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I have had it with the lie most prominently proclaimed of late by the latest theocon Texan whom wants to be an anti New Deal President that Social Security is a Ponzi scheme. That’s a through the teeth, outright Texas sized lie because it’s simply not anywhere close to being technically accurate. Nor is Social Security a pyramid scheme as many on the right contend.

A pyramid scheme is, hello, shaped like a pyramid. Check out the excellent description at There are tiers of pseudoinvestors, each layer being smaller progressing towards the pinnacle, ergo the pyramid analogy. It is a vertical affair with the tiny elite at the top making huge amounts of money, which flows vertically up to the peak. The few a bit lower in the upper layers may do pretty or fairly well too, but the great majority that make up the lower levels will be badly screwed. Pyramids are also unstable bubbles vulnerable to collapse. Often opaque at least some degree, they may or may not be legal.

A Ponzi is a very specific type of con. It lacks layers, all the deluded pseudoinvestors handing over their cash to the organizer who is lying through his teeth that he is investing the money in some fashion, it’s a secretive and entirely illegal fraud. It is therefore a vertical transfer to a person (and perhaps a small clique of collaborators he may have at the top). A fraction of the take may be redistributed back down to those who are sending it in to keep the illusion afloat for as long as possible, but all Ponzis are bubbles that inevitably collapse and leave all the participants holding a financial bag (the only way the con can avoid being caught is to flee before it is to late, or die before the financial crap hits the fan). Note that the key problem with a Ponzi is not that money is being transferred between individuals without it being invested or the like, but that it is being illicitly diverted into the pockets of one or a few persons, so the victims never see the great majority or all of their contribution again. It’s sheer theft.  

Social Security is a generational rollover system. It’s very efficient, entirely legal and above board, anyone can find out exactly how it works. Here’s how. Every working generation sends money to the current retirees. As each age cohort retires they are paid by those still working. It is a form of insurance via a horizontal transfer of monies from one large group to another large group in which all get something assuming they don’t keel over before they retire (a risk in any insurance system). Because there is no great concentration of the money towards a small elite or an individual no one makes out big time relative to the rest so it’s fairly equitable, no one gets rich off of it. As long as there are workers putting into the system the retirees will always get paid; they may not get entirely as much as they expected (about 25% less down the road if adjustments are not made), but they will not be left entirely bereft -- the system trades the lack of potential gains via investments for stability so everyone gets something at a time they may be unable to work or invest for the future. That means the arrangement cannot collapse. SS has the shape of a horizontal conveyor belt rather than a vertical pyramid. Ergo it is not a pyramid scheme, or a Ponzi.

To understand how perversely manipulative the anti-SS lie is, consider that privatization means replacing it with Wall St type investments that are a lot more like financial pyramids! Privatization will transfer a good chunk of the trillions the poor and middle class will put into their commercial retirement investments right up into the pockets of the financial elites at the top of the pile. And as per pyramids the new system will be far less stable than SS, leaving many seniors in the monetary lurch in their not so golden years.

The hard right is lying about the nature of SS because they are desperate. It remains the immensely popular third rail of Ameropolitics. Their only and frankly faint hope of bringing Roosevelt Insurance down is to so grotesquely distort the public image of the system that the majority somehow becomes dumb enough to hand it over to Wall Street. So they have to try something no matter how false it is.

SS is not perfect. No retirement scheme is. If you don’t like it for one reason or another then criticize it for what is actually is. Don’t lie about the New Deal deal for base propaganda purposes.

That Perry does not seem to understand how generational insurance works is more evidence he is not sufficiently well informed to be the chief executive.

And progressives need to get on the ball and do a much better job of educating the populace about how SS is not a pyramid much less a Ponzi, and how the proposed replacements coming from the right better qualify as risky pyramids that will transfer a whole lot of wealth from the lower to upper classes while making retiring more of a gamble than it is.

Originally posted to Gregory Paul on Fri Sep 09, 2011 at 08:02 AM PDT.

Also republished by Social Security Defenders.

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Comment Preferences

  •  the ponzi-ness of the system (1+ / 0-)
    Recommended by:

    seems to reside in the concept that earlier 'investors' get a better return than later investors.

    That 25% payment cut happens right after i retire making the deal seem a lot worse for me than for current beneficaries. I've read stories claiming i can expect to get out less money than i put in.

    What would be interesting to see would be a table that shows by birth year what was contributed and what was received back by the people. Then the ROI could be calculated on the investment and we could see how the system has performed over time (and is expected to perform going forward).

    I wonder how it worked in the early years, for older workers when it started. They had only a few years to put in, did they get very small benefits?

    •  Some answers here. (1+ / 0-)
      Recommended by:
      Calamity Jean

      One. The 23% projected cut at Trust Fund Depletion (not 25%) is from a baseline that produces a much better benefit when measured in real basket of goods than today. In fact even after the cut you would still be getting about a 20% better benefit in real terms than a similarly situated retiree today. For more details and some graphs on how this works see this 2003 Report form CBO The Future Growth of Social Security: its Not Just About Society's Aging. Moreover the effect of the formula kicks in again after the cut, so that even the greater cut from the baseline at the end of the 75 year period (which is your 25%) is from a benefit CBO places at about 180% in real terms compared to today still leaving you 35% better off than today's retiree.

      Two those stories you have read are often a little less than forthcoming about their methodology and rarely seem to price in the value of the pure insurance components even as they use typical rates of return on private accounts not supportable by the models used to project Social Security results. That is if their growth models are correct then Social
      Security would be in better shape than projected. Whereas using Social Security's actual numbers you can't get those returns. At least according to the following paper from three relatively little known (then) economists that a few of us have heard of today: Baker, DeLong, Krugman (2005) Asset Returns and Economic Growth (aka the 'BDK' paper)

      And actually producing that ROI Table is probably impossible in practice. First the interactions between benefits collected under Title 1 (Federal Funded State Old Age Pensions) and Title 2 (Social Security Insurance) as against taxes paid to support the first and contributions made to support the second would make it difficult to come up with an ROI even for  an individual with a known year by year income history, and if averaged out over a whole cohort would just return statistical mush.

      To the last question, some early beneficiaries did quite well on a benefit to contribution ratio. Opponents like to cite the very first recipient of monthly benefits as their example. Ida Mae Fuller started drawing benefits in 1940 that on a monthly basis equalled her entire contributions to date. What a deal! . And also happened to live to a hundred meaning that in nominal terms she made out like a bandit. But considering that the initial check was $25 a month and those early recipients didn't get any benefit increase until the Amendments of 1950 introduced the predecessor of annual COLA, I don't expect that Ida Mae spent a lot of time sipping cocktails at the Country Club after motoring there in her Cadillac. People shouldn't confuse ROI with real Standard of Living. Using the latter measure every generation has gotten a better result than the one before even after the 1950 changes.

      Please visit, follow or join our Group: Social Security Defenders

      by Bruce Webb on Fri Sep 09, 2011 at 10:59:21 AM PDT

      [ Parent ]

  •  It's NOT just a hard right construct (3+ / 0-)
    Recommended by:
    importer, Bruce Webb, Bluefin

    Unfortunately, "our pals" on the Left have been repeating this Ponzi scheme construct for years now.

    Chris Matthews - the blind squirrel who finds a nut every now and again, the broken clock who is right only twice a day - has been poisoning the well on this for years.

    Here he is in 1998 talking about SS:

    MATTHEWS (11/9/98): Congressman, let's talk about the issue that's really affecting everybody out there. That's whether we take a Social Security system which is basically—well, it's sort of a Ponzi scheme right now.

    Here he is in 2007 haveing a chat with Tim Russert who, of course, agrees with Matthews:

    RUSSERT: And if you’re going to make tough decisions as a president, you have to answer tough questions. What are you going to do? Show us how you’re going the lead us. Everyone knows Social Security, as it’s constructed, is not going to be in the same place it’s going to be for the next generation—Democrats, Republicans, liberals, conservatives.

    MATTHEWS: It’s a bad Ponzi scheme, at this point.

    RUSSERT: Yes.

    As has been the case in the MM for years, our pals on the Left often do as much damage to our national political discourse as those on the right.

    •  link for above (0+ / 0-)

      h/t to Bob Somerby at the Daily Howler who, is again, spot on.

    •  It is an insurance, by definition (2+ / 0-)
      Recommended by:
      Bluefin, Calamity Jean

      all insurance plans are a ponzi scheme?  Therefore all insurance plans are criminal enterprises?  There are plenty of people who pay into private insurance plans that actually receive what they paid for.  SS is even more so, because the cost of managing the system is even less than private coverage.  

      What we have to remember is, even if a talking head is on MSNBC, it doesn't mean they are a hard-left progressive.  Matthews does what he needs to do to keep a job and will mouth whatever is required.

      If the word of the day from the corporate masters is to mention SS + Ponzi in the same sentence almost all of the talking heads are ready and willing to make that connection.  

      •  Rachel and Keith never defined MSNBC (1+ / 0-)
        Recommended by:

        and of course they booted Keith. Tweety is a best a shade left of center in today's terms, by traditional tnorms both he and the late kind of lamented Pumpkinhead Russert would have been considered center-right. And of course the morning lineup at MSNBC including its business coverage is well right of center.

        One swallow doesn't make a spring. And one Rachel Maddow doesn't make MSNBC a left wing outlet.

        Please visit, follow or join our Group: Social Security Defenders

        by Bruce Webb on Fri Sep 09, 2011 at 11:04:27 AM PDT

        [ Parent ]

  •  I think we're misunderstanding (3+ / 0-)
    Recommended by:
    David in NY, Bluefin, Calamity Jean

    Perry's comment. See, what I think he really means is that he wants to turn Social Security into a Ponzi scheme, by cutting it off/ending it. That way, people who have paid into the system all their lives up to now will end up with nothing when they retire. My husband and I, for example, are between 10-15 years from retirement. In Perry's world, we'd be SOL.

    Perry shouldn't be comparing himself to Galileo, he should be comparing himself to Bernie Madoff.

    •  I seriously agree -- (2+ / 0-)
      Recommended by:
      Bluefin, Calamity Jean

      an insurance program is not a Ponzi scheme unless the promoter (the insurance company, bank, or government)  has no actual plan to pay its obligations.    

      Perry is the one who wants to stop payment on SS's obligations and make it into such a scheme.

      He's the Madoff in Social Security's future.

  •  Republished to Social Security Defenders. But- (1+ / 0-)
    Recommended by:
    David in NY

    I almost missed it. For future reference the SSD Group follows the tag 'social security', any diary with that tag shows up in our Stream and so can get snagged up for republication (and our Group has a lot of Followers at 205 (and Holy Shit! no 205 is Joe Sestak!)

    So if you want this stuff to automatically hit 205 streams including that of least one Congressman that 'social security' tag is your ticket to ride.

    Please visit, follow or join our Group: Social Security Defenders

    by Bruce Webb on Fri Sep 09, 2011 at 10:29:04 AM PDT

  •  Were my kids a Ponzi scheme? (0+ / 0-)

    I've got 2 sons.  I fed and clothed them for 25 years.  Sent each to college.  Bought them each cars, paid their car insurance, college apartment costs.  Oh yeah, they each had a bedroom in my home growing up.

    When they got married, I saved up enough to give them each enough for a down payment on a house.

    I don't know what that adds up to, but it was a lot.  My wife and I did it because we felt we owed our kids a better life than we had growing up.

    I worked since I was 12 selling newspapers and an after school job in a machine shop when I was 15 1/2. I paid my own way through college.

    I'm just about to get my first social security check after all those years paying SSI.

    So....I'm missing something.  Where is the f*cking ponzi scheme?!!!

    If you hear a 25 year old saying us old codgers are stealing his future, ask him what he stole from his parents.

    The Dude abides, now get off my lawn.

    by Boris49 on Fri Sep 09, 2011 at 07:40:11 PM PDT

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