Mandatory Ponzi Schemes

US Daily Review ^ | September 17, 2011 | Keith Rodebush

[BUSHdude2000]

When Ida May Fuller received the first Social Security check for $22.54 in 1940 she had paid into the system in the amount of $24.75. By the time of her death in 1975 at the age of 100 years she had received payments totaling $22,882 and change. Is Social Security a Ponzi scheme? Of course it is, money from current investors was used to pay Ida May’s bill far beyond her investment. But there is a distinction. Social Security is a mandatory Ponzi scheme. This is no small difference as the downfall of all Ponzi schemes is when financial downturns make it impossible to keep up payments to past investors and the house of cards falls. With government, they just raise taxes or print money and the scheme rolls on in perpetuity; an effectual anchor on the economy.

Is Social Security constitutional? Article I, section 8 of the U.S. Constitution allows Congress to “…lay and collect taxes, duties, imposts and excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.” Therefore, in theory the imposition of taxes to ensure that elderly citizens are not destitute is not beyond the reach of Congress. Whether the actual legislation imposed the tax uniformly, which is required by the same section, or whether it was coercive, RE: unemployment insurance by States, was decided by the SCOTUS in 1937. I fail to see how any court could ever decide otherwise after 76 years of implementation. Social Security is Constitutional. Whether it is intelligent is debatable. Notice also, that it is a general tax; nothing less, with no earmarks for use. There has never been a Social Security ‘fund’ for investing in your retirement.

[supercat]

Not getting into whether it’s a ponzi scheme or not but I give very little credit to an article that starts out with that example but doesn’t include the example of the millions who pay into it for a lifetime but die prior to getting anything.

That is an excellent point. It would be possible for a program like Social Security to to pay people who live long enough a certain amount more than they put in, using money taken from people who payed in for awhile but didn't live long enough to collect anything (beyond, perhaps, a $255 death benefit for a spouse).

That doesn't mean such a program would be morally right, of course. Consider that many people buy life insurance policies for amounts considerably smaller than the total of their SS contributions. Were it not for the government pocketing their contributions, such people wouldn't need the life insurance; their retirement fund, which they obviously wouldn't need themselves, could be used to support their dependents or do whatever else the insurance had been supposed to do.

[SampleMan]

I question the idea that it was ever an insurance plan, unless the associated risk was living.

The progressive movement took its model from the European state pension systems, which were more or less general treatury items.

That SS ever took in more than it paid out was a bit disengenious, in that Congress has always treated the SS surplus as a money cupboard.

It was always a Ponzi scheme in that it required an ever expanding base of payers to avoid bankruptcy.

[KDD]

Citation: An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes, August 14, 1935; Enrolled Acts and Resolutions of Congress, 1789-; General Records of the United States Government; Record Group 11; National Archives

[calfcreek]

Thanks for reading.
What makes it a Ponzi scheme is that the money you put in is spent. Then when you collect, new citizens payments are used to pay you. It matters not whether they have enough based on who dies early or whatever. Saying it is not one, because it is known is disingenuous as well. It was ‘sold’ as an insurance plan but it is not. It is a tax, nothing more, nothing less. The gov’t has been sued by those who say the gov’t has no authority to run an insurance plan in the Constitution. SCOTUS determined that it is not an insurance plan, there is no direct link between the tax and SS payments. It basically sets up a bureaucracy to manage it all, but legally there is no obligation to pay. It is a tax with a promise to pay. Nothing more.
Tweaking SS will not save it as the real problem is politicians who will use it to make promises that can't be paid for. As I stated in the article the only way to save it is to take it off budget and force it to be run revenue neutral. That way any new promise would have to be funded. This basically takes the politicians out of the equation.
Thanks again for reading.

Keith D. Rodebush

[Smokin' Joe]

Well, all those people insisted that tobacco smokers quit, and now look at the mess we’re in. (/s)

[DB]

Lets talk “insurance” then.

Insurance is supposed to be about things beyond your control.

Social security is means tested and they are trying to further means test it.

So the “insurance” pays if you spend all your money before you qualify for social security. It doesn’t pay (or at least as much) if you don’t. So the incentive is to be broke the day you qualify for social security... Brilliant “insurance” plan... In fact that isn’t insurance at all. Its welfare.

[calfcreek]

True. Also, insurance co.’s take your premiums and invest them to make a profit. Then your claim is paid from proceeds and premiums are set according to profit motive. With SS, the ‘premiums’ are spent, and when your claim is put in, they take money from other taxes and pay it. That’s part of why we’re broke. Govt’ is always the most inefficient way to do anything like this. We are bankrupting our grandchildren with inefficient programs like this, whether you think they are worthy or not.

[supercat]

Social security is means tested and they are trying to further means test it.

Fundamentally, this country needs to return to the 'means test' that used to be attached to almost all charity: the social stigma attached to the acceptance thereof.