Social Security and The Ponz[i]


Rick Perry made waves; lot’s of waves.  He compared Social Security to a Ponzi Scheme.  And in so doing, open a massive wave of defense for the gentle program.  I suspect that more people have issue with the implicit, or explicit, slight on Social Security than they do with the actual definitions of the scheme itself.

In other words, I firmly believe that people are afraid to admit that their faith in the program called Social Security is more based on emotion than on actual facts.  This can be demonstrated whenever you enter into a conversation with anyone on the topic of Social Security reform.

Anyway.  I was willing to let sleeping dogs lie, but then I found these two gems, back to back, in the Letters to the Editor page of my local newspaper.

Ugh.

It turns out that at least two people really feel that Social Security is something that it’s not:

See here and here for the full read:

Our first citizen opines as such:

A Ponzi scheme is an illegal scam where someone promises you a return on an investment but the money you give him is not invested. Instead, some of your investment goes to pay fake “interest” to previous investors so they think everything is legit, and the rest goes in the scammer’s pocket. As long as there are new investors, the scam can continue for years, as was the case with Bernie Madoff.

Social Security does not work that way. You can find on the Social Security Administration website that the funds are invested in U.S. Treasury bonds, which are a secure and conservative investment approach. The effective investment rate has been between 4.6 percent and 6.6 percent over the past decade. The fund currently (end of 2010) has a surplus of $2.6 trillion, which is sufficient for at least 25 years, according to the SSA. That is not a Ponzi scheme.

Interesting.  Wrong, but interesting.

Then our second citizen:

Texas Gov. Rick Perry and some of your letter-writers call Social Security a Ponzi scheme. The reason is that Social Security uses contributions from current workers to help pay for the retirement of the previous generation of workers.

I suppose we could do away with Social Security and rely on retirees’ children to take them into their homes and care for them.

A little less interesting.  Just as wrong, but worth the quick read none the less.

Let’s start with the second letter first.  It seems the gentle reader actually buys into the concept of the scheme.  That is, today’s benefits are being paid by today’s investments.  Only as long as the scheme can guarantee more and more investors can the scheme continue to exist.  This is unlike my 401k.  See, THAT fund grows independent on any other contribution by anyone other than me.  In fact, if I STOP contributing, I still get the benefit that I was led to believe I would get.

No, it’s not that the individual doesn’t understand that he’s dealing with a Ponzi, it’s that he feels there is simply no other option.  Which, of course, is par for the course for the religious defenders of the scheme.

Back to reader #1.  Here again we have an individual who seems to understand that as soon as current investors stop contributing, benefits will cease, at some point, maybe not now.  However, our first commenter then goes into some kind of defense of the scheme trying to say that it REALLY is an investment vehicle.

I don’t think you’d find even 5 in 100 who think that our FICA contributions are being “invested”.

Everyday I’m amazed at what length people will go to in order to defend their version of their religion.

Fascinating.

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