Political candidates have been arguing over whether Social Security is a Ponzi Scheme. To understand this issue, we must understand what a Ponzi Scheme is and what Social Security is.
Historically a man named Ponzi offered investors large returns if they would invest in his business scheme. There was no business or investment activity in Ponzi’s scheme. He simply took part of the money he took in and made large payments to his investors. He spent the rest of the money. As long as new investors kept investing and the money didn’t run out the scheme went along smoothly.
However, as one would expect Ponzi, ran out of new investors and people started to get suspicious. Investors disappeared; Ponzi’s scheme collapsed; and Ponzi went to jail.
Looking at the Social Security System, we see that Social Security taxes are collected; recipients are paid; and the government spends any money not paid to recipients. The government credits the Social Security System with IOU’s for the Social Security money it spends.
The reader should be fully aware that there are absolutely no real assets accumulated in the Social security system and absolutely no trust fund in any realistic sense. However, some people insist that the government IOU’s constitute assets.
Right now the money paid in through S.S. taxes is about equal to the money being paid out to recipients. Soon the money being paid out will greatly exceed the money being paid in.
Many Americans are aware of the real situation with the system and would like to opt out but are not allowed to. It is hard to escape the conclusion that The Social Security System is a Ponzi like scheme.
The only difference is that the payees are not allowed to opt out and no one is being prosecuted. Despite the obvious “Ponzi” features of the program, people still support it in public.
Just this month, the AARP publication ran an article in which they carried a graph of S.S assets. The graph showed that the S.S. System now has about two and a half trillion in assets. Obviously they are counting government IOU’s as assets even though they can only be made good through taxation.
A recent editorial in the News-Journal said that having the support of so many people makes the system legitimate. This fallacy seems to be a recent trend in our society; wishes trump natural laws. Several decades ago a group asserted that since they had paid into the SS System they were entitled to a retirement income.
The US Supreme Court decided, in the case of Fleming vs. Nestor, that the Social Security tax was merely a tax and entitled no one to a retirement income. Thus our own Supreme Court denied that Social Security was a legitimate retirement program.
Some of the drawbacks of the present system include failure to generate investment capital both for the individual and the country. No individual wealth is created which can be controlled and passed on by the individual. As a result of this, the standard of living is lower than it would otherwise be with real investment for retirement.
The present system leaves the individual completely dependent on politicians and the government. There have many proposals to make the system financially sound. However, each sound solution was “demagogued” to death by the liberals.
The present system leaves the individual completely dependent on politicians and the government. There have many proposals to make the system financially sound. However, each sound solution was “demagogued” to death by the liberals.
Social Security has been too big a political asset for anyone to allow a real solution.
The South American country of Chile faced this problem several decades ago. They were facing bankruptcy in their Social Security system. They solved the problem by giving everyone the choice of staying in the system as it existed or getting out of the system and setting up private accounts. Initially, about 75% of the people opted out. The general fund was used to keep up the payments to people who opted to stay in the system. Eventually everyone was out of the system and the solution worked quite well.
Notice that the key to this solution was to let people choose weather to stay in or opt out.
Solutions similar to Chile ’s have been successfully tried in several other countries and have so far worked. Great Britain has a S.S. System which has the option for people to opt to put part of their S.S taxes into an individual retirement account.A solution similar to this would work in the US.
The key is to make the options completely voluntary. One interesting variation on the Chilean solution is to let people opt out with no restrictions on what they do after they opt out. As long as the system is based on the pay as you go principal, the system will continue to sink further and further into financial ruin.
Attempts to shore up the system by more tax, higher retirement ages and cutting benefits will only cause further misery. Any real solution to fixing the system will have to involve real investment, real property ownership and real choice for the American people.
Attempts to shore up the system by more tax, higher retirement ages and cutting benefits will only cause further misery. Any real solution to fixing the system will have to involve real investment, real property ownership and real choice for the American people.
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