21 September 2011

Social Security Thy Name is Ponzi

I’m not sure why so many are upset with Rick Perry calling Social Security a Ponzi scheme.  I said the same thing way back in March, but the media hardly seemed to care.  Many economists have weighed in on this debate, and Walter Williams provides a decent summary of their sentiments:

Aside from these lies, Social Security is a Ponzi scheme. The major difference between Social Security and Bernie Madoff's Ponzi scheme is his was illegal. Three Nobel laureate economists have testified that Social Security is a Ponzi scheme. Dr. Paul Samuelson called it "the greatest Ponzi game ever contrived." Dr. Milton Friedman said it was "the biggest Ponzi scheme on earth." Dr. Paul Krugman predicted that "the Ponzi game will soon be over."

The media and government need to take a hint here.  When two Nobel-prize-winning Keynesians say that Social Security is a Ponzi scheme, it’s safe that Social Security is a Ponzi scheme.  (Because if there’s anyone who knows Ponzi schemes, it’s going to be a Keynesian.)

Incidentally, I was also ahead of the game in demonstrating that Social Security is a lie, at least in terms of guaranteed benefits.  While I only focused on Flemming v. Nestor, it is important to also look at Helvering V. Davis:
Another lie in the Social Security pamphlet is: "Beginning November 24, 1936, the United States government will set up a Social Security account for you. ... The checks will come to you as a right." Therefore, Americans were sold on the belief that Social Security is like a retirement account and money placed in it is our property. The fact of the matter is you have no property right whatsoever to your Social Security "contributions."
You say, "Williams, you're wrong! We have a right to Social Security payments." In a U.S. Supreme Court case, Helvering v. Davis (1937), the court held that Social Security is not an insurance program, saying, "The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way." In a later Supreme Court case, Flemming v. Nestor (1960), the court said, "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."  [Emphasis added.]

Of course, Social Security is not technically a Ponzi scheme because one is not forced to pay taxes contribute to a true Ponzi scheme:

It's true that Ponzi engaged in fraud; his victims never would have "invested" with him, had he accurately explained the business model. Libertarians therefore agree with everybody else that Charles Ponzi was a criminal and would have to face legal consequences in any just legal order.
However, so far as we know Ponzi never threatened anybody. He didn't tell struggling young workers, "Give me 15 percent of your paycheck every week, so that I can make you a fantastic return — or else I'll send goons to kidnap you."
In this respect, Social Security isn't a Ponzi scheme after all. It's more analogous to mobsters shaking down people for protection money, because otherwise "bad things could happen."


  1. "It's more analogous to mobsters shaking down people for protection money, because otherwise 'bad things could happen.'"

    Yeah. Except that if you pay off the mob, you can count on them _not_ breaking your legs and burning down your store. Taxpayers don't get the same promise from government.

  2. @Matt- sounds like that's a slogan for the mob: At least we're not as bad as the government.