The Monstrous Lie Of Social Security


Texas Governor Rick Perry was asked about his characterization of Social Security as a “Ponzi scheme” during the Republican presidential debate last night, and he didn’t back down an inch.  Not only did he firmly stand by his previous comments, but he went on to describe Social Security as “a monstrous lie.”

That’s strong stuff, and conventional wisdom says Perry did fatal damage to his campaign by serving it up straight with no chaser.  I’m not so sure.  It’s certainly risky, but we’re only a couple of months past the watershed moment when Barack Obama openly admitted Social Security is insolvent.  It’s something serious students of the topic have understood for years, but when Obama claimed that refusing to raise the debt ceiling would cause those Social Security checks to stop rolling off the printer, he made it impossible for any but the most heavily hooded Big Government acolyte to ignore.

This is the “Ponzi scheme” aspect of the program Perry warned about.  Money paid into the system by current workers is funding current retirees, who were under the mistaken impression they funded their own benefits by paying Social Security taxes during their long working lives.  That’s not true, and it hasn’t been true for a long time.  The Social Security taxes a retiree paid during the 80s and 90s funded benefits paid to people who retired in the 80s and 90s.

Angry liberals quibble with the “Ponzi scheme” description because a pure Bernie Madoff-style implementation of such a scheme would involve deceiving “investors” into thinking they were enjoying wildly inflated “returns.”  Well, how many voters understand how Social Security really works?  How many of them still think it’s some kind of government-managed investment plan? 

Besides, at least Madoff’s victims had a choice about getting suckered.  Social Security participation is mandatory.  It doesn’t matter if today’s young workers look at even the most optimistic “mend it, don’t end it” plans, note that the retirement age is creeping inexorably toward 80, and conclude it’s not a very good deal.  Their opinion doesn’t matter, especially if the conventional wisdom is correct, and the bold discussion of alternatives is the political equivalent of opening the Ark of the Covenant without closing your eyes.

Ponzi schemes are based on a lie.  The monstrous lie of Social Security is ownership.

That’s the deception that allows the rest of the system to exist.  Everyone is firmly convinced they “own” their Social Security money, but that’s patently false.  You’re not depositing a portion of your wages into a secure account, where it will be carefully tended by the government, and paid back with interest after you retire. 

If that were true, it would be illegal for the government to raise the retirement age, as it periodically does during attempts to keep the system floating.  You’d sue the pants off a private investment fund that did such a thing.  You would insist the terms that applied when you made your investment where honored. 

Also, if you “owned” your Social Security funds, then the entirety of your “balance” – with accumulated interest – would be made part of your estate upon your death.  That is most certainly not how Social Security works.  The entire point behind raising the retirement age is the calculation that more people will die before they can collect their benefits.  This keeps the steadily dwindling ratio of current workers paying for current retirees from collapsing into absurdity. 

Perhaps most importantly, if you “owned” Social Security, there would be some method of withdrawing from the program.  Ownership implies choice.  No one would voluntarily sign on to an investment plan that can never be terminated, under any circumstances, regardless of investor dissatisfaction.  If your Social Security “account” was your “property,” there would be a way to claim that property – some method of exiting the system, perhaps with a penalty for early withdrawal. 

The government would not have a problem with this, because that money would be yours, not part of the funding scheme for the benefits of other people.  If you wanted to bail out early, it would be no skin off their noses.  “You want to abandon the security we offer for greater risk, with the possibility of greater reward?  Well, okay, if you insist.  Have fun in the free market!”

You might bristle at the description of Social Security as an “entitlement,” because that implies it’s a collectively funded welfare program, but you worked hard all your life to pay for your own benefits.  Guess what?  You’re wrong.  It is a collectively funded welfare program, and you don’t own one damn bit of it. 

The benefits you receive will be modulated by the government as necessary, to keep the system running, without any input from you.  Some people have gotten much more than they put into the system, some will get much less, and some will die before they collect anything at all.  The only control you have over this process is your tiny role in a massive herd of voters, stampeding to vote against leaders who propose Social Security modifications you collectively oppose.

None of your benefits have been pre-funded, and at some point in the very near future, the entire system will collapse, leaving today’s children staring at a future in which the hundreds of thousands of dollars they poured into Social Security have been completely appropriated for the benefit of others.  Those people will wonder why their parents didn’t ask tougher questions about an offer they were told nobody is allowed to refuse.