Posted by
Steve on Wednesday, September 21, 2011 3:38:57 PM
A week or so ago, Rick Perry said that Social Security was a Ponzi scheme. At the time, the liberals in the media blasted him for labeling Social Security as a Ponzi scheme. There have been people in and out of government who have called Social Security a Ponzi scheme since it was started in the 1930’s. So, Rick Perry is not the first to call it a Ponzi scheme, he was just the latest.
First, what is a Ponzi scheme? A Ponzi scheme is where you have an investment scheme. You sell people the idea that they will become fabulously wealthy on your scheme. You take the money people invest and pay the people that have previously invested. This continues until you run out of new investors. At that time you are discovered and go to jail.
Does Social Security follow the pattern of a Ponzi scheme? Yes, it does. It took money from initial investors and used money from new investors to pay off the earlier investors. This has continued to the present day. Originally there were about 16 people per retiree. Today that number is less than 3 and will soon fall below 2. The pattern is exactly the same as a Ponzi scheme. The difference is that in a Ponzi scheme, the investors are willing and there is an end. In Social Security, the investors are not able to make financial decisions. The operators of Social Security just keep changing the rules to keep it running for a few more years.
Can Social Security be fixed? Yes it can. Chile had a similar problem about 20 years ago. They solved the problem by giving each person a private social security account where their money was sent. The person had control and ownership over that money. Now, the retirees in Chile are making more money than the workers because the system has been such a success.
About 40 years ago, there was a short window where cities or counties could opt out of Social Security and operate privately. There were at least two cities in Texas that did just that. Retirees from those cities bring home about 2-3 times the amount of money that a typical Social Security recipient does. That is because the money is invested for the long term and you get compound interest on the money.
A similar fix would solve our Social Security problem. It would have to be phased in because those at or very close to retirement are stuck with the antiquated system we have today. The younger workers would have to pay for the older workers until they all die. Then, the system would be fully vested for each person and retirement would be financially viable for each and every person regardless of their income over their lifetime. The forced savings from Social Security would cause most people to retire as millionaires. Oops, I forgot that the word millionaire is a forbidden word in today’s liberal vocabulary. But, I bet if you asked anyone if they would like to be a millionaire, they would say yes.
The problem with fixing the problem of Social Security is the Democrats in the House and Senate. If you fixed the Social Security problem, they would lose a campaign pitch that Republicans are out to take Social Security away. That is why as long as there are liberal Democrats in the House and Senate, the fix for Social Security will be difficult, if not impossible, to achieve.