to live on their meager checks.

But, if something sensible isn't done younger folks like yourself are going to get the raw end of the deal, no doubt about it.

What we all need to work on is demanding that our next President and his (or her) congress commit themselves to making this work. There are ways to do it. #2 is to look at self determination and personal control over the accounts such as what was done in the early 80's in Galveston County, Texas.

In 1981, when Galveston County employees pulled out of the Social Security system, the program was projected to be insolvent by 2010.

In the Alternate Plan, retirement benefits are a direct result of employee contributions. In each paycheck, employees contribute 13.9 percent of the their gross pay (6.1 percent from the employee, 7.8 percent from the county) to a private account.

First Financial Benefits invests the accounts conservatively. The company guarantees a minimum rate of return of 3.75 percent to 4 percent on the accounts to safeguard employees’ benefits against inflation and severe drops in market rates.

Employees can elect to put their portion of the contributions into riskier investments, like mutual funds and stocks, potentially to generate more interest.

At retirement, employees in the Alternate Plan can choose to take the money in a lump sum, take monthly benefits for a given time period or take a lifetime annuity, with slightly reduced benefits. Social Security is subject to whatever rules the federal government makes and therefore there is not a guaranteed promise to pay any certain amount.

[John Galt's cousin]

The short term fix should include a stringent review of who is receiving SSI as well as Disability, Medicaid and Medicare

The conventional wisdom is that illegals and other non-citizens who have never contributed are able to “sign up” and get the benefit of many generous social welfare programs

Disability is also rife with fraud and it seems that once one gets on the rolls no one ever checks to see if they are still eligible.

Too many “clients” and not enough productive citizens

[Eva]

You weren’t addressing me, but I’m going to answer.

If you are decades away from collecting SS, you still have time to do something about lowered expectations and vote to force the gov’t to allow you to keep some of what you put into SS. It’s too late for baby boomers.

[afraidfortherepublic]

I would suggest the easiest first step of doing anything...is to simply rename it.

Just like they've done with ACORN. They are funnelling tons of money into the rename subsidiaries of ACORN right now.

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[arthurus]

If only Thomas Sowell could have been our first black President . . . .

I don't think we need him as president and I think he would agree. His talents are academic, not executive. We need him as the economic advisor to a libertarian or Conservative freemarket oriented president. We need for Mr Sowell to totally staff all the economics positions throughout the government.

30 years ago or so Pinochet in Peru hired some U of Chicago economists to come down to Peru and redesign, among other things, the Peruvian Social Security system. It is now pretty much the system described by Thomas Sowell and it pays out much better retirements than American SS ever has and the recipient, owning his stake, has something to leave to his heirs. I believe the heirs can then incorporate it into their own SS plans and enhance them thereby. The freemarket changes in Peru were so effective that subsequent socialist governments that have come and gone and come again are loath to change them knowing that they will incur the instant enmity of the population as well as kill the goose that lays those auric ova.