When NPR Recognizes That Social Security is a Ponzi Scheme

Then everybody finally should. Reason, of course, has been inveighing against this massive government Ponzi scheme* since, oh, the magazine began publishing more than 40 years ago.

On Friday, All Things Considered broadcast an illuminating Planet Money segment which revealed to its listeners that there's really no such thing as the Social Security Trust Fund. It's an accounting fiction (which is a nicer than calling it is "a lie."). So what did NPR say?

Proposals to fix the deficit are coming fast and furious in Washington these days. One major target: Social Security.

Whether you favor cutting Social Security may depend on how you view the Social Security trust funds, which currently contain $2.5 trillion for retirement benefits. That's $2.5 trillion that, according to some people, don't actually exist.

Here's the back story.

If you look at your paycheck, in the spot where it lists deductions, there's a line that says "FICA." That's the money that gets taken out of your check to pay for Social Security.

For the past 25 years or so, the amount of money the government has raised through those taxes has been greater than what it's been spending to fund Social Security.

The surplus came largely from the baby boomers — and we're going to need that extra money when they retire and start collecting Social Security.

This is where the $2.5 trillion trust funds come in.

The government has invested all that money in Treasury bonds, which are traditionally considered among the safest investments in the world.

Invested? Get real.

But a Treasury bond, remember, is the way the government borrows money. So the government is lending the Social Security surplus to itself. And the obligation to repay those loans is the trust funds.

"They are nothing like any trust fund that any one of us would think of," says Maya MacGuineas of the New America Foundation. "It conjures up an image of really holding savings, and it doesn't do that at all."

But there's another way to think about what the government is doing here.

The federal government owes $2.5 trillion to the Social Security trust funds. And if the government doesn't pay that money, it will default on its debt — something the U.S. has never done in its history.

By the middle of the next decade, the Social Security surplus will turn into yearly deficits as more Baby Boomers retire. And the government will have to come up with hundreds of billions of dollars a year to cover its obligations to the trust fund.

At that point, the debate over whether or not the trust funds exist becomes a moot.

Moot just now? To anyone who has not been bamboozled by lying politicians and welfare statists, it's been moot since the scam began during the Great Depression. It would have been so much less painful for the country to have fixed the problem in flusher times, but it is apparently taking the Great Recession to start undoing the damage.

The NPR segment concludes:

"The policy choices that we have to make good on Social Security obligations are exactly the same with the trust fund or if we'd never had the trust fund," MacGuineas says. "Raise taxes, cut Social Security benefits, cut other government spending, or borrow the money. That's the only way to repay the money."

With regard to the suggestion of borrowing money to pay for the baby boomers' retirements, my financial planner wife observes, "Banks will lend you money to pay for college, but they won't lend you money to pay for retirement."

Last week two prominent bi-partisan panels, the National Commission on Fiscal Responsibility and Reform and the Brookings Institution, released proposals invoking mixes of just such policies to avert the coming fiscalypse.

Go here to see Reason's latest evisceration of Social Security by Veronique de Rugy and Jakina Debnam.

*Helpfully and insightfully defined by no less than the Securities and Exchange Commission.

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  • Old Mexican||

    When NPR Recognizes that Social Security is a Ponzi Scheme[...]

    [...] that will be the last sign that the Apocalypse is upon us.

  • Mr Whipple||

    This same program All Things Considered did a show about how the Welfare system is a "trap". Their conclusion was, education is the best way out of poverty. Imagine that.

  • Jeffersonian||

    They're just thumping the tub for diversion of welfare money into the maw of the education apparat. The best way to stay out of poverty is to finish high school (something that's already being paid for) and don't have a kid before you're in your 20s.

  • ||

    You can't solve a problem unless the problem is clear to everyone. So, we need to clear out the accounting gimmickry before we can really make a decision about these transfer programs.

    My proposal:

    Current FICA and Medicare taxes are replace with a Transfer Program Tax on payrolls, set annually at exactly the level needed to fund all transfer programs (SocSec, Medicare, Medicaid, Unemployment Insurance, etc.) for that year. The "hidden" half of this tax paid by employers is abolished for any employer who increases worker pay by the same amount.

    Now, everybody will know what we are each paying for transfer programs. The amount will likely shock most people.

    Any cuts to those programs will result in a cut to the Transfer Program Tax, so we can now make an informed decision on these things.

  • ||

    Brilliant. There is a vast gulf of ignorance that needs to be addressed. Possibly trivial example, but a person in their 50's asked me recently what a "lame duck" congress is. I'm guessing someone who's lived half a century and never registered the term lame duck is most likely utterly clueless about how social security really works. Your idea would smack them right in the pay stub.

  • NoVAHockey||

    Is Medicaid paid through the payroll tax? I didn't think it was since it's not a universal entitlement like SS or Medicare.

  • Jeffersonian||

    I'd sign onto that proposal in a New York minute.

  • ||

    Ponzi schemes are illegal.
    This calls for a strongly worded censure of every congressman who was complicit. That'll teach 'em.

  • Steve||

    My economic awakening began many years ago when, living near DC, I read of FBI agents arresting and prosecuting those who ran Ponzi schemes.

    That will happen here too, right? Right?

  • Anonymous Coward||

    When your betters in government do it, it's not illegal.

  • Slut Bunwalla||

    Just a few days ago, I got a letter in the mail from the Social Security administration telling me that I'd earned enough work credits or whatever to begin to be eligible for Social Security when I retire (which likely won't be for like 40 years given that I'm only 26 but whatever).

    It told me all about the trust fund and how there would definitely, totally be enough money to cover my benefits when I decide to retire.

    Frankly, I was almost impressed with their willingness to brazenly lie to me about it all.

  • Mike M.||

    God only knows how much money our idiotic government is wasting notifying people in their mid 20s about the status of their federal retirement account.

  • ||

    As much as humanly possible, I'm sure. Anyhoo, back to watching this TV commercial for the Army...

  • ||

    You have to understand that the first rule in any ponzi scheme is to make sure that the marks think their investment is backed with something other than your good word. We, the government started sending out these annual account statements a few years ago so that you would think there is something to back up the benefits we are promising. Most people are sheep and will take that piece of paper to the bank rather than reading the truth in obscure blogs.

  • ||

    Its probably all correct - it what they're not telling you, like a six pack (and not Sam Adams, but Budweiser) will cost $36,987.99. Your 263,285.67 will get you about a six pack a quarter, and enough calories from cat food to survey nicely (and by "cat" food, I mean food made out of cats).

  • Draco||

    But they're not lying, Slut (if I may call you by your lovely first name). Since money is created by the federal government, cheaply and easily, there will always be "enough" to make that credit in your bank account every month after you've retired (of an amount specified by that year's Congress).

    The problem for the government (and for us all) is being able to destroy enough money at the same time in order to prevent ruinous inflation. (Note that the targeted inflation of 1-2% isn't considered a bug, but a feature. What I'm talking about is hyperinflation). Taxation is nothing but the destruction of money that is created by the government in the first place (if you pay in case, by the way, they simply shred the cash).

    People just can't seem to think clearly about fiat money (as someone else pointed out nearby). It is admittedly difficult, since, like quantum mechanics and relativity (other complex ideas), it is counterintuitive. There are some links at my blog that should help though.

  • Draco||

    * if you pay in cash, by the way...

  • Old Mexican||

    "By the middle of the next decade, the Social Security surplus [?] will turn into yearly deficits as more Baby Boomers retire. And the government will have to come up with hundreds of billions of dollars a year to cover its obligations to the trust fund.

    How optimistic - SS is already operating in the RED THIS YEAR.

    http://www.dailyfinance.com/st...../19582730/

    The government has invested all that money [from the SS Trust Fund] in Treasury bonds, which are traditionally considered among the safest investments in the world.

    Grabbing someone else's money and filling the piggybank with IOU's is the same as committing fraud, in this universe.

  • .||

    Similar to confiscating everyone's gold and giving them IOUs Federal Reserve Notes to hold.

  • Old Mexican||

    Re: dot,

    That's UNREDEEMABLE Federal Reserve Notes, to hold.

    ;-)

  • .||

    But of course!

  • ||

    "The policy choices that we have to make good on Social Security obligations are exactly the same with the trust fund or if we'd never had the trust fund,"

    Uh, if they had put the funds in a deposit account at, say, Bank of America, they would have $2.5T in cash available, although they would admittedly have another $2.5T in treasury bonds outstanding.

  • ||

    "To anyone who has not been bamboozled by lying politicians and welfare statists, it's been moot since the scam began during the Great Depression."

    Telling the truth about these things has somehow become obnoxious over the years. People think you're like a birther or a truther if you point out that Social Security is a pyramid scam. It shouldn't be that way, but that's the way it is.

    In Vegas, over the last election cycle, this is one of the things Harry Reid blasted Sharon Angle for in his advertising...

    Angle calling out Social Security as a Ponzi scam--it's just too extreme.

    I've often wondered how many elderly people may actually turn to multilevel marketing schemes if Social Security doesn't live up to the hype come retirement time. ...and whether calling those schemes a "pyramid scam" will then finally be okay.

    In one way, social security is worse than a lot of pyramid schemes--because of the forced participation.

    Dummies joining a ponzi scam wouldn't bother me so much otherwise.

  • E. C. Rydah||

    In one way, social security is worse than a lot of pyramid schemes--because of the forced participation.

    I call bullshit on this. No one's forcing you to work (for The Man)!

  • DanD||

    That's kinda true, actually. In fact, not producing is actively encouraged in some cases :)

  • smartass sob||

    Telling the truth about these things has somehow become obnoxious over the years. People think you're like a birther or a truther if you point out that Social Security is a pyramid scam.

    It's very similar to telling the truth about fractional reserve banking, monetary expansion, and fiat money. And not too long ago just being a libertarian was thought of the same way. People think you're some kind of nut when you don't agree with the commonly accepted naratives of things. Probably one of those dangerous loners, too. :-)

  • ||

    Probably one of those dangerous loners, too.

    The Jacket. Nuff said.

  • John Kerry||

    George Bush is still trying to gin up a phony crisis in Social Security.

  • Ben Bernanke||

    "Banks will lend you money to pay for college, but they won't lend you money to pay for retirement."

    Oh, we'll just see about that.

  • ||

    Actually, banks will loand you money to pay for retirement.

    Its called a reverse mortgage.

  • ||

    RCD: Isn't a reverse mortgage sort of like the bank buying your house back on time?

  • Old Mexican||

    In the long run, we'll all be dead!

  • Almanian||

    But we'll make it up on volume! Or something!

  • Draco||

    [Ron Bailey ritually summons Draco from within a pentagram]

    Hi Ron. Thanks for saying the magic words and letting me out of Tartarus for a short while to address this topic. It's nice to breathe the free air of the material plane once again.

    First, let me credit R C Dean for getting that this is a transfer program, and not a Ponzi Scheme. Bravo.

    But second, it's clearly time for me to post this again. SS is nothing more and nothing less than a brilliantly devised and marketed mechanism for transferring real goods and services in the economy from younger (and presumably more productive) folks to older folks (presumably in more need for those things than their declining productivity can provide). Since no one is storing real goods and services for consumption 40 years from now, and since it would be impossible to do so, it shouldn't be a big surprise that there is no trust fund, and that it wouldn't matter if there was.

    Fixing the problem involves finding a way to get the economy to keep growing so that giving away stuff to the oldsters is about as painless as throwing a couple of coins into the Salvation Army kettle as you pass. And that's what most keep missing: if we put in place policies which encourage growth (and I happen to think such policies involve getting government the hell out of the way, in the main), there is no Social Security problem. If you can find a way to share some of the stuff you produce with your aging parents, there's no problem. And when standard of living and productivity increases from year to year, most of us wouldn't find that a burden.

  • ||

    I pretty much agree with your analysis. I think there are a couple of problems ahead - the demographics is going to make "all the gubermint we want" a lot more difficult.

    The only question in the future is how much in taxes (really, that is all SS is - a gubermint expenditure paid for by CURRENT taxes - "payroll" taxes and trust fund is just a mcguffin) goes to the old folks, and their medicare, versus taxes for everything else.

    As the young are kinda of stupid, and the old understand it is money, money, money, I would bet that the old continue to be well provided for...whether it is "fair" or not.

  • ||

    Draco: But doesn't trillions in government debt exert just the teeniest tiny bit of drag on future economic growth?

  • robc||

    Exactly, the policy that leads to the growth that makes SS a drop in the bucket is ... wait for it ... getting rid of FICA.

  • Al Goremanian||

    Lock. Box.

  • .||

    What Al now calls Tipper?

  • Anonymous||

    To call SS a Ponzi scheme is to insult Ponzi schemes. At least Ponzi schemes provide their victims with real (but worthless) pieces of paper representing legal claims on a pot of non-existent money, which those people could pass on to their heirs. SS doesn't even do that much.

  • ||

    Is Medicaid paid through the payroll tax? I didn't think it was since it's not a universal entitlement like SS or Medicare.

    No, but it would be paid for through the Transfer Payment Tax. So would unemployment benefits, food stamps, and any other program that involve the transfer of wealth from one citizen to another.

    Bundle 'em all up, put a price tag on 'em, and send everybody holding down a job the bill. Then we'll see if there's no appetite for cutting them, and not before.

  • ||

    First, let me credit R C Dean for getting that this is a transfer program, and not a Ponzi Scheme. Bravo.

    As an unsustainable transfer program, it is both.

  • robc||

    Wave/Particle duality of light is probably the correct model.

    SS is either a transfer program or a ponzi scheme, depending on exactly which test you run on it. In reality it is neither and/or both.

    Draco is arguing that light is clearly a wave, because dammit, his test says so. And he is very very right. And also very very wrong.

  • OS||

    Enough already of calling Social Security a ponzi scheme. For 75 years it has taken care of millions of senior citizens and disabled. What good does it serve to make it into some kind of bad thing? Just to be anal and righteous? Get off that horse and stop this ridiculous noise that does no one any good.

    The mindset that Social Security needs to be "fixed" is lawyer-turned-politician pretzel logic. Social Security has been victimized. Like all government programs, the focus on SS should be to make it better. There's nothing wrong with it that good leadership can't improve for the young as they age and need it.

    Only the self-righteous would gain by a "See, I was right" if this ponzi scheme noise ever got any kind of foothold. That is, unless you're some kind of investment planner whose after people's money as an alternative.

  • Adam||

    "Social Security has been victimized."

    And, pray tell, how has it been victimized?

    Social Security has suffered from the same demographic problem since its inception: it relies on there always being more contributors than consumers. Now that birth rates all over the civilized world are falling, this basic requirement is no longer being fulfilled.

    Why don't you take your argument over to Rev. Malthus? I'm sure he has something to say about the matter.

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