Chris Matthews: Social Security is a … Ponzi scheme

Victor Joecks

Transcript via HotAir:

Matthews first put forth what he thought Social Security was originally intended to be: “You pay for it while you work. When you retired and have no other form of income, this will help you out. In fact, a lot were impoverished in the old days without Social Security. It’s a great anti-poverty program. But then people started to live past 65. Even the great Franklin Roosevelt didn’t make it to 65. In those days, if you made it to 65, you were lucky. You got a few bucks on Social Security.”

Then he put forth what it has become: “Today, lots of people fortunately make it past 65,” he said. “They live into their 80s and 90s. They’re still getting checks. The system doesn’t work that way anymore. It’s not as healthy as it once was. So, how does a Republican deal with the fact it is a Ponzi scheme in the sense that the money that’s paid out every day is coming from people who have paid in that day. It’s not being made somewhere.” [Emphasis added]

And here is Cato’s Michael Tanner spelling out exactly how it’s similar to a Ponzi scheme – although, he notes, other Ponzi schemes are optional.

Social Security, on the other hand, forces people to invest in it through a mandatory payroll tax. A small portion of that money is used to buy special-issue Treasury bonds that the government will eventually have to repay, but the vast majority of the money you pay in Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay benefits to those “early investors” who are retired today. When you retire, you will have to rely on the next generation of workers behind you to pay the taxes that will finance your benefits.

As with Ponzi’s scheme, this turns out to be a very good deal for those who got in early. The very first Social Security recipient, Ida Mae Fuller of Vermont, paid just $44 in Social Security taxes, but the long-lived Mrs. Fuller collected $20,993 in benefits. Such high returns were possible because there were many workers paying into the system and only a few retirees taking benefits out of it. In 1950, for instance, there were 16 workers supporting every retiree. Today, there are just over three. By around 2030, we will be down to just two.

As with Ponzi’s scheme, when the number of new contributors dries up, it will become impossible to continue to pay the promised benefits. Those early windfall returns are long gone. When today’s young workers retire, they will receive returns far below.

Eventually the pyramid crumbles.

At the end of the above clip, Matthews wonders why Texas Gov. Rick Perry is using the term “Ponzi scheme” and why Texans like that type of language. His guest, Todd Harris, a Republican strategist, responds that they like it because it’s “aggressive” and has “swagger.”

I think Harris is dead wrong here. People like that kind of language because it’s true. And it’s true in the same way Judge Judy once noted, “Don’t pee on my leg and tell me it’s raining.” Claiming Social Security isn’t a Ponzi scheme insults the intelligence – and wallets – of taxpayers.

And for far too long, you’ve had politicians either denying that there’s a problem or underselling the scope of the problem, because they’re afraid of political backlash.

Now, you can deny there’s a problem – and for some it might be politically expedient in the short run – but Social Security is still broke.

It’s broke, and the trust fund is already spent. No amount of denial will change either of those facts.

It’s precisely because fiscal conservatives care about “grandma” that they’re leading the charge to change Social Security.

If we don’t enact substantial change, like personal retirement accounts, to Social Security now, those people who depend on Social Security now will be the ones who suffer most when the money dries up.