A New New Deal

The economic fascism of the thirties has been proven to be a failure over and over again yet we continue to cherish programs that are more indicative of Mussolini than George Washington. In 1996 Bill Clinton proclaimed the era of big government over, yet our government is bigger now than it has ever been. A complete overhaul of Social Security would be a step in the right direction and is long long over due.

Let's start by questioning our assumptions. Why is the government in the business of providing your retirement? When Social Security was created the tax was 1% from the employee and 1% from the employer. Today it is 7.65% from each. 15.3% of your income from the time you first started working.

Your retirement account. An account that is unlike any other. A retirement system that if administered by any private company would be called a ponzi scheme.

A Ponzi scheme is a fraudulent investment operation that involves paying returns to investors out of the money raised from subsequent investors, rather than from profits generated by any real business. The scheme is named after the discoverer of the technique, Charles Ponzi, an Italian immigrant in 1903 to the United States. The manner of Ponzi's initial scheme was actually fairly crude, one of the apparent reasons being that he himself believed that he had found a way to generate (legally) large profits. Today's schemes are considerably more sophisticated.

The idea behind the Ponzi scheme exploits the basic human trait of greed. wikipedia

Despite protestations that Social Security is nothing like a Ponzi Scheme the facts are clear that it is, even by the definition of the Social Security Administration itself explaining why they are not a Ponzi scheme.

The essence of the Ponzi scheme was that Ponzi used the money he received from later investors to pay extravagant rates of return to early investors, thereby inducing more investors to place their money with him in the false hope of realizing this same extravagant rate of return themselves. This works only so long as there is an ever-increasing number of new investors coming into the scheme...

...In contrast to a Ponzi scheme, dependent upon an unsustainable progression, a common financial arrangement is the so-called "pay-as-you-go" system. Some private pension systems, as well as Social Security, have used this design. A pay-as-you-go system can be visualized as a pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end.

Just like Ponzi, the Federal government purports to collect payments into a 'trust fund' as if it were setting aside your money as an 'investment' for your retirement. Nothing could be further from the truth. The money is after all, passed through the 'pipeline'. More than that, it is passed on to pay for regular budget items. In fact Social Security takes in far more than it needs to fund current payments. So congress 'borrows' the excess.

The effect of making Social Security an 'off budget item' hides the total tax burden on America, making calls for tax increases an exercise in deep psychological denial of the fact that the problem is not that revenues are low, but that spending is out of control.

Supporters of the welfare state often are upset that companies like Wal-Mart are somehow a monopoly cheating or even destroying America, yet can there be any better definition of a monopoly than Social Security? In essence coerced payments for a fraudulent product?

In 1936 the Social Security Board sent out this letter explaining this new entitlement:

Meanwhile, the Old-Age Reserve fund in the United States Treasury is drawing interest, and the Government guarantees it will never earn less than 3 percent. This means that 3 cents will be added to every dollar in the fund each year.

...What you get from the Government plan will always be more than you have paid in taxes and usually more than you can get for yourself by putting away the same amount of money each week in some other way. 1936 Government Pamphlet on Social Security

Due to the arbitrary nature of this ponzi scheme rates of return vary according to the whim of congress who are not legally obligated to pay any specific amount of promised benefits when you 'retire'. The truth of the matter is that Social Security is entirely contingent on obligating the next generation to pay more and more taxes for less and less benefit. The rate of return on Social Security has been steadily decreasing and will continue to decrease in the future.

The only way out of this fascist mess is to privatize Social Security. To actually make your money belong to you. Not to the government in a benefit scheme designed solely to consolidate power and make you dependent on politicians for your future.

Imagine investing 15.3% of your income from the time you began working. Even at 1% compound interest you would surpass Social Security's benefits. Social Security suffers from the same limitation as Charles Ponzi's financial scheme: "This works only so long as there is an ever-increasing number of new investors coming into the scheme..."

Posted by Eric Simonson at January 18, 2005 2:58 PM