Further Thoughts on Whether or Not Social Security is Ponzi Scheme

by Don Boudreaux on September 12, 2011

in Other People's Money, Social Security

Is Social Security a Ponzi scheme?  Celebrated scholars – left and right – have called it such, or at least alleged that it bears sufficient similarity to Ponzi schemes that the appellation is justly applied to Social Security.

But to call Social Security a Ponzi scheme is, of course, to draw an analogy between Social Security and private schemes of the sort that Charles Ponzi made (in)famous.  Like all analogies, it’s not perfect.  What matters is the essence of the ‘thing’ (in this case, Social Security) that we’re trying to emphasize as being especially noteworthy and relevant.

At one extreme end, if the essence of a Ponzi scheme is that its chief salesman has a last name that begins in “p” and ends in “i,” then clearly Social Security isn’t a Ponzi scheme.  If, at the opposite end, the essence of a Ponzi scheme is that it is a device that people believe they can use to increase their wealth, then all investments are Ponzi schemes.

Clearly, the essence of a “Ponzi scheme” – as such schemes have come to be understood in common English in the modern world – lies somewhere in the middle of these two extremes.

What is that essence?  I submit the essence of a Ponzi scheme is

(1) its promise that contributions today to the scheme’s manager will pay off handsomely (that is, better than alternative investments) in the future to each contributor;

(2) that current contributions to the scheme are not invested but are spent – in particular, are spent to make good on promises made in the past to previous contributors who now expect their stream of pay-offs;

(3) that the manager of the scheme maintains his ability to pay the promised streams of pay-offs only by getting other contributors into the scheme, but

(4) the manager doesn’t let on to contributors (and would-be contributors) that the funds for paying off the promises come not from any profitable, productive investment of contributed funds – nor from any actuarially justified program for reallocating risks across persons or across time – but come, instead, simply from the hope that future contributors can be corralled into the system;

(5) that if future contributors do not arrive in sufficient numbers, the scheme has too little money on hand to pay off all promises;

(6) that the manager of the scheme, in short, successfully persuades his or her targets that the scheme is financially something that it really is not.

Note that I do not list “pyramiding” – a “pyramid scheme” – as being among the essential qualities of a Ponzi scheme.

On these points, Social Security strikes me (again, as it has struck even some of its illustrious champions) of having a great deal of Ponzi-ness about it.

…..

I dashed the above thoughts off rather quickly (as I’m occupied for much of the day with administrative work for GMU).  I’m prepared to add to, subtract from, and to modify the above list.

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{ 203 comments }

Josh September 12, 2011 at 10:54 am

Equating SS with Ponzi is irrisponsible fear mongering with a very transparent agenda behind it. It becomes a ponzi scheme when the folks at the bottom of the pyramid don’t collect the money back that they have paid in. Untill then, it is forced retirement savings.

Don Boudreaux September 12, 2011 at 11:01 am

So Paul Samuelson and Paul Krugman were irresponsibly mongering fear of Social Security?

Also note: I did not list “pyramid scheme” as one of the fundamental essential properties of “Ponzi scheme.” The two differ.

Chucklehead September 13, 2011 at 1:53 am

How about ” a “sacred bond” between the generations.”
http://www.cato-at-liberty.org/cooling-out-the-marks-in-uncle-sams-ponzi-schemes/

Methinks1776 September 13, 2011 at 5:27 am

gag

Methinks1776 September 13, 2011 at 5:28 am

Would this be like the sacred bond between master and slave?

Chucklehead September 13, 2011 at 1:11 pm

Yep. I love the use of language, because the word “bond” implies a unconditional relationship like between mother and child. It does not require both parties to be willing participants, as a contract would.

Martin Brock September 13, 2011 at 1:14 pm

I freely accept a sacred bond between myself and my parents, because my parents fed, clothed, housed and educated me for decades before I made my first productive contribution.

But I don’t owe you shit unless you pay men with guns to compel me to give you shit.

Chucklehead September 13, 2011 at 2:48 pm

Better yet, we make you pay for for men with guns to compel you to give.

Martin Brock September 13, 2011 at 4:59 pm

Is there no end to your villainy?

Chucklehead September 13, 2011 at 7:40 pm

Sorry, it has just been one of those days and I am in one of those moods.

Martin Brock September 13, 2011 at 11:40 am

SS is not forced saving (in the sense of productive investment). It is forced support of the old by the young.

People commonly think of “investment” as a black box in which they deposit money and from which they later hope to retrieve a bit more money than they deposited. Imagine two of these boxes.

In the first box, a man takes money from depositors through the front of the box and then turns around and hands it directly to retrievers through the back of the box. The man keeps a bit of the money for his trouble. That’s the Ponzi scheme. It works as long as money flows in faster than it flows out.

In the second box, a man collects money through the front of the box until he has enough to buy a replicator. He then programs the replicator to produce valuable goods, using other money he collects to purchase raw materials. He sells these goods from the side of the box. He keeps a bit of the revenue from these sales for his trouble, i.e. his own labor is one of the raw materials he purchases.

With a replicator in place, the man in the second box uses additional money collected through the front of the box to purchase more replicators and more raw materials to produce more valuable goods for sale through the side of the box.

When a retriever comes to the back of the second box, the man in the box provides money collected from the side of the box. The retriever then takes the money around to the side of the second box gives it right back to the man in the box in exchange for valuable goods generated by the replicators.

The strategy of the man in the second box seems incredibly complex until you ask yourself a question. What does a retriever from the back of the first box do with his money?

Chucklehead September 13, 2011 at 2:51 pm

Perhaps he brought a printing press to produce more money, just like uncle Ben?

Bruce September 12, 2011 at 11:24 am

At some point the government will only be able to meet their obligations (including Social Security) by printing money. So, what if the people at the bottom get paid back, but the payout dollars are worth significantly less than the pay in dollars due to inflation? Is it a Ponzi scheme then?

Martin Brock September 13, 2011 at 5:14 pm

I still expect the payout on long term Treasury securities to be worth significantly less than than the pay in, but the rate keeps falling anyway, presumably because buyers expect even less from the alternatives (like European sovereign debt).

But I’m less certain about Social Security benefits. The COLA still exists, so inflation can’t decrease the value of benefits in theory. When push comes to shove, will politicians put promises to bond holders, many of whom cannot vote in U.S. elections at all, ahead of promises to Social Security beneficiaries, who vote disproportionately in U.S. elections? If you want to impose the cost on the bondholders instead of the SS beneficiaries, inflation is exactly what you want.

Tom September 14, 2011 at 4:44 pm

Ah hah! Thanks!

I had stumbled all around that piece of kleptoparasitic scammery without being able to get zeroed in on the essence of the specific scam mechinism.

If an amount of money goes to government regardless of by what method and then an amount comes back regardless of for what purpose then the relative worth of the amount that comes back must be less than the worth of the amount that goes.

For it to be otherwise would require a system that could operate with the properties and characteristics of a perpetual machine and be able to operate at a level of efficiency at or above 100% efficient.

The problem is that those who are producing and selling the goods and services that are being purchased using transfer payments from governments are paying the taxes that are funding the transfers using the money that is received in exchange for the goods and services that they are producing and selling.

It doesn’t work it hasn’t worked it won’t ever work because it can’t work.

Uncle Sam is a traitor!

Tom September 14, 2011 at 4:49 pm

Uncle Sam is a traitor who engages in “Fantasyville-on-the-Potomac” financial accounting that is supported and camoflaged by fraudulent bookkeeping.

Edward Cox September 12, 2011 at 11:34 am

Actually, it’s a ponzi scheme from the outset, not just after the entire facade crumbles.

Dan J September 13, 2011 at 12:59 am

SS was not set up so that a large percentage of population would be able to collect. The avg lifespan in the 30′s was under 60, 58 for men and 62 for women. Citizens began collecting their SS ‘benefit’ at 65. The program was not intended for large amounts of people to collect. If we, unofficially ad incorrectly (since I cannot account for the total population and man/woman ratio, nor do I care to) avg the two at 60 then the avg lifespan was 5yrs less than age to collect SS. Today’s avg lifespan is 77.7yrs, or 80yrs of age. By standards set by govt on creation of program, SS age of collection should be 80.

Can I just keep my money and make use of it before I am expected
to die?

Arguments?

From what I understand the idea came from Otto Van Bismark, or at least Germany was one of first to implement. The age to collect on the social insurance program was at 70 and later changed in 1916 to 65 yrs of age. The avg lifespan, that I find, is about 45 yrs of age.

I don’t like those odds.

Sounds like a political scheme to garner votes.

Tom September 14, 2011 at 4:52 pm

Just imagine a politically motivated scam being hatched in Washington, DC. For shame!

veritasrex September 12, 2011 at 11:43 am

So for almost 20 years Bernie Madoff was running something other than a Ponzi scheme? It was only when people weren’t able to collect that it magically became such. Nonsense.

Mikenshmirtz September 12, 2011 at 11:44 am

You’ve not explained why you think it is fear mongering, nor what your perceive to be the “transparent agenda” behind the metaphor. As a citizen who has paid in tens of thousands of dollars into Social Security, why should I not be concerned with whether or not that “investment” will benefit me and my family in the future?

gregworrel September 12, 2011 at 11:58 am

You could only say it is “forced retirement savings” if the money was actually “saved” somewhere. It is not. It is paid out to current recipients as fast as it comes in. So future recipients are dependent on a new group of contributors. That makes it a ponzi scheme in my view. The fact that the true nature is hidden behind a rhetoric of savings makes it borderline criminal.

Josh September 12, 2011 at 4:15 pm

SS is only “insolvent” if we want it to end. Paradoxicaly, the libertarians want this outcome, so in their minds SS has a limited lifespan. So my point is that it continues indefinately it doesent even come close to resembling a ponzi sceme.

Bruce September 12, 2011 at 4:36 pm

It continues only to the extent that government can coerce participation and print money to meet the obligations. Absent those two factors, it’s a Ponzi scheme.

Greg Webb September 12, 2011 at 5:02 pm

Josh, that’s stupid. Social security is a ponzi scheme.

Ken September 12, 2011 at 5:35 pm

Josh,

“SS is only “insolvent” if we want it to end.”

False. SS is insolvent NOW. There are no assets being held, merely IOU’s, so there it is balance sheet insolvent. Also, starting last year, SS pays more than people pay in, so it is cash flow insolvent.

If SS is BOTH cash flow and balance sheet insolvent, how can it possibly “[continue] indefinately”?

Lastly, a Ponzi scheme is “a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.” Congressmen committing fraud through accounting tricks and using procedures that would land any private sector company executive doing the same? Check. SS “benefits” being paid from subsequent “investors” (i.e. taxpayers), rather than any actual profit? Check.

Maybe you should look up definitions before you start commenting on something.

Regards,
Ken

Darren September 12, 2011 at 7:16 pm

If I have $100,000 invested in government bonds, those are assets. If the government has $100,000 ‘invested’ in government bonds, those are not assets?

Rob September 12, 2011 at 8:30 pm

Correct. To see why, replace “government” with “Darren.” IOUs to oneself are an accounting gimmick, they do not represent actual assets.

Ken September 12, 2011 at 8:59 pm

Darren,

No.

Regards,
Ken

vikingvista September 13, 2011 at 2:35 am

Darren,

The whole point of investment is to bring resources that are not in your possession, into your possession. The same is true of any income. It makes no more sense to loan yourself money than it does to give yourself a job. Investment always requires the interaction of at least two distinct entities.

Tom September 14, 2011 at 4:58 pm

The so-called Social Security “trust” fund is one of the several amounts of money that We, the people owe to Us, the people.

Those aren’t chickens coming home to roost. Those are buzzards!

John September 13, 2011 at 10:21 am

Social Security should be made “Optional”. Those who want to depend on the government when they get old can park their money with them and those who want to take care of themselves don’t have to pay the government.

Pete September 12, 2011 at 11:02 am

Good list.

One could argue that SS is not a ponzi scheme based on bullet 4. Everyone knows (or really, ought to know) that SS doesn’t invest in anything, the excess taxes go in the infamous lockbox to be payed out later. Now I know many, many people don’t actually understand this but it’s not like the information is hidden.

Thus, I think it comes down to how much you think politicians were unscrupulous liars or just intentionally de-emphasizing uncomfortable facts.

The other significant difference between SS and ponzi schemes is investors voluntarily enter ponzi schemes. Just try to decide not to participate in SS. I’m surprised the original USA Today article didn’t mention that (actually, no I’m not).

whotrustedus September 12, 2011 at 11:37 am

I think Pete has nailed it, imo. Ponzi schemes, in my mind, inherently rely on some level of deception. Participants are led to believe that they are investing assets in a productive venture that will have some level of return. I do think that most folks do not believe that their current SS contributions are being invested or held on their behalf or anything similar. I think most folks understand that their current contributions are going to pay current benefits.

I also think the voluntary nature of Ponzi schemes are important. Managers of Ponzi schemes are in the business of attempting to persuade investors of the virtues of their scheme. If the manager of the scheme can force investors to join, in any manner, then the persuasive aspects of the scheme no longer apply.

Governments collect revenues from citizens in a variety of ways and promise some kind of payback, direct or indirect. Social Security is just one of those mechanisms.

I’m not defending Social Security in any way. It has many, many challenges and is very much a force age based redistribution system. But the “p” word is maybe too strong.

Mikenshmirtz September 12, 2011 at 11:46 am

Would “some level of deception” include, perhaps, the false premise of a “lock box”?

Chris O'Leary September 12, 2011 at 12:44 pm

Exactly.

People assume the money is being saved up in order to cover future payments when, in truth, they are being spent as fast as they are received.

Oh, and another reason it’s a Ponzi scheme is because not only aren’t the funds being saved, they are spent on totally different things (and that spending is hidden from people).

Darren September 12, 2011 at 7:18 pm

Where should the funds be placed so as NOT to qualify as a kind of Ponzi scheme?

vikingvista September 13, 2011 at 1:40 am

Darren,

Why do you think SS benefits are primarily the result of a return on Treasuries? Benefits have been, for the history of the program, almost entirely comprised of transfer payments from total strangers.

Methinks1776 September 13, 2011 at 5:56 am

Darren,

Where should the funds be placed so as NOT to qualify as a kind of Ponzi scheme?

Self directed individual retirement accounts. I find he idea of forced savings obnoxious, but if the government is holding a gun to your head to save, this would be better. Since allowing the peasants to make any decisions for themselves is anathema for politicians as it serves only to increase your power at the “expense” of theirs, a fund containing a mix of equity and debt securities would be far superior.

kyle8 September 12, 2011 at 12:42 pm

How about, deceptively sold to the public at the outset, and now it substitutes coercion for deception.

simon... September 12, 2011 at 1:17 pm

“…the “p” word is maybe too strong.” What??? From your own description it follows that it’s too weak!
Would you also claim that calling a armed mugger “a con artist” is too strong?

whotrustedus September 12, 2011 at 2:11 pm

point taken. “too strong” was the wrong phrase. “too weak” would be better or maybe just “incorrect”.

i absolutely agree with everything that most of us here suggest is wrong with SS. heck, in college, i wrote a paper calling it “the world’s largest chain letter” or something similar. Anotherphil is correct. it is worse than a Ponzi scheme. I’m just not convinced that “ponzi scheme” is the right descriptor.

but hey guys, thanks for all of the replies! i’ve been trying to post something here for a while that would get a reaction. I finally feel validated!

whotrustedus September 12, 2011 at 2:52 pm

point taken, “too strong” is not right. “too weak” or “incorrect” is better. Anotherphil is correct. SS is worse than a ponzi scheme. I think we are mostly discussing semantics. i’ll stand my assertion that “ponzi scheme” is the wrong descriptor. I would accept “worse than a ponzi scheme”, however!

Fred September 12, 2011 at 12:54 pm

Deception is needed because there is a choice as to whether or not to contribute to a private ponzi scheme.
SS doesn’t offer a choice, so it can get by without the deception.

Anotherphil September 12, 2011 at 12:56 pm

“SS doesn’t offer a choice, so it can get by without the deception.”

Which makes it a worse arrangement than a Ponzi scheme.

Tom D September 12, 2011 at 12:56 pm

Pete,

The excess taxes, i.e. taxes not used to pay current recipients, have been spent on general expenditures. The Treasury then writes an IOU (a non-marketable treasury bill) to the Social Security Administration (SSA), which the SSA then puts in the lock-box.

Since 2010, however, there have been no excess taxes. The amount of payroll taxes does not cover Social Security expenditures. So, the SSA takes one of their IOUs from the lock-box, presents it to the Treasury for redemption and the Treasury pays for the short-fall with general revenues.

Ponzi schemes do have a significant advantage over SS in that no is forced to participate in a Ponzi scheme.

Sam September 12, 2011 at 11:15 am
Slocum September 12, 2011 at 11:24 am

It seems like the essential difference between SS and a Ponzi scheme *should* be the following: The only way a real Ponzi scheme can work is by promising benefits far greater than could be paid out to all participants. A real Ponzi scheme must collapse at some point. Social Security, on the other hand, in theory, *could* be operated on a sound basis *if* the promised benefits had always matched reasonable expectations of contributions of new workers.

But here’s the big rub — it seems an iron law of politics that politicians can’t resist turning SS into a ponzi scheme. Why? Because there is an irresistible urge to buy re-election votes today with increased benefits and let future pols decades in the future deal with the mess. This is exactly the same dynamic that has lead to the scandalous over-promising and under-funding of public employee pensions. Politicians, being what they are, cannot and will not resist. SS and public pensions will inevitably be turned into Ponzi schemes by unscrupulous, self-interested pols. They simply cannot be trusted to run public pensions of any kind, so we need private retirement accounts.

Chris Bowyer September 12, 2011 at 11:36 am

Correct. The more nuanced argument is that SS is a Ponzi scheme as it currently stands, but could cease to be with sufficient reforms. If you could sufficiently modify the requirements for benefits–say, by raising the age of retirement much, much higher–then the number of payees-to-beneficiaries could conceivably come back into line to the point at which the system is sustainable. But nothing in our political history even slightly suggests that this level of reform is possible. Politicians are already balking at much, much more modest reforms spread out over decades.

Edward Cox September 12, 2011 at 11:43 am

“A real Ponzi scheme must collapse at some point. Social Security, on the other hand, in theory, *could* be operated on a sound basis *if* the promised benefits had always matched reasonable expectations of contributions of new workers.”

You could also adjust PS payouts to balance contributions, at which point it would collapse. SS would collapse too if the benefits matched the contributions, for people would choose instead to invest their money elsewhere. So the main difference between SS and a PS is that SS doesn’t collapse because the government forces people to keep ponying up the cash. Therefore, calling SS a PS is being too kind to SS.

Slocum September 12, 2011 at 12:19 pm

You could also adjust PS payouts to balance contributions, at which point it would collapse.

But you couldn’t — because a real Ponzi scheme produces no returns at all, so the best it could do is give people back exactly what they put in. With SS, on the other hand, it’s possible to do better than that, for a couple of reasons — first, SS stops paying after recipients die (so others can realize greater than zero returns). Second, compounding economic growth would make it possible for payouts to grow modestly over time without bankrupting the system. That’s in theory. But in practice, politicians are ever eager to harvest votes from retirees (who are *very* reliable voters) by promising much more than these modest returns, and so, politicians being what they are, a Ponzi-style crisis is inevitable.

kyle8 September 12, 2011 at 12:45 pm

The only reform that would make it non-Ponzi is if the money collected begins to be invested in actual financial instruments.or hard assets.

vikingvista September 13, 2011 at 1:47 am

It has to be funded by return on investments, not member “contributions”. If Madoff had stuck a grand total $2 of his fund into an index ETF, that would not mean he wasn’t running a Ponzi scheme.

BTW, we do not want politicians picking $2 trillon in stocks.

PrometheeFeu September 12, 2011 at 1:13 pm

“Second, compounding economic growth would make it possible for payouts to grow modestly over time without bankrupting the system.”

All that you are saying here is that we are finding more wealthier suckers. That’s no different than a normal Ponzi scheme. If the income of the suckers keeps increasing allowing you to get a larger inflow and you keep payouts small enough you could theoretically give out more money than you take in.

Chris Bowyer September 12, 2011 at 11:32 am

“It becomes a ponzi scheme when the folks at the bottom of the pyramid don’t collect the money back that they have paid in.”

By this logic, even Ponzi schemes aren’t Ponzi schemes until the moment they collapse. But the whole value of identifying one is indentifying it BEFORE it collapses, which according to the quoted premise is impossible. Clearly, then, there is a problem with your argument.

Saying SS is not a Ponzi scheme because the government compels people to contribute isn’t much of a defense, unless you’d be perfectly fine with people slightly augmenting their claim to “Social Security is just a legalized Ponzi scheme.”

Chris Bowyer September 12, 2011 at 11:34 am

An addendum to that last point: legality is irrelevant to the point being made, which is about unsustainability. That doesn’t change regardless of whether or not a given scheme is legal or not. In other words, the problem with Ponzi schemes are not merely that they’re illegal–to the contrary, they’re illegal because of the problems with them.

Josh September 12, 2011 at 11:40 am

It wasn’t really an argument. We all know what SS is. That was more of an opinion.

Chris Bowyer September 12, 2011 at 12:51 pm

Aye. But when someone casts an opinion in the general shape of a fact, it’s worth explaining why it isn’t.

Thomas Gierach September 12, 2011 at 11:41 am

Social Security will have to keep raising the age that benefits are received too like it has done several times in the past. What’s interesting about Social Security is that its initial age that benefits are received was higher than the average life span for a person in the U.S.;so, right there, that’s a sign that it fits into bullet point #1. However, the program has diverged from its original premise of a hidden tax. It hasn’t raised its age of benefits received as the average life span increased to stay above the average life span.

It’s sort of like the Bush tax cuts where increased spending was met with decreased revenue. It’s not financially smart, because you are losing money. The same goes for Social Security, because the government is ultimately losing money.

Josh September 12, 2011 at 11:45 am

There has been certainly entitlement creep over the years, in that more benefits are paid out as people are living longer. That fact only increases the need for SS as more people are at risk of outliving their savings. Politicaly, this has been welcomed I think, and people are hungry for more, witness Obama care pushback notwithstanding, it will be a very popular program.

I think as wealth has been increasing overall, crisis notwithstanding, that this is fine.

CatoTheElder September 12, 2011 at 1:10 pm

“What’s interesting about Social Security is that its initial age that benefits are received was higher than the average life span for a person in the U.S”

That was back when people called it “Old Age Insurance”, as in a indemnity for those so old that most workers of the era did not have the strength and stamina to perform their jobs. Now, senior citizens receive their social security entitlement as retirement income so that they can enjoy their golden years.

Brian Donohue September 12, 2011 at 11:41 am

I think it’s simpler than you suggest:

A Ponzi scheme is a scheme that is only sustainable based on continued funding from an indefinitely expanding base of new participants.

Based on a 12.4% tax rate and changing the normal retirement age to 70 (and indexing it thereafter for increases in life expectancy), Social Security is not a Ponzi scheme.

Edward Cox September 12, 2011 at 11:52 am

But SS does rely on continued funding from an indefinitely expanding base of new participants, unless you reduce the promised benefits. Bernie Madoff also could have reduced the promised benefits of his fund to match the revenues it generated. Does that make it any less of a ponzi scheme?

Chris Bowyer September 12, 2011 at 12:52 pm

Saying SS would not be a Ponzi scheme if you altered it sufficiently, by its very implication, admits that it currently is a Ponzi scheme.

Dan H September 12, 2011 at 2:29 pm

^this…. spot on!

Brian Donohue September 12, 2011 at 2:27 pm

Disagree. The assumptions embedded in current forecasts envision something like a “steady state” future with respect to demographics.

cmprostreet September 12, 2011 at 4:52 pm

“A Ponzi scheme is a scheme that is only sustainable based on continued funding from an indefinitely expanding base of new participants.”

1) If SS were not a Ponzi scheme, it would not require new participants.
2) Even with changing the tax rate, retirement age, and means-testing benefits, SS would still require new participants.
C) SS is a Ponzi scheme

Do you reject premise 1 or premise 2?

Premise 1 simply restates your definition of a Ponzi scheme. Premise 2 just says you need to tax someone who isn’t retired, and you can’t tax the same people indefinitely because they eventually retire or die.

Herman September 12, 2011 at 10:17 pm

Premise 1 is at fault because you failed to include “indefinitely expanding.” If new participants replace old ones at an equal rate it is not Ponzi.

cmprostreet September 13, 2011 at 1:13 pm

“Indefinitely expanding” is required to make it a pyramid scheme, which Don explicitly stated is not a criterion for making it a Ponzi scheme.

It still falls apart without sufficient new people, while actual investments include a principal that does not require newcomers to support it. Assuming there will always be new people is not the same thing as saying it doesn’t need them.

vikingvista September 13, 2011 at 1:49 am

So you are saying that you would like to change it from a Ponzi scheme to something else.

Herman September 13, 2011 at 2:50 am

No, I want to end it. But I think it could be re-organized into a non-Ponzi scheme.

Brian Donohue September 13, 2011 at 7:06 am

This is pretty close to what happened in 1983.

steve September 12, 2011 at 11:43 am

1) I think intent matters. Most importantly, the intent is to make lots of money for the person(s) creating the scheme. They do not care if any of the contributors make any money. In the ideal scheme, the creator makes all of the money and no contributor makes any. In reality, it almost always needs to make some payouts to entice new contributors. (If you believe #2 and #3, it must be a pyramid scheme, or you require much higher contributions from later contributors. Sort of the same thing. You need ever increasing amounts of money. Note that many Ponzi schemes did not actually pay much, they just sent out statements showing paper gains. )

2) Transparency. We have total access to the revenues and outlays for SS. Economists write about these numbers frequently. I am unaware of any Ponzi scheme that does this. Please post examples if you have any.

3) Participants in SS, recipients and contributors, can vote to change the program. Yes, this might be hard, but it is being discussed. It has been done before. I am unaware of any Ponzi scheme where anyone other than the creator(s) made those kinds of decisions.

4) A Ponzi offers outsized gains. SS started off offering a 3% return. This was a fairly small return, but it was a safe, so it was thought, return.

While there are good reasons for wanting to do away with SS, market efficiencies being chief among them, I believe that calling SS a Ponzi scheme is a misleading rhetorical device. I do not think that there is enough overlap, especially in fundamental aspects like transparency, to label it as such. YMMV, but I would much rather see it addressed based upon sound principle rather than emotionally laden rhetoric. I would also rather see this kind of energy devoted to Medicare, where our debt really lies, but that is just personal preference.

Steve

Harrison September 12, 2011 at 12:01 pm

Participants in voluntary schemes can stop paying–they don’t even need to vote! The real difference to SS advocates is that “we” decided it is good; the coercive, compulsory nature of SS is actually much more insidious.

SweetLiberty September 12, 2011 at 12:15 pm

1) I think intent matters.

Often, the intent of politicians is to gain votes by demonizing anyone who would dare offer more sustainable solutions. If you hold the intent of most politicians higher than Madoff, you sir are no libertarian.

John Dewey September 12, 2011 at 2:07 pm

I do not see how you can claim to know the intent of elected officials who want to continue Social Security. Please explain.

SweetLiberty September 12, 2011 at 3:44 pm

While this video is targeted against those who would propose changes to Medicare, the same demonizing tactics are applied to those who would change SS…

http://www.youtube.com/watch?v=OGnE83A1Z4U

kyle8 September 12, 2011 at 12:48 pm

Sweet liberty addressed this, but I just want to pile on. If intent is important then SS is a particularly vile ponzi scheme, by that criteria.

It was sold by a bunch of socialists to buy votes, and has been defended ever sense against any real reforms, despite its coming insolvency; And they are still defending it, just to get votes, and to have control over others.

Compared to congress, Ponzi was an honest crook.

John Dewey September 12, 2011 at 2:09 pm

I’ll ask the same question: How do you know the intent of those thousands of elected officials who have supported Social Security over the past 70 years?

James N September 12, 2011 at 2:48 pm

I’ll take a shot. “By their actions!”

kyle8 September 12, 2011 at 2:55 pm

I am psychic

PrometheeFeu September 12, 2011 at 2:15 pm

” I do not think that there is enough overlap, especially in fundamental aspects like transparency, to label it as such.”

I do not think transparency is the issue with Ponzi schemes. The fact that the Ponzi-scheme salesman is lying to you is simply an implementation of coercion. SS just implements coercion through force instead of deception.

Emil September 12, 2011 at 5:49 pm

” I think intent matters.”

I don’t – it has been used an excuse for too long now.

tdp September 12, 2011 at 9:55 pm

“The road to hell is paved with good intentions”. I agree. If intent was all that mattered the Left would have made it rain puppies and ice cream and be shooting rainbows out their asses right now.

Dan J September 13, 2011 at 1:08 am

INTENT?
What’s the intent behind offering to repay what was taken from you at an age that you are not expected to live long enough to receive?

Avg life expectancy of men in 30′s was 58 for men and 62 for women. Age upon receiving SS payments was set at 65.

What is intent?

For most to not collect and those who are still alive will attest to the greatness of the program and continue to vote for those who promote the program. Dead men don’t vote, except in Chicago.

A. Zarkov September 12, 2011 at 11:49 am

Mathematical demographer Nathan Keyfitz who was a consultant to the Social Security Administration, wrote a 1978 article in the Public Interest Magazine (available for free online). He wrote,

Abstractly considered pay-as-you-go has elements in common with a chain letter though the time scale is different.

The trouble with any such scheme-and the reason it is illegal-is just what is wrong with pay-as-you-go pensions: it runs out of people.

If the population were to keep increasing at the same rate, this would be substantially true: In every generation there would be four men of 45 for each man of 70. But the conditions of the 1930′s
were a very special configuration that was not to be repeated even
one generation later.

In other words, the Social Security System was fundamentally flawed from its inception. In that article he predicted that SS would run into trouble within several years. He was correct. Circa 1983 Congress had to bail out the system and raise FICA taxes.

Ponzi schemes, chain letters, and Pyramid schemes all all variations on a the same idea, and they are all frauds. Calling SS a “Ponzi Scheme” is not some far out off-the-wall opinion. It’s an expert judgment as we see from Keyfitz.

steve September 12, 2011 at 12:20 pm

But in a Ponzi, the creators would simply take their money and run when it no longer works. In SS, when the demographics changed, we voted to change it. This was done openly. If you disagree with it you need only convince a majority of voters to further change or eliminate it.

SS, like many pension plans, was set up based upon an expected future. When that future changed, it changed.

Steve

Chris O'Leary September 12, 2011 at 4:11 pm

While just changing SS sounds good in theory, it’s scope is now so broad, and so many people now benefit from it, that it’s going to be hard to find the votes to change it.

It’s going to take true, kamikaze-like courage — and I use the phrase kamikaze deliberately because it’s going to take someone to sacrifice their political career — to change it.

The fact that this courage is so hard to find is how and why empires die; the suffocate under their weight of their promises and good intentions.

Emil September 12, 2011 at 5:50 pm

“But in a Ponzi, the creators would simply take their money and run when it no longer works. In SS, when the demographics changed, we voted to change it. ”

Let me rephrase that:

“But in a Ponzi, the creators would simply take their money and run when it no longer works. In SS, they were already ded or had left office.”

steve September 12, 2011 at 8:06 pm

“. In SS, they were already ded or had left office.”

So, unlike a real Ponzi, they did not take the lion’s share of the money. I know it is difficult to think about this seriously and all too easy to resort to trite aphorisms, but exactly how did the creators of this make more money than was paid out?

Steve

Methinks1776 September 12, 2011 at 7:10 pm

SS, like many pension plans, was set up based upon an expected future. When that future changed, it changed.

When they first concocted the scheme in the 1930′s, it was projected to be in deficit by 1980. Even If nothing changed, their own projections tole them it was unsustainable from the very beginning.

But in a Ponzi, the creators would simply take their money and run when it no longer works.

By contrast with a government Ponzi where they take your money and run from the very beginning.

tdp September 12, 2011 at 9:56 pm

Instead of trying to come up with even more obfuscate formulas and policies, how about adopting a system similar to the Chilean one. Not only does it not break the bank, Chileans also retire with more wealth than Americans (and it’s a *GASP* PRIVATIZED pension scheme)!

Methinks1776 September 12, 2011 at 10:07 pm

I think Australia did something similar.

I don’t understand why people believe that a profligate government will do a better job of taking care of them than they will.

Josh September 12, 2011 at 10:09 pm

Some chileans do, undoubtably

vikingvista September 13, 2011 at 2:37 am

As a matter of fact, WE did no such thing.

Economiser September 12, 2011 at 12:34 pm

This whole discussion is a red herring. It doesn’t matter if Social Security can be adequately analogized to Charles Ponzi’s investment scheme. The important facts about Social Security are the following:

1) It’s involuntary wealth transfer from the working to the retired in exchange for a promise of same in the future. There is no opt-out mechanism.

2) The promise is unsustainable at current benefit levels/retirement ages. Yes, SS can be “saved” by some combination of raising the retirement age, raising the payroll tax, lowering the real benefits received, means-testing, etc. In the end, though, the promise made today cannot be kept in full, so some people relying on that promise will be disappointed. (Medicare is a different story – that will blow up much more dramatically given the finances).

3) Nearly everyone would be better off with a private retirement account. SS doesn’t invest in anything, so it doesn’t partake in the benefit of compounding interest (or any interest, for that matter). Here is a link to a 2005 St. Louis Fed paper arguing that fewer than 5% of current retirees would be better off under SS than with private retirement accounts: http://research.stlouisfed.org/publications/review/05/03/part1/GarrettRhine.pdf

Josh September 12, 2011 at 4:04 pm

anyone ritiring after 2007 till at least now and had all or much of their retirement savings been in equities would have had their retirement dream smashed

Economiser September 12, 2011 at 4:11 pm

Garrett and Rhine at the St Louis Fed examine two types of private accounts – one that invests in the S&P 500 and another that invests in rolling 6-month CDs. In either case, fewer than 5% of retirees would do better under SS.

Either account would be hit hard over the past 3 years (in the latter case thanks to Ben Bernanke’s easy money policy), but the CD account would suffer no principal loss.

veritasrex September 12, 2011 at 4:34 pm

Anyone who contributes to SS through payroll taxes already has their retirement dream smashed since the money is taken and given to someone else. Then they simply rely on politicians to take it from the next generation.

Methinks1776 September 12, 2011 at 7:20 pm

anyone ritiring after 2007 till at least now and had all or much of their retirement savings been in equities would have had their retirement dream smashed

Well, if we’re cherry picking, how about if you retired in 1980-89? or 1990? Even if you retired in 2007 and foolishly left your entire nest egg in the much more volatile stock market were even more foolish to leave there unhedged, your principal would only have taken a 21% hit. Hardly “smashed dreams”.

Of course, you’d have to be a complete moron to roll the dice like that in the stock market in retirement if a 21% loss over four years can destroy your retirement dreams.

The volatility of the stock market is what encourages most retirees to invest mainly in bonds. And there, they’re getting whacked by Bernanke’s money printing operations. But, that’s within government’s control (if not will) to fix.

Chucklehead September 13, 2011 at 2:08 am

Retiree’s do not cash out on the date of retirement, but gradually sell there equities over decades. So unless Obama becomes King, chances are that most of their portfolio will recover.

veritasrex September 12, 2011 at 4:29 pm

@ Economiser

You had me at #1.

The analogizing is for those who ardently support weath redistribution because it gives a bad name to something they hold in high esteem. In fact, as you said, regardless of what anyone “thinks” about SS, it’s raw, unadulterated weath transfer … theft.

Chris O'Leary September 12, 2011 at 12:40 pm

It’s probably a Ponzi scheme if it fails pretty much exactly like a Ponzi scheme, and for the same reasons, as a Ponzi scheme; a dwindling supply of chumps (or forced chumps in the case of SS).

CatoTheElder September 12, 2011 at 12:41 pm

Ponzi offered his sucker-investors a 40% return in ninety days. Many people, particularly SS defenders, seem to think that the offer of outlandish returns is essential to a Ponzi scheme. Evidently, they think that a Ponzi must attract unsophisticated sucker-investors with outlandish returns.

Bernie Madoff refined the Ponzi scheme by offering returns that were above-market, but not outlandish. The reliable delivery of moderately above-market returns made the Madoff scheme attractive to many investors who qualified as “sophisticated”. Otherwise, the operation of the Madoff scheme worked pretty much like a Ponzi.

If the condition of outlandish returns is added to the definition of Ponzi scheme, the SS would more properly be called a Madoff scheme.

However, calling SS a Madoff scheme is problematic for several reasons. First, SS came before Madoff and “Madoff scheme” isn’t a commonly used phrase.

More importantly, in both Ponzi and Madoff schemes, the sucker-investors participated voluntarily. The sucker-investors suspended their common sense, allowed themselves to be defrauded, and participated in the fraud. Quite the opposite, SS relies upon coercion. Even if an employee, employer, or self-employed person suspects its fraudulent nature, the most dreaded element of the law enforcement apparatus of the United States Government – the Internal Revenue Service – coerces participation in SS and payment of Federal Insurance Contributions. This coercion actually begins at birth since a parent must apply for a Social Security number in order to claim a child as a dependent for income tax purposes. This coercive aspect of SS is in fact the most significant difference between SS and a Ponzi.

SS defenders, however, base their distinction between SS and Ponzi/Madoff schemes on yet another difference. That is, SS was established by people with ostensibly altruistic intentions rather than avaricious motives and it is operated by the State in the collective interest of the nation. As long as the intentions are pure and the State purportedly acts in the collective interest, the statist can rationalize all sorts of fraud and coercion.

vikingvista September 12, 2011 at 11:23 pm

So then Madoff’s is properly called a “Social Security scheme”, minus the coercion.

Madoff comes up with a more peaceful smaller scale version of Social Security, and he winds up in jail. Government really doesn’t like competition, does it?

CatoTheElder September 12, 2011 at 12:47 pm

One other argument for calling it a Madoff scheme is that a true Ponzi scheme will blow up in months. A Madoff scheme can last for a very long time if the government facilitates it because the promised returns are much smaller.

spencer September 12, 2011 at 1:06 pm

You just did a good job of defining capitalism.

If a Ponzi schemes essence is putting money into something now in the expectations that you will get returns as others put money into it in the future it sure sounds like capitalism to me.

And I am not saying that that is bad.

Lee September 12, 2011 at 2:04 pm

If I buy stock in a company, I’m hoping that the company does well enough to become more valuable throughout the years. Not that the company will try to trick people into buying the stock for a higher price down the road in order to pay me off.

Josh September 12, 2011 at 4:20 pm

So could we say that SS is just folks buying shares in America?

cmprostreet September 12, 2011 at 5:02 pm

Yes, if you interpret what he wrote as the exact opposite of what he wrote. Otherwise, no.

Ken September 12, 2011 at 9:12 pm

Josh,

No. America is not a company in which to invest.

Also, when private companies issue debts, the company is responsible for paying back that debt. They can’t put American taxpayers on the hook to pay for the goodies they want. When politicians employ deficit spending, they do so by putting ME and other tax payers on the hook for paying off the debt THEY created.

Regards,
Ken

Ken September 12, 2011 at 9:09 pm

Spencer,

False. A Ponzi scheme is fundamentally different from capitalism. Capitalism uses savings, through loans, and investments to create wealth, like computers, cars, houses, clothes, etc. A Ponzi scheme simply moves money around without creating ANY wealth.

Regards,
Ken

J. M. Keynes September 12, 2011 at 11:50 pm

Good show, Ken!

vikingvista September 12, 2011 at 11:26 pm

A Ponzi scheme, like Madoff’s noncoercive Social Security scheme, is about wealth transfer. Capitalism is about wealth creation.

J. M. Keynes September 12, 2011 at 11:49 pm

Jolly good, Vikingvista!

Brad Hutchings September 12, 2011 at 1:51 pm

My thought is that we’re only talking about whether it’s a Ponzi scheme because of the attitude that recipients have and are encouraged to have. That is, that they paid into it, so they are entitled to their benefits.

Call Social Security what it is, welfare, and the debate over whether it’s a Ponzi scheme is moot.

John Dewey September 12, 2011 at 2:49 pm

You can call it welfare or you can call it a Ponzi scheme or you can call it a mandatory retirement plan. It really doesn’t matter what you call it. The important thing to realize is that Boomers and seniors are going to act in their own self-interest, and they have the votes to ensure they get something back on their promises.

Young people can get as angry as they wish to – call us thieves, call elected officials liars, call the program fraud. But young people do not have the votes to end the programs now, and I do not believe they ever will. Once those who are now 40 near retirement age, they will realize they are dependent on SS and Medicare also. And they will not vote to end the programs just as I will not, at age 60, vote to end the programs now.

Brad Hutchings September 12, 2011 at 3:36 pm

@John: Ima go out on a limb and suggest that if it were thought of as welfate, which is exactly what it is, at least half of the Republican leaning seniors would consider it shameful to receive the payments, and we might have a chance at reform.

Another debate point that should be brought into the Social Security debate is how racist and sexist it is. Compare expected lifespans of men to women, blacks to whites, and tell me how you could reasonably conclude otherwise when the retirement age is universal for all in the same age bracket.

Josh September 12, 2011 at 4:06 pm

how about the fact that there is lower labor market participation among women and minorities. Double unfair!

Methinks1776 September 12, 2011 at 7:35 pm

Women (or anyone) who do not work for a sufficient number of years do not get any social security.

And that part is quite unfair. I know a woman who worked as a nurse for something like 8 years before quitting work to have children. All 8 years she paid into SS. However, because she did not work the minimum number of years to qualify, she will receive NO social security at all. Not even a reduced amount. This punishes female workers since they tend to leave the workplace more frequently to have children.

But the whole thing is such a stupid, unfair scheme that this is just one fairly mild injustice in a sea of idiocy and injustice.

John Dewey September 13, 2011 at 10:04 am

Brad Hutchings: “at least half of the Republican leaning seniors would consider it shameful to receive the payments, and we might have a chance at reform.”

You are not going to “shame” very many seniors into giving up a million dollars worth of benefits.

I am a very typical Republican senior, Brad. I’m very aware that SS and Medicare are both transfers from working Americans to retired Americans. I’m also aware that many of those receiving transfers are wealthier than those from whom the transfers are taken. But that doesn’t matter to me. I’m not going to give up the life-supporting transfers my wife and I will absolutely depend on.

My working skills will be gone in a few years, and my wealth and my transfers are all my wife and I have with which to live on and with which to pay my expected very high medical bills.

Young people have a lifetime of earning power in which to accumulte wealth and build a srtronger economy – an economy which will be able to pay for their very high medical bills in retirement.

Logical appeals that young people without wealth should not have to transfer money to older, more wealthy people fail to move me. The reason is in the previous two paragraphs: Young people have a 30 to 50 years of productive earning years to trade for life support; old people have only their wealth and their transfers.

yet another Dave September 13, 2011 at 12:47 pm

Translation: it’s OK to steal from the young because they have time to recover.

Disgusting.

Ken September 12, 2011 at 9:19 pm

JD,

“The important thing to realize is that Boomers and seniors are going to act in their own self-interest, and they have the votes to ensure they get something back on their promises.”

How much will they get back if they bankrupt the federal government by insisting on getting “something back”? Or have you not paid any attention at all to Japan and Europe? Is it in Boomer’s best interest to receive 100% of expected federal handouts for 8 years, then get nothing due to bankruptcy or is it better to get 50% of expected federal handouts till the day you die?

“call us thieves, call elected officials liars, call the program fraud.”

Don’t worry. I will not stop you personally a liar, thief and a fraud for as long as you are determined to take from me by force.

“Once those who are now 40 near retirement age, they will realize they are dependent on SS and Medicare also.”

This is laughably stupid. Neither of those programs will exist when I turn 65 or 67 or older.

Regards,
Ken

Josh September 12, 2011 at 10:14 pm

I would be willing to make you a gentlemans wager on that. Care to put up a dollar?

Ken September 12, 2011 at 10:48 pm

Josh,

On what? That the SS and Medicare of today won’t exist in 30 years? Fine. Let’s wager, but let’s be clear on the bet. It’s not enough that in 28 years there are programs called social security and Medicare. At that I wouldn’t be surprised.

But to say that SS and Medicare will continue as they currently do for the next 28 years (when I turn 65) without substantial changes, as to completely change the make up of these programs? Against that claim I will happily bet you, but something more than you pathetic ass $1.

I am not a gentleman. I am someone who has worked in the dirt, grease, and freezing rain. I am someone who works, am proud of my work, and resent those who think I produce too much, so want to take what’s mine. I’m willing to put up $1000. Are you?

Regards,
Ken

John Dewey September 13, 2011 at 10:19 am

Ken: “How much will they get back if they bankrupt the federal government by insisting on getting “something back”?

SS is not going to bankrupt the nation. Current laws have provisions for reducing benefits to FICA revenue levels as soon as the Trust fund is depleted. All that has to be done now is convince voters that the trust fund is meaningless, and that benefits should be reduced to FICA revenue levels right now.

Ken: “I will not stop you personally a liar, thief and a fraud for as long as you are determined to take from me by force.”

You seem to be missing my point. I could care less what you call me personally. But remember that seniors and Boomers have the votes, and many of them do care what they are called. You need to work out a compromise. Calling several generations of Americans thieves and liars is not going to help you convince them to work out a compromise with you. In other words, if you haven’t gotten this yet:

Calling people thieves and liars is not in your best interests.

Understand?

Ken: “This is laughably stupid. Neither of those programs will exist when I turn 65 or 67 or older.”

I’d wager with you, except that I’m not likely to be around when you are 65.

I do not wish this on your generation, but I’m convinced that some form of socialized medical care or medical insurance will still be the predominant form in 40 years and in 100 years. Other nations have proven that socialized medicine will not bankrupt the nation – though such forms may kill a lot of people through non-price rationing.

I hope you are correct that SS will somehow be privatized by the time you reach 65. But I’m not optimistic about that, either. The best chance for privatization was 20 years ago, when privatization was in the best interests of the Boomer generation. That opportunity has passed, and demographics don’t look favorable for privatization for a long time. That’s especially true since low income sectors of the population are growing faster.

Ken September 13, 2011 at 4:43 pm

JD,

“SS is not going to bankrupt the nation.”

The nation is NOT the federal government.

“Current laws have provisions for reducing benefits to FICA revenue levels as soon as the Trust fund is depleted. All that has to be done now is convince voters that the trust fund is meaningless, and that benefits should be reduced to FICA revenue levels right now.”

There is not trust fund. It consists only of IOU’s from the government. Just because I can write myself a check for one million dollars doesn’t mean I can cash it. This is what the “trust fund” amounts to. Do you believe that? If so, are you willing to accept lower SS “benefits” that you claim the law stipulates?

“You seem to be missing my point.”

I never missed your point. You missed mine. Properly labeling thieves “thieves” and liars “liars” is ALWAYS in my best interest. You’ve been lied to all your life by politicians about the promises they made. Now you will lie to me and the younger generation to extract as much money from us as possible. When I call you a liar and a thief, it isn’t to hurl an insult at you, but to warn those who might otherwise take you seriously.

“I’d wager with you, except that I’m not likely to be around when you are 65.”

Really? You think that SS, as it exists today with the same tax rate and payout, will be around in 28 years? Do you not understand demographics? I’m willing to bet $1000 that if there is a program around in 28 years called social security it will not be much like the current social security program (if you’re serious about the bet we can hammer out the details).

If all you’re willing to bet on is that there will be a federal program called social security in 28 years, this is a farce and you know it. If the NFL all the sudden (or gradually over 28 years) adopted the rules of the MLS, no one would consider the NFL to represent football despite still being called the NFL. All would recognize the game to be soccer.

“The best chance for privatization was 20 years ago, when privatization was in the best interests of the Boomer generation.”

You have an awful lot of faith in Boomers. How many Gen Xers are there now in the senate and house? How many Boomers? How long before the Boomers are the minority? After three disastrous presidencies from the Boomer generation, how many more are likely?

But let’s assume you’re right and examine your logic.

1. Boomers are and have been for at least 20 years politically powerful.
2. Boomers always vote in their self interest.
3. Boomers won’t substantively modify SS now because it is not in their self interest.
4. Boomers didn’t substantively modify SS when it was in their self-interest.

You can see how stupid you sound, right? So now on top of being a liar and a thief, you’re stupid too?

Regards,
Ken

John Dewey September 14, 2011 at 9:44 am

Ken: ‘There is not trust fund. It consists only of IOU’s from the government.”

The trust fund does not contain assets, but it most certainly does exist. Those IOUs exist and will remain a claim on taxpayers earnings unless the law is changed. I do favor eliminating those IOUs and reducing SS benefits to levels of SS receipts at current tax rates.

Ken: ‘So now on top of being a liar and a thief, you’re stupid too?”

No, I do not believe I am stupid. I do believe that referring to several generations of Americans as “liars” and “thieves” is not a very smaert tactic to employ.

Ken September 14, 2011 at 5:53 pm

JD,

“The trust fund does not contain assets, but it most certainly does exist.”

It exists in the same way that check I wrote myself for a million dollars.

“Those IOUs exist and will remain a claim on taxpayers earnings unless the law is changed.”

False. Words on a piece of paper written by government officials do NOT create wealth. When there is no more wealth take, it doesn’t matter what the law says and how much it grants a certain segment of the population to have.

“No, I do not believe I am stupid.”

Yet you put forward logically contradictory statements that can be broken down into four steps and clearly shown to be contradictory. Inconsistency in such a short amount of space is indeed indicative of stupidity. That fact that you don’t “believe” that to be so doesn’t matter. The same way that if you “believe” yourself entitled to my money doesn’t make it so. The same way that if you “believe” old people, the most affluent segment of the American popluation by the way, should receive $X, even when there is only $Y, where Y is less than X, doesn’t make it so.

“I do believe that referring to several generations of Americans as “liars” and “thieves” is not a very smaert tactic to employ.”

As I said, it’s always smart to properly label things. The fact that you don’t like to be accurately labelled a liar and a thief doesn’t make it not smart. It just reinforces that you are a liar, willing to use deception to get what you want; it’s like saying “It’s not smart to call me a liar, even when I am lying, and in your best interest to regard me as a liar because all it does is antagonize me.” I’m not really worried about antagonizing a liar and a thief. As for what you “believe” see above.

Regards,
Ken

vikingvista September 13, 2011 at 2:43 am

What do you call an individual who openly declares that he doesn’t care what is right and what is wrong, but only what he can get away with?

Josh September 13, 2011 at 11:47 am

The only certainty in life is death and taxes. That has been and will be the case forever. Time to accept that folks. The name calling is unfair.

Ken September 13, 2011 at 4:44 pm

Except for the 45% of Americans that don’t pay taxes.

Regard,s
Ken

yet another Dave September 13, 2011 at 8:25 am

John,

I’m certain you’re right about the demographics – the bullying isn’t even subtle any more. I saw TV a ad (probably AARP sponsored) with a group of seniors basically saying “we’re taking your money and there’s not a damn thing you can do about it.” Talk about tyranny of the majority!

This is what always happens with a wealth transfer program. Those who benefit become a powerful lobby to continue the fleecing of those who pay. Even though it’s predictable, it’s still despicable and disgusting behavior. It’s even worse than a common street thug – at least the thug puts himself in harms way to do the stealing. You just send your goons after those you rob.

John Dewey September 14, 2011 at 9:37 am

yet another Dave: “Talk about tyranny of the majority!”

AARP may just now be open about it, but the majority have supported that intergenerational wealth transfer for about 75 years. Is it just now surprising to you? Not sure how old you are. I am 60. I have observed AARP use its political clout – the high voting participation by seniors – to influence elected officials throughout its existence.

yet another Dave September 14, 2011 at 12:05 pm

The only surprising thing was the blatant openness. I’ve been well aware of AARPs true nature for many years. Now that they have boomers like you in big numbers they just come right out and say what they’ve always done but disguised. The message is: “We’re going to steal from you and you’re just going to bend over and take it because you can’t stop us. We have millions of immoral thieving parasites who’ll outvote you every time. We just don’t care how disgusting it is because we want your money.”

And before you repeat the comment you’ve made to others, calling you and everybody who thinks like you immoral thieving parasites is not a tactic to persuade. It’s simply an accurate description.

FWIW, the best proposal for SS I’ve heard was from Harry Brown years ago – the US gov’t should sell enough assets to buy annuities for current and imminent SS recipients, then eliminate the program altogether. Sadly because of thinking like you’ve expressed here such a proposal has zero chance of happening.

John Dewey September 14, 2011 at 2:19 pm

yet another Dave: “We have millions of immoral thieving parasites who’ll outvote you every time.”

Well, we obviously disagree about whether beneficiaries of a government-controlled retirement program are guilty of immorality or of thievery.

John Dewey September 14, 2011 at 3:08 pm

yet another Dave: “Sadly because of thinking like you’ve expressed here such a proposal has zero chance of happening.”

What thinking is that? I’d support your proposal in a heartbeat. I’d much rather depend on a private market annuity than on one subject to the whims of voters and Congress.

yet another Dave September 14, 2011 at 6:21 pm

Yes, we disagree. I see taxes as theft. Sure they don’t violate any statutes, but the taxer writes the statutes so that’s no reason to change the definition of stealing.

I’d support your proposal in a heartbeat.

Then why do you keep repeating that you’ll vote to keep it going rather than saying you’ll advocate reforms to eliminate the program with such mitigation included? You seem to have really dug in your heels on this one.

John Dewey September 14, 2011 at 6:57 pm

yet another Dave: “Then why do you keep repeating that you’ll vote to keep it going rather than saying you’ll advocate reforms to eliminate the program with such mitigation included?”

Not only do I support such reforms now, but I have written letters in support of such reforms in the past.

What others have proposed – in this comment and others – is an immediate end to SS, so that my generation is left without any benefits from SS after paying FICA taxes for decades. Russ has also proposed means-testing. I do oppose both an immediate end to SS (meaning an immediate end to benefits) and means-testing.

You are the first person to offer a reasonable compromise – that is, after calling me a thieving, immoral parasite and accusing me of despicable, disgusting behavior. I don’t recall anyone else including a phrase anything like:

“with such mitigation included”

If they did, I overlooked it.

FWIW, I do not believe American voters are going to buy in to the selling of sufficient assets to buy annuities for current and imminent SS recipients. That’s a lot of assets – trillions of dollars worth, I believe. It’s an interesting proposal, but, sadly, one that I feel is politically unworkable.

yet another Dave September 15, 2011 at 11:13 am

You are the first person to offer a reasonable compromise – that is, after calling me a thieving, immoral parasite and accusing me of despicable, disgusting behavior.

The terms you repeated are simply accurate descriptions of the position you have repeatedly taken here at the café.

I described a solution that ends social security’s parasitic thieving. I agree that in today’s political climate such a solution is going nowhere; however that political climate can change. The way it changes is for people like us to advocate such solutions and try to persuade others to our point of view. Taking the position you have is antithetical to bringing about the needed changes. It’s strange that you never mentioned any support for such a solution before I mentioned one, especially in light of the criticism from several of us here.

If you had taken the position that you will cash the ss checks sent to you but continue to advocate for such a solution I would never have described you as I did. Instead you took the position (repeatedly and vehemently) actively supporting continued stealing from younger Americans. IMO that is despicable and disgusting.

vikingvista September 12, 2011 at 11:36 pm

Yep. It is a simple fact, that they *cannot* get their money back, because their money is gone. What they really mean when they say that, all they can really mean, is that they simply want money, so they are going to see to it that young workers, who did nothing to hurt seniors, are going to be maximally mugged to the benefit of retirees.

They scream, “But the government promised us these muggings!” And they call that a justification.

Lee September 12, 2011 at 1:57 pm

I’d like someone to estimate how the stock market, and economy as a whole, would benefit from billions of new dollars being invested if we were able to opt out of Social Security.

HaywoodU September 12, 2011 at 6:06 pm

Mattresses may benefit too.

Lee September 12, 2011 at 7:29 pm

Well, think of all of the mattresses the government wouldn’t need to purchase in order to hold that money. I think it would be a wash.

LAD September 12, 2011 at 2:04 pm

The current discussion of Social Security is too narrow. Its inherent Ponziness only goes to the issue of whether it is sustainable and a fraud. The problems with Social Security extend far beyond those and include the following:

1. It’s a regressive tax that disproportionately falls on the poor;
2. The benefits go disproportionately to the rich and middle class;
3. It reduces the national savings rate and increases interest rates;
4. It increases unemployment;
5. It pays a negative rate of return for almost all retirees;
6. Recipients have no legal right to the benefits;
7. Benefits aren’t paid in a rational way; and
8. Efforts to preserve the system will make all of the foregoing problems worse.

Social Security is a fascinating study of how a program that harms almost everyone can be wildly popular. I suspect Obamacare will have the same attribute once it is operational.

Jim September 12, 2011 at 2:34 pm

Beautifully written sir.

John Dewey September 12, 2011 at 2:54 pm

“It’s a regressive tax that disproportionately falls on the poor;”

Someone earning $10,000 annually pays the same percentage of income in FICA taxes as does someone earning $100,000 annually. How is that falling disproportionately on the poor?

“The benefits go disproportionately to the rich and middle class;

I do not think that is true. In fact, I’m fairly certain that the poor receive benefits which are higher in proportion to the taxes they paid.

kyle8 September 12, 2011 at 3:02 pm

Are you just being deliberately obtuse? Although I am not a big advocate of progressive taxation, at least I understand that a poor person paying the same tax rate as a wealthy person has a disproportionate burden, since his costs are much closer to subsistence.

You can certainly make the argument that it is fair that everyone pay the same rate, but it is disingenuous to say that the regressive tax will not be a greater hardship on poor people.

John Dewey September 13, 2011 at 10:29 am

Sorry, but I disagree. You may continue to refer to my disagreement as being “deliberately obtuse”.

FICA taxes are not regressive taxes for all of the population earning below $100,000 per wage earner. Not per household, but per wage earner. That covers probably 95% of the population.

I also disagree that a person paying $3,000 on $23,000 wages is burdened more than a person paying $12,000 on $86,000 wages. You may “understand” differently. But that doesn’t mean I am “deliberately obtuse”. It just means we disagree.

LAD September 12, 2011 at 3:17 pm

The poor tend to start paying into the system earlier because they begin work at a younger age than those who go to college.

The poor also have shorter lifespans so they receive benefits for a shorter duration of time.

Methinks1776 September 12, 2011 at 3:24 pm

Which is a great argument for not forcing taxpayers to backstop the loans for people who go to college.

I worked all through college.

The poor also have shorter lifespans so they receive benefits for a shorter duration of time.

Do you happen to have stats for that? What I’ve seen shows that the poor receive more than they pay in. That’s the way the program was designed.

LAD September 12, 2011 at 6:08 pm

From this WSJ Article: http://blogs.wsj.com/economics/2008/04/18/income-inequality-extends-to-life-expectancy/

“But when the data is broken down by socioeconomic status instead of race, a growing disparity is clear. “In 1980, life expectancy at birth was 2.8 years more for the highest socioeconomic group than for the lowest. By 2000, that gap had risen to 4.5 years. The 1.7-year increase in the gap amounts to more than half of the increase in overall average life expectancy at birth between 1980 and 2000,” the CBO said.”

Methinks1776 September 12, 2011 at 7:27 pm

Thank you, LAD.

That does show a lower life expectancy for the poor but not that they receive less in SS benefits as a group.

SS benefits to lower income earners exceed the amount they paid in during their working life. I’m not sure of all the reasons for this, but the fact that benefits continue to be paid posthumously to the surviving spouse or children may be one.
http://ssa.gov/survivorplan/ww&os2.htm

Economiser September 13, 2011 at 6:28 pm

@ methinks:

I was a bit loose when I said “no” death benefit. SS does (as of now) pay certain benefits to widowed spouses and dependent children. What I meant is that the principal and income stream is not freely heritable like a private account, and the recipient has no control over the principal (like they would in a private account). The right to receive SS benefits is a far cry from the right to inherit savings.

Methinks1776 September 12, 2011 at 3:20 pm

I do not think that is true.

You’re right, It isn’t true, John

I don’t have the data at my fingertips to link to right now (the calculation was in the WSJ a few years ago), but high earners receive less than they pay in and lower income earners receive more than they pay in. There is definitely a bit of means testing already in the system.

Jim September 12, 2011 at 4:03 pm

This is true. It is also true that the poor tend to live shorter life spans.

I can’t remember where I saw the actuarial tables, but the poor working black man (who has the shortest life span) does not get his SS back; he dies too soon. Neither does the rich working white guy; he pays in more than he can get out, although he has a chance to get his money back if he lives long enough. Both are subsidizing the middle class, and the rich white woman, who lives the longest.

Economiser September 12, 2011 at 4:17 pm

Also, social security has no death benefit, so the poor who die earlier can’t pass on their assets to their heirs. Private accounts have the nifty benefit of being heritable.

Methinks1776 September 12, 2011 at 7:37 pm

I don’t think that’s entirely correct, Economiser.

http://ssa.gov/survivorplan/ww&os2.htm

vikingvista September 13, 2011 at 2:50 am

Retirement income, including SS benefits, are taxed as income. Wealthier people tend to have higher retirement incomes. Therefore their SS benefits are taxed at a higher marginal (or effective) tax rate. Same pretax benefits, but lower post tax benefits.

James N September 12, 2011 at 3:13 pm

You can add another item to your already excellent list. Read John Dewey’s 2:49pm post.

9. It creates an entire class of immoral individuals.

yet another Dave September 12, 2011 at 7:07 pm

That may be the worst one of all.

John Dewey September 13, 2011 at 10:59 am

Hey, I’m honest. Many in my generation may act ignorant, but they understand exactly where the money for their retirement is coming from.

Don’t kid youself into thinking that you or your generation can play the morality card and get a senior to give up a million dollars in benefits he’s been promised. You may be idealistic enough in your youth to think that such a tactic may work. Those of us who have been around for six decades just might understand human nature a little better than you do.

Josh September 12, 2011 at 4:08 pm

regressive to the poor? uh, I guess, for the working poor, but it matters the most to the poor as well, so they really dont mind that.

Political Observer September 12, 2011 at 3:09 pm

Social Security is not a Ponzi scheme. It is income redistribution on a generational basis. The young are forced to send a portion of their current earnings to fund the “retirement” checks for the elderly. That has always been its design and intent. When enacted in 1935 the premise for the act was to encourage older workers to quit their job so that the younger ones could take those jobs. FDR and his advisor believed that the economy would not likely grow at a sufficient rate to support both workers so one had to go.

What we are facing now is a generational issue on who gets the resources. With less than 3 workers to every one retire (and soon to be a 2:1 ratio) the sustainability of the program at current levels will require signficiantly higher tax rates on the young to support the old.

The big lie in all of this was the idea of a “Trust fund” that we all paid into. The secondary lie – not always stated but clearly implied – was that we had individial accounts from which our benefits would be paid. Even the SSA supports this illusion with the annual benefit summary statement that shows your yearly income and taxes and the expected benefit when you retire.

A better analogy would be the public employee pension benefits (and the UAWs). Great promises of a golden retirement but woeful underfunding of liabilities.

Josephine Stalin September 12, 2011 at 3:17 pm

Charles Ponzi was eventually caught and served time in both federal and state prison before being deported back to Italy. In his final interview he said, “Even if they never got anything for it, it was cheap at that price. Without malice aforethought I gave them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.”
Far eclipsing Mr. Ponzi’s chutzpah, the American Government’s scheme is infinitely greater and unstoppable.

Everyday JFK’s New Frontier continues to expands further across the globe and even into the far reaches of outer space. Truly we have nothing to fear but fear itself, and must continue to ask not what you can do for yourself, but rather what use you can do to be of use to the greatest nation of all time.
America’s exploits shine brighter than all the stars in the heavens.

rhhardin September 12, 2011 at 3:36 pm

Annuities are not Ponzi schemes because the promise of lifetime income (which adds to infinity, potentially: a huge return on investment) is ended by death.

Likewise Social Security. It doesn’t encounter the characteristic Ponzi exponential failure.

HaywoodU September 12, 2011 at 6:09 pm

Annuities are purchased by individuals at their own discretion.

Not so for SS.

rhhardin September 12, 2011 at 7:04 pm

Right, SS is a tax.

That has nothing to do with Ponzi.

vikingvista September 13, 2011 at 2:55 am

If it were presented as a tax and welfare payment, you would be right. It is because it is presented as an investment that it is a Ponzi scheme. It is a fraudulent investment.

John Dewey September 13, 2011 at 10:40 am

I admit to ignorance on this, vikingvista. I have never seen a government document which presented SS as an investment. Have you?

I’ve only seen SS presented as a pay-as-you-go program. I’m pretty sure my parents recognized that SS was a generational transfer – a transfer from working generations to those who were beyond working age.

When I was young, there was little doubt that most persons over 65 were not capable of working in the typical job requiring either physical skills or mental skills. That’s changed, of course, since the 1950s. What hasn’t changed is the recognized or legal retirement age.

Josh September 12, 2011 at 4:13 pm

It is inefficient to ask everyone to set aside enough money for 40 years of retirement. Most won’t need it all, some wont be able to earn enough in a lifetime to mathmaticallly do that and eat at the same time, and a tiny fraction of folks would still outlive their savings! A risk pooling program of some kind, if only optional is definately needed.

Economiser September 12, 2011 at 4:23 pm

It is inefficient to ask everyone to set aside enough money for 40 years of retirement.

It’s inefficient to ask adults to behave like adults?

Most won’t need it all, some wont be able to earn enough in a lifetime to mathmaticallly do that and eat at the same time, and a tiny fraction of folks would still outlive their savings!

All working Americans pay FICA, so clearly they make enough to put aside that money. For those who don’t need it all, great, they get to pass on assets to their heirs. To those who outlive their savings, there’s private charity or better cost-containment. Even if the government supports those who outlive their savings, that’s still a small fraction of those who currently receive SS. True welfare programs aren’t what’s bankrupting us.

A risk pooling program of some kind, if only optional is definately needed.

Have you never seen insurance advertisements?

Josephine Stalin September 12, 2011 at 5:10 pm

Why don’t you just admit the Keynesians are right and be done with it?

Your clinging to these tarnished idols of individuality will only bring you ruin.

We must fight fire with fire. We give up a measure of freedom to keep the Communists at bay. We suspend freedoms of economics, association, and travel to stem off the flood of foreign cultures, influences, and ideas.

The wartime payroll withholding began in the 40′s must continue because we are still at war with the faceless worldwide hordes who hate us for our freedom.

Being free means being constantly at war with other races, creeds, genders, generations, and nationalities. Freedom isn’t free, but rather demands an endless incalculable sacrifice for the general welfare.

Methinks1776 September 12, 2011 at 7:39 pm

Nice snark :)

Chucklehead September 13, 2011 at 10:26 pm

I love it when you talk dirty.

Justin September 12, 2011 at 5:11 pm

The one harmful effect I think you left out Don was the social consequences and reduced savings rates. Other than that the list looks about the same as mine. I wrote this blog post two weeks ago: http://emergentsociety.org/?q=ssworsethanponzi

Thomas Swift September 12, 2011 at 7:50 pm

I haven’t read through all of the comments but I must hastily add something which I feel is quite obvious: Social Security doesn’t have to deceive in order to gain participants because it is written in law and enforced by coercive means.

“It’s okay because it’s not fraud. It doesn’t use fraud because it prefers, and can employ, force.”

vidyohs September 12, 2011 at 7:51 pm

After reading every post above on this subject, including the original post by Don, I weep for my people.

Reading that crap is like reading Lord of the Rings, pure fantasy, conjecture, misinformation, conventional wisdom, and not one shred of truth in the entire compilation of posts and comments.

There is not now, and never has been, a law requiring anyone to apply for an SSN or to participate in the SS program. I have that in writing direct from the SSA itself.

Yes yes I know, so many people believe in the lie that life is difficult without one, but that does not effect the base truth of the matter, which is no law.

In typical ignorance shared with all my fellow Americans, from the coercion at age 14 to apply for an SSN thru starting my own business in 1983, I paid FICA, and became fully vested in the program.

No, everyone does not pay FICA. I don’t and haven’t since 1983. There are countless beneficiaries of SS that never paid a penny of FICA, yet receive full benefits in line with their age and eligibility (a very expanded concept of eligibility of course).

My information does not negate the labeling of SS as a Ponzi scheme, not at all, as a matter of fact it reinforces that label. You voluntarily participate, pay in, in full expectation of receiving back, all the while knowing that there is no way what you pay in can ever be enough to generate the wealth necessary to pay you through a long retired life. You know you are getting over on future workers. It is a Ponzi scheme and you know it, and truth be, you won’t do a damn thing to change it until you get yours.

Why do I say that. I am not a particularly nasty guy, but my information is not new to this forum, yet people trip and fall over the truth, pick themselves up and dust off hoping no one notices. Better the lie and tranquility, than the truth and turmoil.

John Dewey September 13, 2011 at 10:42 am

Sorry, but I’m not taking your word for it. Not that you aren’t normally a believable guy. It’s just that your assertions on this particularly issue are not believable.

John Dewey September 13, 2011 at 12:04 pm

from the website of The Fried Law Firm:

The Internal Revenue Code requires every employer to withhold Social Security taxes, Medicare taxes, and income taxes from the wages of its employees. … The IRS considers the failure to properly withhold and pay over Withholding and Payroll Taxes a serious violation of the Internal Revenue Code. If a business fails to timely pay its Withholding and Payroll Tax obligation, the IRS is authorized to forcibly collect the tax due, plus substantial penalties and accrued interest.

Are you saying that Fried Law Firm is wrong? or are you saying that there is some way for a worker to get his FICA taxes back from the IRS?

vidyohs September 14, 2011 at 7:40 am

Let’s answer both comments with one reply.

My assertions. I only assert that everyone learn the truth for themselves. I assert that when you do that, at some point you will realize that you have pulled back the curtain and found, not the Wizard of Oz, but an even stranger creature that is difficult to believe….shall just call him a liar and a thief? You, John D., are typically very astute in your comments and analysis of what people are writing on this blog. Yet, you do not extend the same diligence to reading and analyzing the words of the IRS and its sycophant codependents, such as the Fried Law Firm, and tax document preparation firms such as H&R Block and Jackson Hewitt.

The government gave you chains at birth, told you they were a fine wool sweater, you stroke those chains and believe that it really is fabric. Never questioning, never looking, never analyzing.

Now, it is a fact that there is no law requiring anyone to apply for and have an SSN to work in this country. Having no SSN means no participation in the SS program. If one has no SSN there is no way for the SSA to create a file or account for an individual, and ultimately there is no way for the SSA to pay out benefits when there is no evidence of “contributions”, no means for record keeping in other words.

So the question you should be asking, John D., is “if I have no SSN and indicate by not applying for one that I do not wish to participate in the program, what can the government claim as legitimate taxes on my earnings? What would an employer be lawful authorized to withhold?”

Why the lies and coercion, John D.? Well that has an obvious answer. Big bucks, lotsa dollars, muco mulla, comes in to the government to be spent on redistribution of the wealth on vote buying schemes. The government doesn’t believe people should know the truth, much less act on that truth, and act free

Why the lies regarding the SSA and the Income Tax, John D.? Read the U.S. Code and you will find that there is no attempt at deception in any section (Title) except 26. Title 27 is the code applying to ATF and there is no deception in it. Title 26 is the only section of code that does not have any enforcement provisions in it, all enforcement mentioned in Title 26 is found in Title 27. That is a unique arrangement in the U.S.Code, and ultimately when one gets crosswise of the IRS in such a way they can make a legal case that you have committed a crime, you will find the charges and law come out of Title 27……which is why no Judge in any court will allow a defendant in a case brought by the IRS to introduce actual law to the Jury, nor will the Judge provide the law to the jury.

Re: The Fried Law Firm and other sycophant satellite industries; go to any of them and ask them to show you the actual law that requires you to self report your income via a 1040 or any other document, then ask them to show you the exact law that requires you to apply for an SSN. I guarantee you that they will not be able to do it. All they will do is show you misleading terms put together to create the illusion that there is a law, but they can not and will not show you the actual law. Much better minds than mine have combed Title 26, Title 27, and other related code and have not found those laws yet.

The literature from the IRS says, All taxpayers shall etc. et. al…….. But you do not see the assumption there and operate as if that phrase has actual legal meaning applicable to you.

Ask the question, “am I a taxpayer vis-a-vis the income tax or FICA tax, and how is that established?”

You know that chattel slavery is not the only form of slavery, and that is why the 13th Amendment to the Constitution says that “no slavery and no “involuntary servitude” (such as financial slavery) shall be imposed on anyone in the USA.

The SCOTUS has ruled that the 16th Amendment did not alter or change the taxing authority of Congress in any way.

There is only one way those two facts are compatible. Bright as you are, you should be able to figure out the way.

Again, yes I am well aware that business and every financial institution of any nature, as well as the people, have been coerced and indoctrinated to believe the lie, and that finding work or doing business without an SSN is difficult at best, and impossible for those who are not willing to live on the edge.

And, no, the SSA is not going to reimburse you for the FICA wages, in lump sum (much less pro-rated for inflation and interest) you voluntarily gave them. I know because I did the math and wrote the demand, and was refused.

The answer is, don’t give them the money in the first place, so I stopped in 1983. At first I used government law and rules to avoid doing so; then in 1989 I learned more of the truth and left the system entirely. I am still out of the system, I have been self supporting all these years, and I have survived quite well, thank you very much. Yes, it is difficult, but the price of freedom is worth it to me.

Now, John D., amigo, you can continue to believe your conventional wisdom if you choose, or if you must. It won’t effect my life or my lifestyle at all. However, I do consider it a crime against yourself and a crime against freedom to not bother to at least learn the truth and work from the base of fact rather than “they told me it was so.” In other words make a free voluntary decision of which way you choose to live you life.

BTW, I get correspondence from firms like the Fried Law Firm at least 3 to 4 times a week, and have been since the mid 1990s. That frequency goes up when the IRS sends me threatening letters. Just for fun I follow up once in awhile and ask the firms who sends me letters to tell me what is the exact law, and where do I find it to read myself, requiring me to cough up money on demand of the IRS. I make it clear in my response that I will not be satisfied with gobble-de-gook phrases and implied threats, and that I would like to see the actual quote from the code. John D, I get no answers, does that surprise you?

The government lies about the SSAct, lies to you individually, lies to the American people in general, and lies to business of all categories, and you think they are telling the truth about the income tax or anything else? Tsk Tsk.

Bright people like yourself who do not recognize their own enculturation and operate in the most important arena of their individual lifes using strictly conventional wisdom, is why the government in general, and the IRS in particular is so successful at coercion.

John Dewey September 14, 2011 at 9:52 am

Well, at least give me credit for paying attention to ou comment and not ignoring it, as everyone else apparently has done.

Sorry, but I am going to accept the word of lawyers and accountants I employ before I accept the word of someone who admittedly has been harassed by the IRS. My accountant was very clear when he told me I must withhold FICA taxes from my employees pay and very clear when he told me I must pay self-emplyment taxes on the income from my business.

I have no desire to fight with the IRS. Apparently you do. Good luck to you.

vidyohs September 14, 2011 at 6:17 pm

Actually John D. I have no desire to fight with the IRS, I would much prefer they abide by the actual law and leave me alone. They bring the fight to me, the fight would cease if they abided by the law.

It is not the socialist, the wealth redistributors, who are America’s problem. America’s problem is the people like you who know something is wrong but who are afraid to find out just exactly what that is, and then do something about it. Your comfort is much too important to be placed second behind your freedom.

John Dewey September 14, 2011 at 6:44 pm

You are mistaken, vidyohs. All my life I have done something about the “wrongs” which are important to me. That you and I might rank those wrongs differently is not at all surprising to me.

vidyohs September 14, 2011 at 8:01 am

BTW, would you like motivation to look for the truth, learn the truth, and spread the truth? Well how about I share my motivation:

Congress approved, some time ago, that $750,000,000 be allocated to the State Department exclusively for the repair of Muslim mosques all across northern Africa and the Middle East. $750,000,000 – 750 million dollars to do with your money what you would spend a penny on if you thought it was voluntary!

Does that make you happy? Does it make you go all gooey, fuzzy warm, and giving inside? It really angers me.

So, if the average wage earner pays in $20,000 in taxes in the average year, how long would said wage earner have to work (slave) in order to provide that 750 million dollars?

Do the math. $750,000,000 divided by $20,000.

Like the answer? I don’t.

For grins take the number of years you came up with and divide that number by 45 (assuming tax paying begins at age 20 and ends at age 65) and see how many individuals would have to slave all their lives with their taxes going exclusively to pay that ridiculous $750,000,000.

Like the answer? I don’t.

And, for the life of me, I can not figure out how people can live in this world, this nation, with the evidence of outrageous squandering, available to all, and evidence of the the facts I just proposed to you here, and not put it all together and just simply walk away or engage in serious unrelenting work to rid themselves of the yoke and put this government under the thumb of the free man.

Josh September 12, 2011 at 10:32 pm

I wish some well-fed philosopher, whose meat and drink turn to gall within him; whose blood is ice, whose heart is iron; could have seen Oliver Twist clutching at the dainty viands that the dog had neglected. I wish he could have witnessed th horrible avidity with which Oliver tore the bits asunder with all the ferocity of famine. There is only one thing I should like better; and that would be to see the philosopher making the same sort of meal himself, with the same relish.

Dickens

J. M. Keynes September 12, 2011 at 11:54 pm

Thanks, Josh. I love fiction, too. But, I separate fiction and silly emotions from morality and economics.

Dan J September 13, 2011 at 1:02 am

Now let’s paste and copy excerpts from ‘animal farm’.

Methinks1776 September 13, 2011 at 6:08 am

meh. You do it. I’m too equal for such mundane tasks.

yet another Dave September 13, 2011 at 12:42 pm

:-)

Dan J September 13, 2011 at 1:20 am

Your argument for voluntary participation in SS is akin to Obamas argument on mandating Health Insurance. I will make a choice in laboring for exchange of something of value, money, therefore I have impact on commerce at some point and am subject to federal regulating via commerce cause?
I volunteer by choosing to earn a paycheck by working for someone instead of having my own business?
If its voluntary, how do I stop FICA payroll from taking the money? And can I get what was paid in back, right now?

vidyohs September 13, 2011 at 6:15 am

Was this addressed to my comment?

Brian Donohue September 13, 2011 at 7:20 am

Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is – the strong horse that pulls the whole cart. – Winston Churchill

I increasingly view the impending political showdown in this country as between taxpayers and the public sector employees that threaten to break the back of the private economy. It’s already playing out, right?

My family is full of teachers. Ask them what they think about Social Security. The truth is, they don’t give a rat’s ass, other than to try to get 10 years of real work in and cadge some benefits.

Doesn’t this say something? Social Security is the private sector retirement system, and it has been fleeced for decades.

For something like half of current retirees, Social Security is basically the only source of income. It s a lifeline for lower-paid private sector workers.

And it’s not a Ponzi scheme.

muirgeo September 13, 2011 at 10:21 am

Dude,

The private sector that lobbied politicians to allow the finacialization of this economy and the eventual private sector creation of opaque financial derivatives IS what has blown up the modern global economy. Our current situation of economic decay has nothing to do with public sector workers. We have swung the boat too far in the neoliberal direction causing massive wealth and income inequality and that is why things are a mess. Things will not improve but get worse with more neoliberal “solutions”. Things will only improve when policies that decrease welath and income inequalites are instituted.

You are living a lie and our economy is dying for it.

Brian Donohue September 13, 2011 at 12:23 pm

Poor countries don’t have welfare states and bloated public sectors. This is a luxury only affordable to countries grown rich through private enterprise (or Potemkin economies like Saudi Arabia, grown rich through dumb luck.)

You fail to see the parasitical, rent-seeking nature of the public sector (may I hazard a guess that it is harder to see from within?) and do not understand the arrow of causality here.

It’s ok though. As long as we get you back down to 30% of GDP and keep you there, we can carry you.

Dan J September 14, 2011 at 1:37 am

As Russ Roberts has indicated, issues about govt malfeasance comes down to govt ability to give out ‘goodies’, whether it be to rent-seeking businesses looking for advantages or individual voters in terms of entitlements. The problem with govt is the issuing of goodies and people who get into govt to institute their ideology and mandating others on how to behave.
The purpose of having an authority to dole out justice and protect property has progressed into a nightmare of rules and regulations for ‘social justce’ to attempting egalitarianism and ‘the
hot coffee’ Burn of a careless individual (the person who got burned).

Dan J September 14, 2011 at 1:51 am

Sorry, but progressives put forth the Fan/Fred having no credentials on a borrower and bought loans of high risk LMI borrowers. Not because they were packaged with ‘good’ loans. This is an excuse to alleviate Fan/Fred of responsibility. It is a poor one. Clinton admin told banks they wouldn’t be allowed to do much of anything unless they began loaning based on reinterpreted CRA. Janet Reno threatened full force of DOJ unless lenders ‘changed’ the stats that she and demoncrats Interperted as ‘discriminatory practices’ without a single individual case. SCOTUS dismantled a recent class action lawsuit on such grounds against Walmart. Country-Wide was in poor shape and needed a bailout, which making loans to people, who were likely to default, and selling them off to a GSE that would not do it’s due diligence and assure that the bundled loans were good.
If there is no Fan/Fred to incentivize ‘creative’ lending to ‘change the repulsive stats’, then the free for all lending does not occur. Also, take into account the moral hazard of knowing that if (when) the shit hits the fan, govt will provide backup.
Deregulation as the ‘bogey man’ is inherently false and naive. It is an excuse for the simple minded.

Dan J September 14, 2011 at 1:55 am

Republican have blame for not having the balls (guts) to make enuf noise, assuming some knew of the inevitable and looming disaster. I think Bush knew, as they attempted to rein in Fannie and Freddie in 2006 but were Stonewalled by senate demoncrats and the signing of a bill to subsidize LMI borrowers down payments.
Securing living quarters is a personal responsibility. You do not have a rite to a loan, especially for a mortgage.

Richard Allen September 13, 2011 at 12:19 pm

I have actually been involved with unwinding Ponzi schemes. It’s not pretty.

I think Don’s definition of a Ponzi scheme is a pretty good one, and it seems clear to me that SS is a Ponzi scheme, by his definition or whatever modified one you want to use. Perry’s mistake in calling it one was using a toxic term to make a truthful statement.

The conservative pundits in the media haven’t been very good at justifying why SS is a Ponzi scheme. They should study Don’s definition.

vikram September 14, 2011 at 1:32 am

A big tip of the hat to a Zero Hedge reader who has dug up a 1997 Boston Review column where Paul Krugman wrote:

http://www.economicpolicyjournal.com/2011/09/krugman-social-security-is-ponzi-scheme.html

http://www.bostonreview.net/BR21.6/krugmann.html

Economic Freedom September 14, 2011 at 2:07 am

Did anyone catch the following:

http://www.zerohedge.com/news/paul-krugman-social-security-ponzi-scheme-and-will-soon-be-over

Blast From Paul Krugman’s Past: “Social Security Is A Ponzi Scheme And Will Soon Be Over”

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

[Krugman 1997; http://www.bostonreview.net/BR21.6/krugmann.html

Dan J September 14, 2011 at 9:09 pm

@Vidyohs

The answer is, don’t give them the money in the first place, so I stopped in 1983. At first I used government law and rules to avoid doing so; then in 1989 I learned more of the truth and left the system entirely. I am still out of the system, I have been self supporting all these years, and I have survived quite well, thank you very much. Yes, it is difficult, but the price of freedom is worth it to me.

Now, John D., amigo, you can continue to believe your conventional
wisdom if you choose, or if you must. It won’t effect my life or my lifestyle at all. However, I do consider it a crime against yourself and a crime against freedom to not bother to at least learn the truth and work from the base of fact rather than “they told me it was so.” In other words make a free voluntary decision of which way you choose to live you life.”

Fascinating! Want to hear more. Of course, It’s difficult to accept. Can you offer more info.

Susan September 29, 2011 at 4:04 pm

He used the wrong word, but he has a point. Why are they touching our SS savings at all? With that money, I would prefer putting into a savings account where I know I’ll get all my money back. Or at least let me stick it in a mattress in the house!

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