Is Social Security a Ponzi Scheme?

Is Social Security a Ponzi Scheme?

Charles Ponzi became infamous for his Ponzi scheme.  All it amounted to was taking in money from folks for a non-existent investment and then paying back big returns (to the first investors) from the receipts of newer investors.  There never was any investment.  It worked great in the short term as the early investors made huge returns on their investments from the new money flowing in from others who wanted to get rich quick.  But ultimately the investors were bilked of their money.  More recently Bernie Madoff did the same thing, but on a much larger scale.

Perhaps you heard or read that Texas Governor Rick Perry called Social Security a Ponzi scheme during a Republican Presidential debate at the Reagan Library (the Gipper must have been smiling).  It was in reference to a quote lifted from his book, Fed Up!  The not so mainstream media and other self-serving comrades were gleeful.  After all, Social Security has been the untouchable “third rail” of American politics for decades.  Barry Goldwater was Mau-Maued with the charge that he was going to destroy Social Security and more recently, Congressman Paul Ryan has been the target of demagogues in the Democratic Party with the charge that he too wants to destroy Social Security.  Even Governor Romney stooped low to throw a little mud on the good Governor of Texas.

But mudslinging aside, is Social Security a Ponzi scheme?  Let’s go back to the beginning, shall we?  The Old-Age, Survivors, and Disability Insurance (OASDI) program, referred to as Social Security, was passed by Congress and signed by President Franklin D. Roosevelt into law in 1935.  It was promoted and indeed its name states that it is insurance.  So is it really insurance?  Would it pass muster of any state insurance regulator?

As it turns out, my father worked in the insurance industry for more than 20 years.  I’m certainly not an expert on insurance, but I did ask him a few questions over the years about how insurance works.  It seems that state regulations governing the operation of insurance companies are quite strict.  For example, Life Insurance Companies are strictly forbidden from simply paying off claims from incoming revenues from new policy holders.  They can’t operate like a Ponzi scheme.  They must maintain high financial reserves at all times so that all claims can be honored when they come due.  Reserve levels are audited on a regular basis to make absolutely certain that your policy will be paid in full when you die.

If executives of an insurance company were to dip into the reserve fund for their personal benefit or for any other reason that created a dangerous low balance in funds available, they could and would be guilty of fraud and would go to jail.  They would, in effect, be acting as Charles Ponzi did in the early 1900s and as Bernie Madoff did more recently.  Ponzi and Madoff went to jail.

Accordingly, since Social Security was sold as “insurance,” and in fact the official name is the Old-Age, Survivors, and Disability Insurance (OASDI) program, it seems only fair to judge whether or not it has been operated with insurance standards as they are applied to insurance companies.  Have sufficient financial reserves been maintained along with appropriate investments to ensure that those who contributed into the program will be paid a return from the funds they have “contributed”?  As an aside, the word “contributed” is not very appropriate in this case since in reality, no one contributes to Social Security, they are forced to pay into OASDI.  If you do not pay into Social Security or your employer fails to pay into Social Security, some men in uniforms with guns will come and cart you or your employer off to jail.  In reality, Social Security is just another tax levied by the big government crowd.

But back to the question as to whether Social Security has been operated as a legitimate insurance program that meets with insurance standards for financial reserves.  The answer is no for several reasons.  First, Congress has “borrowed” from the Social Security fund to pay for general expenses.  There is only an IOU in the Social Security account.  So, on that basis, members of Congress should be carted off to jail.  They have committed fraud, just as blatant as Ponzi and Madoff, but on a much, much larger scale.

Second, beneficiaries of Social Security were added as the program developed with the knowledge that the amount of their contributions would never justify the monthly benefit they would receive from the program.  You might say that Social Security is insolvent by design.  But, remember, those who drafted the legislation and the President who signed the legislation called it insurance, therefore they deserve to be held up to the standards required of for-profit insurance companies.  So, FDR should have been carted off to jail for insurance fraud, along with other Presidents who went along with the scheme.

But forgetting all the lies and hypocrisy of those who passed the legislation in the first place, is Social Security financially sound today?  Can it continue in its present form and provide the same level of benefits to young people who are forced to pay into it today for their future retirement?  The answer is yes if we are willing to substantially devalue the dollar through inflation.  In other words, if we make the dollar less valuable so that the money we pay to today’s seniors is less valuable, we might be able to raise taxes high enough to cover the cost of Social Security, but that would mean that Social Security was a lie in the first place.  And anyway, there is always a day of reckoning.

The fact is that Social Security’s underfunded liability is calculated in trillions of dollars.  That’s right, trillions of dollars.  Send some more Congressional Ponzi’s off to jail.  If this is not a blatant, in-your-face betrayal of the public trust, I don’t know what a betrayal is.  Not only are there no reserves, but last year Social Security payments exceeded Social Security taxes.  According to the Congressional Budget Office this trend will continue and accelerate as the Baby Boomer generation retires.  By 2037, retirees will only get about 76 cents back for every dollar that they put into Social Security unless dramatic changes are made.

In March of last year Senate Majority Leader Harry Reid said, “…they [Republicans] claim Social Security is headed for bankruptcy.  It’s not just an exaggeration that Social Security is headed for bankruptcy -- it is an outright lie.”  Well, I suppose Reid is right, Social Security is not headed for bankruptcy, it is already bankrupt.  Of course, he didn’t mean it that way.  Harry Reid is a man with great power and responsibility as a public servant and instead of dealing with the bankruptcy of Social Security the most he could manage was demagoguery.  Reid follows the Democratic play book—politics first, integrity second.

The jails would be bulging if we sent everyone who went along with the lie that Social Security is insurance.  But they can’t have it both ways.  Either it is insurance or it is just a Ponzi or Madoff scheme on a much bigger level. 

It is, of course, as Governor Rick Perry said, a Ponzi scheme, although considering the size and scope of the fraud, I’m not sure that’s fair to Charles Ponzi.  He was a piker, compared to the politicians who told us Social Security was insurance.

The issue is not whether Social Security is a Ponzi scheme, but how to stop the theft from today’s young people and give them a free market program that is truly self-funding and will allow them to get a better return on the funds they contribute.  Let’s be fair to those who created Social Security.  While some voted for the socialist plan with good intentions, those in leadership knew from the start that it wasn’t about retirement security, it was about gaining political power and control over the lives of Americans.  It was about the redistribution of income.  It was never insurance and they knew it.  Social Security was a fraud from the very beginning.  How do you say “Obamacare?”

We can’t, of course, tamper with the benefits being paid to those already on Social Security, nor with the benefits to be paid to those about to retire, but we do have a moral and ethical responsibility to give the young people of today a better free market option that does not include political power being invested in a few power hungry politicians and bureaucrats.

The 401(k) program has been a huge benefit to the workers of today and will, in most cases, provide retirement income four to five times that provided by Social Security.  While I favor phasing out Social Security in favor of more 401(k) and IRA type programs, I’d certainly go along with changing the current program to one in which workers establish personal retirement accounts that they own and that they direct investments from.  This would be a big step toward personal responsibility, less government and thus more individual freedom.

If we are to remain true to the vision of the Founders of this great Republic, we must look at all government laws and programs through the eyes of maximizing personal freedom and personal decision making.  Washington, D.C. does not have a monopoly on intelligence and certainly not on wisdom.  In fact, it’s too often an intellectual swamp compared to the common sense approach of the average American who lives within his or her means.

Let’s drain the swamp, shrink government, and thus maximize freedom and prosperity for all Americans.

Not Your Father’s Party

Not Your Father’s Party

The media and many not-too-informed folks complain about the inability of the Democrats and Republicans to get along and compromise.  They want everyone to get along and to “get something done.”  It’s not going to happen, and I think I can explain why, but it will take a bit of history to understand why this is true.

I grew up in Missouri and contrary to most folks in our neighborhood and town, we were conservative Republicans.  St. Joseph was a down-the-line Democratic bastion.  The mayor, the city council, the county council, the state representatives, and the state senators were all Democrats.  They were patriots, but Democrats.

Harry Truman grew up about 50 miles south of St. Joseph in the Kansas City area.  He was a part of the Prendergast machine, a very corrupt and powerful political organization.  Truman may have been a part of that machine, but as a US Senator, he was a red, white and blue American.  He fought in World War I and when the time came as President to decide whether or not to save millions of American and Japanese lives by dropping the atomic bomb and bring World War II to a swift conclusion, he did it.  Harry loved his country and would have given his life to defend her.

My father-in-law, W.H. Mitchem, was a Harry Truman Democrat, lots of people were.  He loved the feisty spirit of Truman and the fact that he had the courage to end World War II swiftly.  That was personal because my father-in-law was a proud United States Marine who fought at Guadalcanal.  He saw some terrible fighting there and in other parts of the Pacific Theater of WWII.  And, he might have died (along with hundreds of thousands, perhaps more than a million Americans) if Harry Truman had not had the courage to drop the bomb.  So supporting Harry Truman was personal for my father-in-law.  But as a son of Georgia, he grew up as an FDR, Harry Truman Democrat.

When Norman Thomas, who ran for President six times on the Socialist Party ticket, finally presided over the demise of the Socialist Party in the late 1950s, he said, “I no longer need to run as a Presidential candidate for the Socialist Party.  The Democrat Party has adopted our platform.”  And indeed that is
what happened.

1948 was a strange election year.  The Republicans nominated the choice of the Eastern Liberal Establishment, New York Governor, Thomas Dewey.  Dewey was a progressive, i.e. liberal Republican who could have been comfortable in either party.  Today we would call him a RINO—Republican In Name Only. 
An early front runner, Dewey lost to Truman in spite of a strange split in
the Democratic Party.

That year the Dixiecrats split off and ran Strom Thurmond, a war hero and Governor of South Carolina, as their candidate for President.  Theirs was a Jim Crow segregationist ticket.

But something much more important happened at the Democratic National Convention.  There was a delegate to the Convention from South Dakota, another war hero, George McGovern.  When Truman was nominated, McGovern, along with some other “prairie radicals,” split off and left the Democratic Party to support the Socialist candidate Norman Thomas.  McGovern and Thomas saw eye-to-eye on almost every issue.

After Truman won in a squeaker, McGovern came back into the Democratic Party with the goal of taking over the Party and making it into a political vehicle to carry the socialist cause in America.  McGovern was elected to the U.S. House of Representatives in 1956 and re-elected in 1958. After a failed bid for the U.S. Senate in 1960, he was elected to there in 1962 and served for several terms.

McGovern and others of his ilk were quite successful in moving the Truman
Democratic Party to the far left.  In fact, in 1972 he won the Democratic nomination for President of the United States.  Never before had someone on the far left of the political spectrum won the nomination of a major political party.  Political observers call McGovern’s defeat by Richard Nixon a political debacle, but it was far from it.  It was in many ways a great political triumph, just as Goldwater’s defeat in 1964 was a triumph for conservatives who took over the apparatus of the Republican Party and have held it ever since.  The 1972 election allowed the socialists and prairie radicals to seize the organizational apparatus of the Democratic Party.  They have never
surrendered it.

Ronald Reagan’s election in 1980 could not have happened without the Goldwater nomination and Barack Obama’s election in 2008 could not have happened without the McGovern nomination in 1972.  In both cases the financial base and the philosophical base of the Party changed hands.

Today’s Democratic Party is a far cry from the Party of Truman, Kennedy, and Johnson.  It gets much of its muscle and money from far left union bosses whose outlook is radically different than George Meany, the man who served as midwife to the creation of the AFL-CIO union.  Meany was a tough, but honest labor leader.  He knew politics and he knew how to wield power.  But George Meany was a patriotic American in every respect.  He drove the Communists and their far left travelers out of the union movement and he gave aid to union movements behind the Iron Curtain.  He was a ferocious anti-Communist.

In 1972, only one union, the far left National Education Association, supported the candidacy of George McGovern.  All the others either sat out the contest or endorsed Richard Nixon.  But when George Meany died in 1979 it paved the way for the far left to seize control of the American labor movement.  Today far left union bosses in both the public and private sphere provide manpower and hundreds of millions of dollars to the newly empowered radicals who have an iron grasp of the Democratic Party apparatus.

Today’s Democratic Party is no longer the Party of Harry Truman, John F. Kennedy and other patriotic Democrats like Senator Henry Jackson.  It is now the Party of the far left.  It is the Party who sees America as growing strong and prosperous by exploiting minorities and raping other countries of their natural resources.  It is a Party that loathes the thought of American Exceptionalism. 

Harry Truman, John F. Kennedy and scores of other patriotic Democratic leaders must be spinning in their graves.  Loyal Americans and staunch anti-Communists, these traditional Democrats would not have been welcome in the new Democratic Party.

To understand the dramatic difference between today’s Democratic Party and the Party of Truman and John Kennedy, you need to go no further than their Thanksgiving Day Proclamation and that of our current President, Barack Obama.

What follows is the first paragraph of President Truman’s 1950 Thanksgiving Day Proclamation…

            “In keeping with the custom established by our forefathers
            and hallowed by faithful observance throughout the years,
            it is fitting that once again at this season we set aside a day
            for giving thanks to God for the many blessings which He has
            bestowed upon us.  We are deeply grateful for the bounties of
            our soil, for the unequaled production of our mines and
            factories, and for all the vast resources of our beloved country,
            which have enabled our citizens to build a great civilization. 
            We are thankful for the enjoyment of our personal liberties and
            for the loyalty of our fellow Americans.”
Consider in contrast, this paragraph from the 2010 Thanksgiving Day Proclamation of President Obama…

            “What began as a harvest celebration between European
            settlers and indigenous communities nearly four centuries
            ago has become our cherished tradition of Thanksgiving. 
            This day's roots are intertwined with those of our Nation,
            and its history traces the American narrative.”

In fairness, President Obama’s Thanksgiving Day Declaration does make reference to President George Washington’s first Thanksgiving Day Declaration, “…we recall President George Washington, who proclaimed our first national day of public thanksgiving to be observed ‘by acknowledging with grateful hearts the many and signal favors of Almighty God’” but nowhere does the President make such an acknowledgement himself.  It’s more of a historic reference point than a continuum of the practice of all past Presidents to give thanks to God.  For instance, consider the Thanksgiving Day Declaration of President Franklin D. Roosevelt in 1933 as the Great Depression set in…

            “May we on that day in our churches and in our homes
            give humble thanks for the blessings bestowed upon us during
            the year past by Almighty God.  May we recall the courage
            of those who settled a wilderness, the vision of those who
            founded the Nation, the steadfastness of those who in every
            succeeding generation have fought to keep pure the ideal of
            equality of opportunity and hold clear the goal of mutual help
            in time of prosperity as in time of adversity.”
Or consider the first paragraph of the 1961 Thanksgiving Day Proclamation of President John F. Kennedy…

            “‘It is a good thing to give thanks unto the Lord.’  More than
            three centuries ago, the Pilgrims, after a year of hardship and
            peril, humbly and reverently set aside a special day upon which
            to give thanks to God for their preservation and for the good
            harvest from the virgin soil upon which they had labored.  Grave
            and unknown dangers remained. Yet by their faith and by their toil
            they had survived the rigors of the harsh New England winter.
            Hence they paused in their labors to give thanks for the blessings
            that had been bestowed upon them by Divine Providence.”
President Barack Obama exemplifies today’s Democratic Party, left of center, secular, and embarrassed by the prosperity and wealth that freedom and free markets have created.  The Democratic Party of 2011 has far more in common with the radicals of the French Revolution than it does with the founders of the American Revolution.

No wonder Ronald Reagan, and more recently, Texas Governor Rick Perry, have said that they didn’t leave the Democratic Party, the Democratic Party left them.  And indeed, that’s exactly what my patriotic father-in-law and most of his relatives did—they became Republicans because they could no longer recognize the new Democratic Party.  It was not, as they say, their Father’s Democratic Party.

With all its flaws, and they are many, there is today only one Party that remains faithful to the vision of the Founders and to the United States Constitution—the Republican Party—and too often even the Republicans get wobbly in their commitment to the Founders’ vision of a limited, Constitutional government.  Thank God for the Tea Party Republicans who are principled and uncompromising in their dedication to the US Constitution and to Founding principles.  They are the only hope for freedom for future generations of Americans.  May their vision and commitment to the United States as the land of the free and the home of the brave never waver.  These patriots are the friend of all Americans, but especially those in poverty, who seek to climb the ladder of opportunity and create a better world for themselves and their families.  Men and women who understand Founding principles are the sole hope of men, women and children of all races who seek to realize the American Dream. 

For nearly 150 years there were at least two political parties in the US that may have disagreed on many issues, but in no instance did they disagree on their love of the United States of America or their belief that it was the greatest nation on the face of the earth.  Sadly, that is no longer true today.  May God continue to bless America.