Perry’s Ponzi
By Norman Leahy | Thursday, September 8th, 2011 | Policy, PoliticsOne item from the Republican debate that has set tongues wagging is Gov. Rick Perry’s insistence that Social Security is, and always has been, a Ponzi scheme.
Some of the right have taken this as a breath of fresh air. At RedState, Erick Erickson blasts those, like Mitt Romney and his handlers, who say Perry has effectively killed his candidacy:
It’s perfectly reasonable to say we’re scared to death to ever touch the supposed third rail of politics again. It’s even reasonable to say that Rick Perry cannot win by holding to this position. In fact, Perry needed to spend more time focusing on the fact that he does not want to abolish social security as the Democrats and Mitt Romney both claim.
But to suddenly proclaim the conservative position as “social security is a-okay and we just need to make it even better” is complete and total bull crap, not to mention seriously chicken and intellectually dishonest for a bunch of people who’ve more or less held Perry’s position for years to suddenly pretend it’s nuts just because they support another candidate or think the political winds have shifted.
My old colleague Roger Pilon isn’t as colorful, but he, too, is happy that Perry had the guts to slap the Ponzi label on the program’s ample backside:
A private company that ran such a scheme would be prosecuted in less than a New York minute. We should be grateful that a major candidate has finally spoken truth to fiction.
But is Social Security really following Mr. Ponzi’s model — or even Bernie Madoff’s? Technically, no:
…a Ponzi scheme collects money from new investors and uses it to pay previous investors—minus a fee. But Social Security collects money from new investors, uses some of it to pay previous investors, and spends the surplus on programs for politically favored groups—minus the cost of supporting a massive bureaucracy. Over the years, trillions of dollars have been spent on these groups and bureaucrats.
Two, participation in Ponzi schemes is voluntary. Not so with Social Security. The government automatically withholds payroll taxes and “invests” them for you.
Three: When a Ponzi scheme can’t con new investors in sufficient numbers to pay the previous investors, it collapses. But when Social Security runs low on investors—also called poor working stiffs—it raises taxes.
And who was among the biggest raisers of Social Security taxes? Ronald Reagan — on the recommendation of a commission headed by Alan Greenspan. Martin Feldstein offers some insight into that hike and Reagan’s reaction to it:
The Greenspan Commission proposed and Congress enacted a combination of higher payroll taxes and cuts in the benefits of higher income retirees (by subjecting benefits above a relatively high income exclusion to the personal income tax and injecting that extra tax revenue into the Trust Fund). Congress also voted to increase the normal retirement age from 65 to 67, but only after a delay of two decades. But there was no serious consideration of an investment-based solution.
President Reagan was very unhappy with the Commission’s recommendations but was persuaded by political advisers that any proposed general reduction of benefits (through reduced inflation indexing or changes in the benefit formula) would be unsuccessful in the Congress and would be a long-term burden on future Republican candidates. The result was an immediate rise in taxes with the prospect of further tax rate increases in the more distant future.
I recall a meeting in 1982 at which President Reagan asked if there could be some alternative to tax increases or benefit cuts, some more fundamental reform of Social Security that would avoid the ever increasing tax burden that was already projected at that time. We had nothing to recommend.
If the Republican candidates are intent on debating Social Security, that’s a great and welcome thing. But a bit of perspective is necessary. The system wasn’t always seen as a borderline criminal enterprise and even by the likes of Ronald Reagan — though he long advocated “the introduction of ‘voluntary features’ into the system so that ‘those who can make better provisions for themselves’ be allowed to do so.”
If either Mr. Perry or Mr. Romney can pick up that thread, and carry it where Reagan could not, they will do us all a great deal of good.
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About the author
Norm Leahy has written about Virginia and national politics online since 2002, beginning with One Man's Trash (OMT), and continuing through Bacon's Rebellion (both the blog and the e-zine), Sic Semper Tyrannis, NBC12's Decision Virginia, Richmond.com and Tertium Quids. He is the chief blogger at "The Score" and a producer of "The Score" radio show as well as being a Washington Examiner contributor.
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Comments
11 Responses to "Perry’s Ponzi"
Okay, you have convinced me. Social Security is worse than a Ponzi scheme.
It is called Social Security Insurance. If Social Security is a Ponzi scheme, then we should outlaw every insurance scheme as being just as guilty.
What private insurance pays out indefinitely to all participants over a certain age in increasing amounts?
As for Perry etc every minute spent talking about Social Security is a minute wasted. SS is not the main problem now and it is not costing any jobs that haven’t been cost for 80 years. It is Obamacare, Dodd Frank, the bashing of the private sector and the wild increases in discretionary spending under Obama that are killing the national economy.
If we are to take seriously the deceitful label FDR affixed to SS, ie SS insurance, that LD actually takes seriously, then we have to sharply limit the number of beneficiaries to those seniors below the poverty line and adjust rates accordingly.
Val- I think you’ve got a point. I don’t think turning the 2012 election into a referendum on Social Security will help the Republicans. At this point, nominating Perry may have that effect.
SV,
It certainly will unless Perry comes up with an acceptable plan to fix SS over the next 20 years. He’s correct in what he says but that is not solving anything. This is what happens to Repubs who run for the first time; they have to learn to walk without bumping into things. The Dems don’t have that issue because of media protection but the country suffers as a result when they are elected.
“What private insurance pays out indefinitely to all participants over a certain age in increasing amounts?”
Well there are annuities, you know…
@ Norman
Two questions for you:
1. If SS is similar to or worse than a Ponzi Scheme how come it hasn’t failed; since its creation how many people haven’t received their benefits?
2. What is an acceptable alternative that will provide all Americans with a guaranteed basic level of “security” in retirement or elderly years? How could the market place replace Social Security?
@ Val,
If you state there is a “media bias” or “media protection,” you surly have a scientific study (peer reviewed) at hand that can back up your claim. Or are you then going to claim there is “liberal elitism” or “ivy tower liberals” and there aren’t any studies that show the bias you claim exists?
Quit saying this crap unless you’ve got the facts to back it up. And please provide a link to the study.
Ha ha ha. If 107 articles on macaca in a couple of months from WaPo don’t raise even one eyebrow there’s not much to discuss. You show me the 107 articles in 2 months uncovering every little aspect of Dems overtly racially tinged comments by Reid, Hillary, Biden etc from the MSM or on Obama’s connections to AIG and Countrywide, not to mention British Petroleum. You could google “msnbc FEC journalist contributions” or maybe you could listen to a well known liberal media type Mika Brzezinzki – “I’ve worked in the mainstream media for all the networks and I will say what people aren’t saying. It’s got a liberal world view. There are great people working at the networks, and they’re mostly democrats, ok?,” said Mika Brzezinski, whose father was National Security Adviser to Pres. Carter. Kirsten Powers the very liberal NY Post columnist and erstwhile boy toy for Anthony Weiner has said the same thing. You could also read David Mamet’s book Secret Knowledge, who was another lifelong leftie.
Instead of being silly like MB follow after Steve Vaughan and be cogent.
Val,
You suggested:
“If we are to take seriously the deceitful label FDR affixed to SS, ie SS insurance, that LD actually takes seriously, then we have to sharply limit the number of beneficiaries to those seniors below the poverty line and adjust rates accordingly.”
I am not saying the suggestion you make is not worthy of consideration, however I will say such a step would turn it more away from being a insurance program and more towards being a welfare program for the elderly. Any means testing before benefits are paid would do so. I guess one could still claim it is still a form of insurance in that the payments would be available to every citizen if they ended up qualifying for/needing them, but many would not accept such an explanation.
I am kind of surprised that such a suggestion would come from a conservative. As I stated, I think it is worthy of consideration, certainly preferable to completely destroying or even trying to privatize the system, but then I am not a conservative.
@ Val,
See, I’m not the one stating something, I don’t have the burden of proof, it falls on you. You’re claiming that there’s a “media bias” and then you just provide a couple of quotes to back up your story. You’ve yet to provide one link to a scientific study that backs up your argument of a “media bias.”
Silly people provide quotes or tell you to “google” something to provide evidence. I’m asking you for evidence.
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