"Ponzi! Ponzi! Ponzi!" Conservative Republican Media Dig In On Social Security Lie
Right-wing media have continued to claim that Social Security is a "Ponzi scheme." However, experts say that people who make this claim "are very wrong."
Stossel: "Ponzi! Ponzi! Ponzi! There, I Said It. ... People Need To Hear It." In a September 13 Washington Examiner op-ed, Fox Business host John Stossel wrote that "[t]o the extent people believe there are trust funds with their names on them, Social Security is absolutely a Ponzi scheme."
- Texas governor [Rick Perry] is under attack for telling the unpleasant truth. At the GOP debate in Florida on Monday, CNN's Wolf Blitzer asked presidential contender Rick Perry whether he was changing his tune after other Republicans and pundits slammed him for saying Social Security is a "Ponzi scheme." The Lone Star State chief executive stood his ground: "It has been called a Ponzi scheme by many people long before me."
Mr. Perry is correct in his assessment, but Republicans shouldn't waste air time arguing semantics.
-Hannity And Gasparino Agree: Social Security "Is A Ponzi Scheme." During the September 13 broadcast of Fox News' Hannity, host Sean Hannity and Fox News contributor Charles Gasparino claimed that Social Security "is a Ponzi Scheme."
Experts: People Who Call Social Security A Ponzi Scheme "Are Very Wrong"
SSA Historian: Social Security's "Structure, Logic, And Mode Of Operation Have Nothing In Common With Ponzi Schemes." From a January 2009 post by Social Security Administration (SSA) historian Larry DeWitt:
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.
Unlike A Ponzi Scheme, Social Security Discloses Its Finances
Ponzi Schemes Rely On Fictional Accounting To Pretend That Contributors' Money Is Being Invested. From the Securities and Exchange Commission:
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. [Securities and Exchange Commission, accessed 9/8/11]
But Social Security's Finances Are Fully Disclosed To People Paying Into The System. The SSA publishes an annual report on the finances of the Social Security trust fund. The latest 235-page report was published on May 13 and is available on the SSA website. [Social Security Administration, 5/13/11]
Social Security Trust Fund Is Invested In Government Bonds. From Dean Baker's "Letter to Gov. Rick Perry on Social Security Comments":
Dear Governor Perry,
When asked about Social Security during a recent campaign stop in Iowa, you said:
"It is a Ponzi scheme for these young people. The idea that they're working and paying into Social Security today, that the current program is going to be there for them, is a lie," Perry said. "It is a monstrous lie on this generation, and we can't do that to them."
With all due respect, this is not true. The recommendations of the National Commission on Social Security Reform in 1983 led to the growth of a large surplus in Social Security. This surplus was used to buy bonds and now Social Security holds more than $2.6 trillion in government bonds. As a result, the Congressional Budget Office's projections show that the program will maintain full solvency through the year 2038. [Center for Economic and Policy Research, 8/29/11, emphasis in original] - with minor tweaks Social Security will remain solvent for your great great great grandchildren.
Unlike A Ponzi Scheme, Social Security Is Not At Risk Of Not Having Enough Investors
A Ponzi Scheme Inevitably Collapses When The Organizer Runs Out Of New People To Defraud. From the Securities and Exchange Commission (SEC):
With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out. [Securities and Exchange Commission, accessed 9/8/11]
But The Government Can Continue To Collect Taxes To Pay For Social Security Indefinitely. From a CNNMoney piece by professor Mitchell Zuckoff:
Social Security is exactly what it claims to be: A mandatory transfer payment system under which current workers are taxed on their incomes to pay benefits, with no promises of huge returns. (Of course, it's true that if Madoff had the power to require participation, he would have had an easier time keeping his alleged scheme rolling.)
Second, Social Security isn't automatically doomed to fail. Played out to its logical conclusion, a Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted. That's when the last people to participate are out of luck; the music stops and there's nowhere to sit.
The Right has always hated Social Security because it is an egalitarian system which helps provide a buffer to keep seniors out of extreme poverty. If Social Security is a scheme than what was that we witnesses from 2007 to 2008 - when the housing market and Wall St collapsed. When it did it wiped out a lot of middle-America's life savings. The only thing they will likely have in retirement is S. Security.