[This is adapted from a comment I left at Ethics Alarms.]
According to the Congressional Budget Office, “under current law, the resources dedicated to financing [Social Security] over the next 75 years fall short of the benefits that will be owed to beneficiaries by about 0.6 percent of GDP.” (PDF file.)
Here’s a table, again from the CBO, of options for meeting the shortfall. You can mix-and-match the options; anything that adds up to 0.6 completely fixes SS. That’s not a “crushing burden” on either taxpayers or the economy.
This is the central issue we should be discussing; is fixing SS a big, crushing burden, requiring the entire program to be completely restructured, or can it be done with small fixes to the current structure? The facts show that it can be fixed with small changes to the current structure.
I’ve seen some critics of Social Security hedge their claim by saying, not that Social Security is a Ponzi scheme, but that it resembles a Ponzi scheme. For instance, Jack at Ethics Alarms wrote:
Even the most positively oriented fans of SS are admitting that the structure resembles a Ponzi scheme. […] It takes multiple current contributers (“investors”) to pay for one beneficiary, and the beneficiaries are increasing while the number of those paying into the fund are decreasing.
But “the structure resembles a Ponzi scheme” is not a meaningful statement.
You could say the structure of my house resembles a prison. In a literal sense, that’s true: Both prisons and my house have walls, plumbing, windows, a roof, and other such common structural elements. Nonetheless, anyone who claims that my house is like a prison is substantively wrong. My house doesn’t have bars on the windows, doesn’t have guards, and the residents can walk in and out freely. If you’re interested in substance, my house can’t reasonably be said to resemble a prison.
Ponzi schemes, by definition, have no viable funding source, and are based on lying to investors about that. As such, they collapse very quickly. SS, in contrast, has a very viable funding source, publishes its finances in full, and has lasted decades. As the Historian’s Office of the Social Security Administration writes:
The first modern social insurance program began in Germany in 1889 and has been in continuous operation for more than 100 years. The American Social Security system has been in continuous successful operation since 1935. Charles Ponzi’s scheme lasted barely 200 days.
If a program is honest about its funding and structure, has a viable funding source, and can last for decades, then it’s not like a Ponzi scheme in any way that matters.
Correspondingly, if Ponzi schemes worked effectively for many decades, weren’t based on lying, and had viable long-term funding, then there’d be no reason to oppose them.
Ampersand:
I have to disagree (of course I do; it is not as fun otherwise).
You have three points there:
1. Honest about funding and structure. I am not sure that it is honest. Some people think their money is there. You and I know it is not; and, in fairness, the politicians are up front when they say that there is no “lock box.” But, I get my yearly statement. They tell me how much I have contributed and how much I will get (decades from now). When my bank sends me a statement, I know that that money is there and it is mine. It is not completely dishonest, but it does not have to be dishonest: we are forced investors (unlike Ponzi’s victims).
2. Has a viable funding source. I will agree that Social Security has a RELIABLE funding source: everybody is forced to pay in. As long as there are people working, some money will come in. Viability concerns whether it is enough to make the pay-outs. Fewer workers are available to pay for the benefits of a growing set of retirees; I expect viability to be a question. If I were not forced to participate, I would opt out of the system. I have no expectation that I will receive benefits from it.
3. Can last for decades. Of course it can last for decades. Everyone is forced into it. They have no choice. I am going to be funding it for decades to come, because I have to, not because I want to. If Social Security had been voluntary, it would probably never have gotten off the ground, or would have collapsed by now.
But, here is what the SEC calls a Ponzi scheme (I can post the link if you want):
We can argue about “fraud” or “investors” or “returns,” but Social Security pays out to retirees from funds of new workers. There is no real investment there (and the government buying its own bonds does not look like a real investment to me).
The SEC says Ponzi schemes collapse because:
Social Security requires a “consistent flow of money from new investors to continue.” Now, the Social Security system has no problem “recruiting” new “investors,” because you can be threatened with jail if you do not “invest.” However, a big concern is what will happen “when a large number of investors [i.e. Baby Boomers] ask to cash out.”
I think the reason people make these analogies between Social Security and a Ponzi Scheme is because Social Security is a unique government program.
For example, it is often characterized, rightly or wrongly, as a retirement account, or a supplement to retirement. But it is not like any other investment out there.
It is different from a lot of government programs where you can see the allocation of money. I go to court, I pay a fee, the Court uses the money to fund the service. I pay the invisible gas tax and assume that it goes to pay for the roads (and I know the taxes I pay in other places cover the the roads). I pay unemployment taxes and I know that there is coverage there. With Social Security, my money does not produce anything; my money is simply transferred to current recipients and I am promised that I will get my check in 30 years.
This makes it even different from most welfare programs. With welfare, I may fund them, but I have no expectation I will ever get anything out of them. Of course, if disater hits, I suppose I could go on food stamps, though I do not expect ever to benefit from it personally. Likewise, I do not expect to benefit from Social Security either, but they keep promising it will be there. They even tell me how much money I will get each month.
I just do not believe them.
Sorry if I rambled a bit.
-Jut
That document you can get yearly from the SSA that says “Here’s what you can expect to see in payments when you retire”? Doesn’t mean a thing. Congress can cut benefits tomorrow and there’s nothing legally you can do about it. You can end up getting more than that, or you can end up getting less. There’s no obligation on the government’s part that it can’t change or do away with entirely.
The current topic on The Jacksonian Party has a good treatment of this. Essentially, SSA payments are just like any other tax payment. The government has no restrictions on what it spends them on. It can build roads or bombs or public housing and decide to freeze benefits for the next 20 years or even just do away with Social Security entirely.
And – just because you are eligible for payments doesn’t mean you have to be given them. In Fleming vs. Nestor an alien who had worked in the U.S. and was deported for Communist Party membership in 1960 (yeah, they can do that) was denied SSA payments. The Supremes ruled that SSA payments don’t create a property right to SSA benefits.
So maybe it’s not a Ponzi scheme. Maybe it’s worse. At least in a Ponzi scheme you’ve got a right to sue to get part of whatever Ponzi has left in the bank when he gets caught. Not so with Social Security. The government can just say “too bad, no money for you” and you have no right to anything.
Charles Ponzi’s scheme only lasted 200 days because he didn’t have the legal right to put a gun to your head and take your money to pay off his old investors. The Feds can. And that’s the only way that SS has lasted as long as it has. They pay off retirees not with the proceeds of their investment of those retirees’ payments, but with taxes collected from you and me. And if and when we get paid we’ll get paid from money taken from people then working, not from the proceeds of investments made with what we paid in. It’s either a Ponzi scheme or worse.