Tuesday, June 11, 2013

Social Security, job insecurity - Zero Hedge: "Social Security: the New Deal's fiscal Ponzi".  "When the American economy was riding high in 1960, Paul Samuelson’s Ponzi was extracting payroll tax revenue amounting to about 2.8 percent of GDP. A half century later, after a devastating flight of jobs to East Asia and other emerging economies, the payroll tax extracts two-and-one half times more, taking in nearly 6.5 percent of GDP. So the remarkable thing is not that wooly-eyed idealists who drafted the 1935 act succumbed to social insurance’s Faustian bargain at the time. The puzzling thing is that 75 years later—with all the terrible facts fully known—the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake."


Ida May Fuller said...

Yup, except for the fact that Social Security doesn't mislead or defraud anyone.

And Social Security has worked as described for many decades longer than any Ponzi scheme ever has or could (Charles Ponzi's actual scheme was discovered within 7 months).

And Social Security promises modest returns over one's remaining lifetime rather than impossibly fast riches, and everyone understands the source of its payouts, and the system can be legally altered should the math stop working, and payees get decades worth of warning for fiscal snags that may slightly reduce their return instead of no warning and no money at all, and it is accountable to Congress and the public, and it is invested in Treasury bonds as opposed to nothing, and it provides both direct and indirect societal benefits to all rather than illicit gains to a few, and Social Security is not a personal investment plan, nor is it presented as one.

Not counting those sorts of minor quibbles, though, Social Security is a CLASSIC Ponzi scheme.

Anonymous said...

In regard to the previous comment, none of the litany of Social Security's glorious qualities that were presented relate to its status as a Ponzi scheme. The reason it is a Ponzi scheme is that current receivers of payouts are receiving funds from newer inductees, not the returns on the money they themselves previously paid in. That money went years ago to others. The fact that we've had, for example, "decades worth of warning for fiscal snags" is irrelevant to the topic. As is the fact it can be "legally altered" to slow its deterioration.

The Social Security setup is what Ponzi would have had if he were able to use the threat of violence to force everyone to join in his scheme, rather than just enrolling those he could lure to join voluntarily.

Anonymous said...

Although "Ponzi scheme" surely tests well with focus groups, the above comment is nonsense.

It's "irrelevant" that, that unlike all real Ponzi schemes ever, Social Security does not and cannot collapse into nothingness?

It's "irrelevant" that, unlike all real Ponzi schemes ever, Social Security operates visibly and under legal oversight?

It's "irrelevant" that, unlike all real Ponzi schemes ever, the structure of Social Security can be successfully adjusted?

But the minority who have been relitigating the New Deal, in their own minds, to no public effect? Totally relevant.

Anonymous said...

Obviously, the illegality of classic Ponzi schemes does not apply to Social Security. This is because the government wrote the law to make all aspects of it legal, ipso facto.

The key feature of a Ponzi scheme, again, is that the earlier members get paid from the contributions of more recently added members. That's why the scheme is illegal. Uhh...except if the government does it, of course.

Paul Sand said...

Just in case not everyone got the significance of the original commenter's handle: Ida May Fuller was the first person to receive a monthly Social Security check. She retired in 1939 and died in 1975 at the age of 100. According to Wikipedia: "By the time of her death, Fuller had collected $22,888.92 from Social Security monthly benefits, compared to her contributions of $24.75 to the system."

Anonymous said...

The key feature of a Ponzi scheme, again, is that the earlier members get paid from the contributions of more recently added members. That's why the scheme is illegal.

That premise hasn’t convinced economists, it hasn’t convinced the American public, and it has never convinced the Supreme Court. Their rulings over the decades have made it clear that the Social Security program is legal, and is a tax, two conditions beyond the reach of the eternally-invoked Mr. Ponzi.

Many other things share one facet or component with Social Security, including tontines, fire insurance, lotteries, pensions, communism, and military conscription. Social Security is not any of those things, either. The thousands of businesses who only stay solvent by paying suppliers with some of the money they receive from advance orders would be surprised to learn that they’re all mini-Madoffs.

You have misidentified what the “key feature” of a Ponzi scheme is because it suits your political biases. But the key feature of a Ponzi scheme is that its entire purpose is to enrich its creator, and defraud its investors. Social Security's formula is public and continually monitored, it defrauds no one, and it enriches no one. The analogy is sloppy and incorrect.

Eric said...

Also Charles Ponzi was known to wear a wide-brimmed boater while Uncle Sam wears a tophat.

I suspect the assertion that Social Security "defrauds no one" will change in 2030 when benefits are automatically cut 25% by current law. But then the seniors who are currently enriched by SS will have, how to put this, moved out of retirement. Sucks to be you, Generation X.

Anonymous said...

"[The] Supreme Court...have made it clear that the Social Security program is legal."

How many times do you have to be told that the Social Security system is legal because the original laws establishing it declared that the government could legally do what a person or organization outside the government could not?

It's like state lotteries. Does a state lottery not have the same structure as a numbers racket because the law declares it legal for the state to do that activity, while attacking any private entity that tries to do so?

Similarly, SS has the same financial structure as a Ponzi scheme, regardless of whether it's declared "legal" by anyone or not.

"But the key feature of a Ponzi scheme is that its entire purpose is to enrich its creator, and defraud its investors."

Well, no, some early investors get paid off pretty well actually, just like has happened with SS.

As far as "defrauding' investors, do you realize that every penny in the so-called "Social Security Trust Fund" has been spent by the government for other purposes? What's that?...SS "invested" that money in government bonds? No, those bonds are not marketable, and the SS Trust Fund can only be replenished if the government comes up with that money all over again FROM SCRATCH. The "creator" has enriched itself by defrauding its investors.