The Securities and Exchange Commission says “a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” How does this not describe Social Security?
Republican candidates for President are lining up to attack Texas governor Rick Perry for having the audacity to point out what everyone already knows about Social Security, and the conservative intelligentsia is wringing their hands that this could hurt Republican chances of capturing the White House if Perry is the Republican Party’s nominee.
But the fact of the matter is that Perry nailed it. Social Security requires people at the bottom of the pyramid to pay taxes to fund the benefits to people at the top. If we have more young people paying into the system than people collecting benefits, the system will be solvent. The problem is the pool of workers supporting each retiree has been dramatically reduced over the last few decades. The system is headed toward inevitable insolvency.
Perry said that Social Security is a “monstrous lie” for young people. This may not be the most politically expedient thing to say (after all, senior citizens vote in much higher numbers than young people) but it is absolutely true. If you ask most people about Social Security, their understanding is that they pay into the system over several decades in order to get back what they contributed when they retire. This has never been the case, but this is how politicians have sold the program. Politicians deceive young people into thinking this is a retirement program. It isn’t and never was.
The reality is that we need to reform the system if we want it to be solvent in the future. We can either have an adult conversation about what to do with Social Security or we can demagogue the issue like petulant children. We know what the Democrats are going to do in 2012. Let’s not have Republicans imitating them in our own primaries.