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August 29, 2011

Lies Liberals Tell Themselves To Get Through The Day: Social Security Is Not A Ponzi Scheme

Rick Perry isn't a fan of Social Security, at least when it comes to the promises being made to younger workers.

“It is a Ponzi scheme for these young people. The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie,” Perry said. “It is a monstrous lie on this generation, and we can’t do that to them.”

This has really annoyed Jonathan Bernstein blogging at Greg Sargent's WaPo blog.

Perry either doesn’t understand Social Security, doesn’t understand Ponzi schemes or is simply not telling the truth. There is nothing at all about Social Security that is anything like a Ponzi scheme. As I’ve said here before, I like the definition attributed to Sen. Russell Long: “Social Security is nothing more than a promise to a group of people that their children will be taxed for that group’s benefit.”

It’s true that there’s a relatively small actuarial imbalance in Social Security going forward, but what’s important is that unlike the problems for Medicare and other health programs, the Social Security imbalance is basically stable over the long haul. That means it’s pretty easy to fix — and if it isn’t fixed, and even if future Congresses make the unlikely choice to keep taxes the same and only pay out benefits that those taxes can support, future beneficiaries will still receive most of what they’re being promised today.

Of course, this has nothing whatsoever to do with a Ponzi scheme, which involves deliberate and outright fraud. It’s irresponsible to say that Social Security won’t be “there for them” when, in fact, the only way that will happen is if politicians choose to eliminate it.

In my view, saying that Social Security is a deliberate fraud — a Ponzi scheme — is about as irresponsible as truther or birther conspiracy thinking.

Shorter Bernstein, "Don't worry, Thatcher was wrong and we'll never run out of other people's money!".

Here's how Social Security works according to the Heritage Foundation

Even more important, the Social Security trust funds are "invested" only in a special type of Treasury bond that can only be issued to and redeemed by the Social Security Administration. These bonds cannot be sold to the public to raise money. They are only a measure of what the government owes itself. As the Congressional Research Service noted:

When the government issues a bond to one of its own accounts, it hasn't purchased anything or established a claim against another entity or person. It is simply creating a form of IOU from one of its accounts to another.[5]

As a result:

These [Trust Fund] balances are available to finance future benefit payments and other trust fund expenditures-but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, make it easier for the government to pay benefits.[6]

In short, the Social Security trust funds are really only an accounting mechanism. They show how much the government has borrowed from Social Security but do not provide any way to finance future benefits.

So the money a person pays in to the system isn't held for them or invested in an account, it was either already spent on previous beneficiaries or used for general fund obligations. In other words, you want the money current recipients already paid in? You're going to have to go get it from new investors.

How does the Securities and Exchange Commission define a Ponzi scheme?

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Bernstein says if the money runs short they can just raise taxes on people still in the work force. Aside from government compulsion, how is this different from "attracting new money to make promised payments to earlier-stage investors "?

Now no one, including Perry, is talking about cutting payments to current recipients or people close to retirement. But from the perspective of someone say, 45 and younger Social Security looks exactly like a mandatory Ponzi scheme. You are being forced to pay into a system to ensure payments are made to current recipients but the only way you are going to get paid is if the people behind you are forced to pay in too.

There's an argument to be made for that kind of system (I'm not making it) but to even attempt to make that argument you need a much higher worker to recipient ratio than we have now or will in the future.

Saying you don't want to perpetuate a system that forces the young to pay for what you get when you're old doesn't make you a crazy birther, it makes you a sane and honest human being.

Are Ponzi schemes exactly the same as Social Security? Of course not, Ponzi schemes are illegal and that's a big difference. But as far as political rhetoric goes, it's far closer to the truth than liberals would like to admit. That's why someone like Bernstein wants to shut down debate not by arguing against it but simply by smearing it as crazy birther stuff.

These guys really have one play and they always go back to it. It's kind of pathetic when you think about it. Then again, so are liberals for the most part.

Politically this is dangerous stuff for Perry. Old folks love their Social Security and don't want to hear about this stuff (even if it doesn't apply to them). They vote and a lot of them live in Florida a state any GOP nominee is going to need to win.

Still, if we can't have an honest discussion about all entitlement programs when running against a weakened but still dangerous Obama (all incumbents are) when can we?

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posted by DrewM. at 02:05 PM

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