Republican party dividing on Social Security as a "Ponzi scheme"

[MattusMaximus]

Thank you, Rick Perry

Rick Perry’s 'Ponzi scheme' remarks cause Republican divide

Mitt Romney launched a second wave of attacks Thursday on Rick Perry and Social Security – suddenly and unmistakably the central focus of the Republican race.

From talk radio to Twitter to Capitol Hill, Perry’s fiery description at Wednesday’s debate of Social Security as a “Ponzi scheme” was the grist for an intense dispute within the GOP family. At issue: how to address the viability of the prized entitlement and whether the Texan’s unapologetic embrace of the phrase he’d first used in his book “Fed Up!” could harm his prospects and those of other Republicans next year. ...

 

[JoeTheJuggler]

Wow--I hope they keep that up through next November. There's no way they can win elections with that silliness.

 

[Newtons Bit]

I think it's either a fundamental misunderstanding of how the Social Security Trust Fund works, or complete lack of faith in the long term fiscal health of the country, US Treasuries in particular.

Probably the latter.

 

[JoeTheJuggler]

I think it's either a fundamental misunderstanding of how the Social Security Trust Fund works, or complete lack of faith in the long term fiscal health of the country, US Treasuries in particular.

Or merely inflammatory rhetoric that wasn't thoroughly thought through.

 

[Lowpro]

I think it was a smart move considering he's equated Social Security with Madoff; he may be ignorant but at least he's rallying the ignorant =\

Maybe it's not valid smart, but it probably will score him points with the CT crowd and take some of them from Ron Paul XD

 

[Newtons Bit]

Or merely inflammatory rhetoric that wasn't thoroughly thought through.

If one believes that the US Dollar is going to sharply devalue over the next decade, which most righties I know think will happen if we stay on the current, course we're on then Social Security does become something of a generational Ponzi Scheme.

There's another approach to looking at it too. The money that is in the trust fund is essentially US Treasuries that were bought because the US was running deficits. This is essentially compensating for previous taxpayers not paying enough taxes that later generations are going to have to make up for, with interest.

 

[thaiboxerken]

I don't think this guy knows what a Ponzi Scheme is. Perhaps he needs to consult with Maddoff or Amway.

 

[Insane Duck]

http://www.politifact.com/texas/sta...rick-perry-says-social-security-ponzi-scheme/

 

[Grizzly Adams]

I don't think this guy knows what a Ponzi Scheme is. Perhaps he needs to consult with Maddoff or Amway.

So it's not really a Ponzi scheme, instead it's more a fusion between a pyramid scheme and a Ponzi scheme.

The politifact article likes to make a big deal of how Ponzi lied to investors and covered up his plan in order to get them. This is realy a trivial distinction, as Social Security has no need to con people into investing in it. Investment is mandatory, no matter how mankrupt the system already is.

Oh, and the "Social Security is obligated to pay benefits, a commitment the shysters who run Ponzi schemes do not share" bit? I kindly direct you to your annual SS statement, which clearly states you are not guaranteed to receive a damned thing.

 

[BenBurch]

Wow--I hope they keep that up through next November. There's no way they can win elections with that silliness.

Stick a fork in them, they're done.

 

[BenBurch]

I think it's either a fundamental misunderstanding of how the Social Security Trust Fund works, or complete lack of faith in the long term fiscal health of the country, US Treasuries in particular.

Probably the latter.

I think the former. I have been a substitute teacher and did some highschool economics classes. Since I didn't have a lesson plan, we discussed what they had learned and we discussed how pensions and social security work and how actuarial tables and etc factor in to it. And these kids didn't have a clue about how this works. And they were near the end of their high school economics education.

Now, I never had the chance to compare them with my classmates because I tested out of high school economics, but I don't imagine the situation was much better in the early 1970s.

 

[JoeTheJuggler]

I think it was a smart move considering he's equated Social Security with Madoff; he may be ignorant but at least he's rallying the ignorant =\

If one believes that the US Dollar is going to sharply devalue over the next decade, which most righties I know think will happen if we stay on the current, course we're on then Social Security does become something of a generational Ponzi Scheme.

You realize that Ponzi Schemes are fraudulent (that is, illegal)? And the criminals are the beneficiaries of the schemes.

Do you think even metaphorically suggesting that Social Security recipients are scamming the country is good politics?

I still say it was silly rhetoric that wasn't well thought out.

One can make the point that the system may become insolvent (if we don't do anything and we have significantly more retirees than workers) without implying that there's something fraudulent or criminal about it.

And when you say it in a less inflammatory way like this, then faced with two options-- fix it, or abandon it--the former sounds more reasonable. If you can frame it as an outrageously fraudulent scam, then the latter sounds reasonable.

What it has in common with a Ponzi Scheme is pretty much what all taxation has in common with a Ponzi Scheme (benefits of spending don't necessarily go to the same entities that pay in the taxes, or at least not always immediately). [ETA: Perhaps the clearest example is unemployment benefits. When you pay in, you're working and thus not benefiting from them. Does that make unemployment benefits a "Ponzi Scheme"?]

 

[Random]

So it's not really a Ponzi scheme, instead it's more a fusion between a pyramid scheme and a Ponzi scheme.

The politifact article likes to make a big deal of how Ponzi lied to investors and covered up his plan in order to get them. This is realy a trivial distinction, as Social Security has no need to con people into investing in it. Investment is mandatory, no matter how mankrupt the system already is.

Oh, and the "Social Security is obligated to pay benefits, a commitment the shysters who run Ponzi schemes do not share" bit? I kindly direct you to your annual SS statement, which clearly states you are not guaranteed to receive a damned thing.

There are several differences between Social Security and a Ponzi scheme. The fraud aspect is a big one, but the biggest one is the “people die” aspect. If a person on Social Security dies, Social Security no longer has to pay him. If someone “invests” in a Ponzi scheme and dies, the “investment” is still on the books and the person running the scheme has to pay the heirs. This is the mechanism that allows the Social Security rolls to shrink, although demographics are keeping it growing at the moment.

The Ponzi scheme has no mechanism for this. It just owes more and more money forever.

If the demographics were stable, we could design a Social Security program that would last forever with no changes or adjustments. But as birth, death, and employment rates rise and fall over time, the ratio of workers to recipients will be in a constant state of change and the equations will need constant adjustment. You don’t drive cross country by fixing your steering wheel in place and turning on the cruise control, do you?

 

[Newtons Bit]

You realize that Ponzi Schemes are fraudulent (that is, illegal)? And the criminals are the beneficiaries of the schemes.

The people at the top are the beneficiaries. Social Security works the same way. The previous generation paid into the program. But then that money was used by the government to keep taxes down (benefiting the previous generation again). The new generation (that's me, hi) now has to repay the debt that the Trust Fund holds. The next generation will then do the same for me. The first generation, however, got a good deal as it didn't pay as much as it should.

I don't think calling it a "Ponzi Scheme" is a perfect metaphor. But it's not supposed to be. There's aspects of Social Security that can easily be described as a "Ponzi Scheme" to get a point across.

Do you think even metaphorically suggesting that Social Security recipients are scamming the country is good politics?

I don't think that the recipients are scamming the country. But I do believe that the people who changed the system did. They got to promise all sorts of cool toys without having to pay for them in a responsible manner.

I still say it was silly rhetoric that wasn't well thought out.

Rhetoric? Yes. I doubt it wasn't well thought out. That's a pretty forceful message that was written in a book and then repeated.

One can make the point that the system may become insolvent (if we don't do anything and we have significantly more retirees than workers) without implying that there's something fraudulent or criminal about it.

But even if the system is solvent it requires current generations to pay for the system with current dollars. It's not like a retirement fund where the money goes into stocks and mutual funds and can be accessed. It's already been spent and the only thing left is an IOU. And the people that are redeeming that IOU is the next generation.

And when you say it in a less inflammatory way like this, then faced with two options-- fix it, or abandon it--the former sounds more reasonable. If you can frame it as an outrageously fraudulent scam, then the latter sounds reasonable.

Or, it's good negotiation. Go at it with a hard "lets get rid of this thing" then you can get the other side to meet you halfway, which is where you wanted to be in the first place. I doubt that is what Perry is going for, but you never know. Politicians are good liars...

What it has in common with a Ponzi Scheme is pretty much what all taxation has in common with a Ponzi Scheme (benefits of spending don't necessarily go to the same entities that pay in the taxes, or at least not always immediately). [ETA: Perhaps the clearest example is unemployment benefits. When you pay in, you're working and thus not benefiting from them. Does that make unemployment benefits a "Ponzi Scheme"?]

Unemployment is an insurance system. You're not promised something when you retire. You're promised if something bad happens tomorrow you're covered. It's fairly simple to match payments in with payments out. Though that hasn't been happening of late...

 

[DavidJames]

Social security is not a Ponzi scheme. what prevents Republican sympathizers from simply admitting it.

 

[mhaze]

You realize that Ponzi Schemes are fraudulent (that is, illegal)? And the criminals are the beneficiaries of the schemes.

Do you think even metaphorically suggesting that Social Security recipients are scamming the country is good politics?.....

Actually, there were beneficiaries to the schemes of Charles Ponzi who were not criminals. That's the nature of such a scheme. And it is the organizer who is the person committing fraud and larceny. That would be here the US Government, not the recipients.

Good try, though.

Also, (unrelated) the actual story of Ponzi is quite interesting.

http://en.wikipedia.org/wiki/Charles_Ponzi

 

[Newtons Bit]

Social security is not a Ponzi scheme. what prevents Republican sympathizers from simply admitting it.

Understanding what a metaphor is.

 

[Ziggurat]

http://books.google.com/books?id=zB...uty about social insurance" samuelson&f=false

The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefits that far exceed anything he has paid in. And exceed his payments by more than ten times as much (or five times, counting in employer payments)!
How is this possible? It stems from the fact that the national product is growing at compound interest and can be expected to do so as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired...
Social security is squarely based on what has been called the eighth wonder of the world - compound interest. A growing nation is the greatest Ponzi game ever contrived. And that is a fact, not a paradox.

(italics from original)

So Paul Samuelson argued that it was basically a Ponzi scheme, and he did so in defense of Social security. And his reasoning is quite correct - given certain assumptions, the Ponzi scheme nature of Social Security shouldn't cause any problems. The problem is that those assumptions (rate of economic and population growth) turned out to be wrong.

 

[mhaze]

http://books.google.com/books?id=zB...uty about social insurance" samuelson&f=false


(italics from original)

So Paul Samuelson argued that it was basically a Ponzi scheme, and he did so in defense of Social security. And his reasoning is quite correct - given certain assumptions, the Ponzi scheme nature of Social Security shouldn't cause any problems. The problem is that those assumptions (rate of economic and population growth) turned out to be wrong.

Good find. Referencing the prior link I cited on Charles Ponzi, you will see that it was independent audit and actuarial calculation that revealed the implicit (unrealized) fraud of his schemes and brought the house of cards down.

 

[RandFan]

There are several differences between Social Security and a Ponzi scheme. The fraud aspect is a big one, but the biggest one is the “people die” aspect. If a person on Social Security dies, Social Security no longer has to pay him. If someone “invests” in a Ponzi scheme and dies, the “investment” is still on the books and the person running the scheme has to pay the heirs. This is the mechanism that allows the Social Security rolls to shrink, although demographics are keeping it growing at the moment.

The Ponzi scheme has no mechanism for this. It just owes more and more money forever.

If the demographics were stable, we could design a Social Security program that would last forever with no changes or adjustments. But as birth, death, and employment rates rise and fall over time, the ratio of workers to recipients will be in a constant state of change and the equations will need constant adjustment. You don’t drive cross country by fixing your steering wheel in place and turning on the cruise control, do you?

Ignored of course.