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Social Security is our Ponzi scheme

I read that Americans aren’t showing much enthusiasm for Social Security reform. That’s no surprise given the campaign of dis-information launched after President Bush raised the issue. Add to that the misconceptions people have about how Social Security works.

Many Americans fantasize that Social Security operates like a regular, fully funded retirement plan. In such a system, the contributions of current workers are invested to finance their future benefits. Social Security is not like that at all; it’s a simple, a pay as you go plan.

The retirement plan that so many rely on is simply the world’s biggest Ponzi scheme. A Ponzi scheme is an investment plan that relies on new investors to pay off earlier investors. In 1917, a fellow in Boston named Charles Ponzi dreamed up a scam where investors would deposit funds and receive 50 percent interest in 90 days. Soon the scam collapsed and Mr. Ponzi went to prison.



Social Security, our national Ponzi scheme, soldiered along until 1977, when it became apparent that the system was near collapse. President Carter and his Democratic congress “fixed” Social Security by cutting benefits and increasing taxes a total of 30 percent. Also, the amount of wages subject to tax was increased from $16,500 to near $60,000 today.- The sagging economy of the Carter years led to a second crisis in 1981, when Alan Greenspan took another shot at fixing Social Security. But soon a booming economy allowed everyone to ignore the problem for a while longer.

So why won’t our elected officials fix the darn thing? For a long time, Social Security has been called “the third rail of American politics.” Who has a clue what that means? Unless you’ve lived some place like New York City and ridden the subway you probably don’t know that trains run on three rails ” two wheels carry the train and the third rail carries a zillion volts of electricity. Touch that third rail and you die.



American politicians for decades have been warned “touch Social Security and you will die.”

Now, President Bush, for no apparent reason, has the audacity to “touch” Social Security. Why do you suppose he would do that? The current crop of politicians will be dead or at least out to pasture before our national Ponzi scheme collapses. But collapse it will.-

Today, 77 million baby boomers are poised to pounce on Social Security with only 3.2 workers for each retiree. By 2030 that ratio will drop to 2.2 to 1.

Sooner or later, taxes will fail to cover retirement payments. Curiously, much of the debate has centered on the timing; will the day of reckoning be in 20 or 40 years? The Democrats who are always so concerned about “the children” apparently feel we should just leave the problem to the children.

The deal breaker is President Bush’s plan to allow a percentage of your social security payments to be invested in private securities. Many countries have tried with enviable results. Without any investment of funds into the private sector where they can grow, Social Security remains forever just a Ponzi scheme.

The entire Democrat party and its usual allies all agree that private investment is a bad idea as it will likely lead to everyone blowing all their retirement money in the stock market or on other bad investments. Of course they don’t admit that they have already blown all your money. The trust fund consists entirely of IOUs. Any retirement money you receive is dependent of the good will of future generations of worker/taxpayers.

Will today’s teenagers be willing to contribute 40 percent of their pay during their peak earning years so you can enjoy a comfortable retirement?

Perhaps the Democrats can explain how the government would come up with your retirement check if there is a general collapse of the securities markets and tax revenues decline?

What are the options for fixing Social Security without private investment accounts? The government can reduce our benefits, raise taxes or both.-

For decades it’s been suggested that nothing be paid to the wealthy individuals who don’t need it. When President Bush suggested just that, the Democrats immediately objected saying that this would leave wealthy workers who now contribute to the system alienated.

This leaves only one solution acceptable to the Democrats: Raise taxes, or more likely “raise taxes on the rich.” Of course there aren’t enough rich to go around and any increase in payroll taxes will surely increase unemployment, put a drain on the economy and possibly not increase revenues.

As a mater of policy, Democrats absolutely refuse to give up any of the revenue currently heading to Washington without a fight to the death. I suppose they consider private investment accounts just as evil as those hated tax cuts. One wonders how IRAs and 401Ks ever got by this bunch?

Any transition from our current system will be difficult, but if billions of dollars are diverted from Social Security to the private securities markets the inevitable result will be a huge plus for the economy. Everyone will do better except a handful of bureaucrats in Washington who will be forced to forfeit a portion of their gravy train.-

Prentiss Davis is a Truckee resident.


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