Government Spending

The Truth and Lies About Social Security


Mother Jones' Kevin Drum responded to my post that Social Security is worse than a Ponzi scheme by some gentle tsk, tsking. Drum maintains that if Social Security is a Ponzi scheme, so is every other government program. The implication being that unless we are willing to dismantle all government programs, something only libertarian loonies would ever consider doing, we should stop questioning Social Security and get on with fixing it.

That's a clever argument. A bit too clever.

I noted that Social Security resembles a Ponzi scheme because while it presents itself as an investment program, in fact nothing is invested, and all  participants are paid from the contributions of new participants. Drum doesn't disagree with this: he just thinks there is nothing wrong with it. 

He agrees that:

Seniors today are all convinced that the money they paid into the program during their working years was somehow saved up for them and now they're getting it back.

This was always a "convenient fiction" he notes, but people believed this because "it was, basically, the way the program was initially sold." He goes on:

But that's always been a lie. Social Security is actually a much simpler program than that. I'm going to put the rest of this paragraph in bold so you can't possibly miss it. Here's how Social Security works: every month we take in taxes from working people and every month we turn around and distribute those taxes to retirees. That's it. That's how it works, and everyone who actually knows anything about the program knows that's how it works. Taxes come in, benefits go out. And the key to solvency is simple: making sure that those taxes and benefits are in balance.

This is, of course, the way every government program works. Taxes come in, payments to soldiers go out. Taxes come in, payments to NASA rocket scientists go out. Easy!

First off, I am shocked—shocked—that a liberal would be so blasé about lying politicians. Wasn't the big difference between liberals and conservatives that liberals did not believe ends justified the means? They took the high road to advance their agenda—sorry, cause. "Noble lies" was something that evil right-wingers, who made up shit about weapons of mass destruction to lead the country into optional wars like Iraq, told.

Oh well.

But understanding why it was necessary to tell lies to sell the program helps explain why it is not like other government programs. It has special accountability problems all its own.

Drum is of course right that participants in Social Security are not investors in any meaningful sense of the term because government has no way of "investing" what it collects in taxes from them. It has to spend the money. Hence, there was no option but for Social Security to be a pay-as-you-go scheme, not an investment program, just like every other government program. So, in essence, Drum is suggesting, we are blaming government for running Social Security the only way it possibly could.

But here's the thing: Given that Social Security can't be anything but a pay-as-you-go program there were two ways of financing it: through special payroll taxes as is currently the case or through general revenues. Why did politicians choose the first rather than the second method? The reason is that the second would have required raising general income tax rates by a whole lot, something that would have been politically exceedingly difficult if not impossible to do. Taxpayers would have been unwilling to hand Uncle Sam this kind of money without any guarantee that they would get it back in their old age. Dedicating their taxes to a special program created among taxpayers an increased sense of security although it eventually made Social Security less—not more—accountable than other government programs.

For starters, because people feel that what they will ultimately get back what they pay into the Social Security system, they don't have the same resistance to Social Security taxes that they do to income or sales or other general taxes. This makes it much easier for government to keep raising Social Security taxes. Indeed, as I noted previously, these taxes have been raised 40 times since the program's inception so that the 12.4 percent payroll tax that we pay today represents a 400 percent increase over the original after adjusting for inflation.

What's more, these taxes weren't raised to necessarily fund retiree benefits. They were raised to bankroll general fund programs. Right now, according to Jagdaeesh Gokhlae of the Cato Institute, Social Security Trust Fund has  $2.5 trillion in accumulated surpluses. But these "surpluses" are really debts (talk about a "convenient fiction")—they are IOUs of the country to retirees that future generations will have to redeem by paying higher taxes or taking on a bigger debt or cutting spending on other programs. If the government was taking in more than was needed to pay retiree benefits why did it simply not cut payroll taxes to a level needed to just cover the benefits? The question answers itself.

But Drum's response to the huge liability that future taxpayers face—over $100 billion annually beginning 2020 when Congress has to start redeeming the IOUs to pay off retirees, according to Gokhlae—is one big yawn. He notes:

Forget about the business about the surplus. It's not worth worrying about anymore. [W]ithin a few years it [Social Security] won't be generating a surplus at all…

That's like saying that we should forget about the $1 trillion that we frittered on invading Iraq and Afghanistan. Let's just concentrate on how much more we need to spend to fix these debacles, not questioning whether we should have undertaken them in the first place. This betrays a pretty stunning refusal to learn from previous mistakes, not to mention a total abandonment of the cause of good government that even liberals who don't have a principled hostility to Big Government have usually championed.

But there is an even deeper problem with Drum's claim. It is true that given the declining worker-to-retiree ratio, Social Security's problem going forward is remaining solvent. But that's based on certain assumptions about tax levels and benefits. There is absolutely no guarantee given the government's long track record of raiding the program that, push come to shove, it won't raise taxes or pare back benefits or both to create yet another "surplus" to fund the political priority of the day. Should the country, for example, reach the point of defaulting on its debt or ObamaCare's universal coverage liabilities start breaking the federal bank, all bets would be off.

This is not an idle worry. Consider what happened in France just last November. Its parliament passed a law to use the country's reserve pension funds to pay off debts of the country's welfare system. The retirement savings intended for the years 2020-2040 will be used earlier in the years 2011-2024 for other purposes. Likewise, Ireland used the country's €24 billion National Pensions Reserve Fund "to support the exchequer's funding program. "

As a blogger for the Christian Science Monitor concluded after examining the shenanigans of a slew of fiscally beleaguered European governments:

It looks like although the governments are able to enforce general participation in pension schemes, they do not seem to be the best guardians of the money accumulated there.


If Drum is serious that we are "morally obligated" to provide pensions to seniors, we should let them keep more of their Social Security money in private accounts. But that's a subject for another day.


NEXT: Forty Texas Cops Rob a Strip Club

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  1. So Kevin, if a government – any government – were to actually set up a ponzi scheme, what would it look like?

    Or, is it not possible for any government to be a ponzi scheme?

    1. an offset, not ponzi scheme. the disabled & indigent elderly would fall into the govt’s dole anyway. therefore, SS taxes help offset the cost.

      1. I am NOT a carpenter! I am a wood modifier!!!!

        1. If you work for the government, you are most likely a termite.

      2. “an offset, not ponzi scheme. ”
        An untruth, not a lie.

        1. is mortgage insurance a ponzi scheme?

          1. No, it isn’t.
            How dense are you?

            1. by ur logic it is. mortgage ins is forced & is another risk pool, like SS. but unlike SS, there’s no collection in mass.

              1. Because if I don’t buy mortgage insurance I am thrown in jail for tax evasion, just like Social Security!

              2. You seriously cannot be this dense. Are you getting paid to post this stuff?

              3. “by ur logic it is. mortgage ins is forced & is another risk pool, like SS.”

                ‘Scuse me; please don’t assume your ignorance has anything to do with my logic.
                Here, read about Ponzi Schemes before you embarrass yourself further.
                “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.”

  2. I think governments should take cues from universities and foundations that run on endowments. Large endowments could probably be set up to fund at least some local governments and they could possibly even work on a voluntary basis. The mindset of the government in question would have to change, though. They would have to think of themselves as more of a charitable public service organization than taxers and enforcers.

    1. Yeah, that’s the ticket!

      Government is made up of politicians and bureaucrats that have a overwhelming urge to protect budgets and spend every last drop, because if they don’t, they won’t get that much next year. For them to leave a wad of cash sitting is like asking a Labrador Retriever to not eat the whole bag of food in front of it.

    2. Solyndra Security!


    On a related note, I think it was Alex Tabarrok over at Marginal Revolution who just AUTHORITY PWNED Matty Yglesias regarding his statement that anyone who calls SocSec a Ponzi scheme is nuts. (The artist formerly known as Dr. Krugman was but one such nut, haha.)


      Paul Krugman:

      Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

      1. “In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in.”

        No that is not the “only” reason it is redistributionist.

        It is redistribution WITHIN generations as well. The benefit formulas are “progressively” structured so that those lower on the income scale get back a significantly higher percentage of what they paid in than do those who are higher on the income scale. And those higher income people also wind up paying income taxes on up to 85% of their benefit payments. And that is more redistribution.

        1. It’s redistributionist WITHIN generations because black people don’t live long enough to cash their social security, while rich whitey keeps going on and on and on as a pharma-addled half-zombie on life support.

          1. Social Security is racist…nice angle!

    2. Once the alien spaceship lands, there will be plenty of new contributors to SS.

  4. Gah….I read comments.

    1. On MJ? Never, ever do that. I recommend balloonjuice for the absolute best in infuriation

    2. they’re good for a laugh. But then you have to cry afterwards… these people are voting. And there’s more of them than there are of us.

    3. Dude. I don’t even bother reading the WaPo op-ed.

      Life’s too short.

  5. “Drum maintains that if Social Security is a Ponzi scheme, so is every other government program.”

    FUCKING BINGO!!!!!!1!1!1!!11!!!!!

    1. And the solution is to pretend that none of it is happening.

    2. A Ponzi scheme involves getting back the same medium you put in, in this instance cash. All other government programs you’re basically paying for a service (in this case, defense, roads, general welfare, etc). Whether or not they benefit you directly, you the taxpayer weren’t promised a “return” on the rest of government, which makes social security unique in its ponziness.

      1. A distinction without a difference.

        Theft is theft, no matter what you call it.

  6. “convenient fiction”

    I don’t find anything convenient about it.

  7. I think that Social Security is more of a Ponzi scheme than your standard government program because the ongoing spending burden can only be maintained by sucking more and more resources from the new investors.

    We can level-fund NASA for the next fifty years and the program will just putter along at decreasing levels of effectiveness.

    You can’t level-fund Social Security without failing to meet benefits that had previously been promised.

    Bernie Madoff needed more money from new investors every year. The “pyramiding” of larger and larger pools of new money under the old money is an integral aspect of the Ponzi scheme. Social Security shares this aspect with Ponzi in a way that other government programs do not.

    1. I don’t think of defense or NASA as Ponzi like because you have government workers being paid to do something.
      SS is a Ponzi scheme because you have government workers being paid to simply transfer money from one party to another, with the promise that when it comes time for the payer to be payed there will be a new crop of suckers.

  8. Shorter Drum: “I don’t give a fuck how or why the wealth gets redistributed, just that it does.”

  9. Simply put, it’s a Ponzi scheme because the current beneficiaries both have and are encouraged to have the attitude that they are entitled to benefits because they paid into it.

    With that, then look at how it’s actually financed, and it’s hard to conclude otherwise.

    Perhaps the solution to this whole fracas is to just call Social Security what it is: welfare.

  10. So the general attitude in the comments section is basically: “I don’t care how screwed up and unfair the system is, I think that everyone should have to pay, so fuck you libertarians that want to kill grandma.”

    When in doubt, moralize.

    1. Social justice only has one plate on her scale.

      1. Well put.

  11. Doonesbury’s Duke totally agrees with the plan: “But the Pension Fund Was Just Sitting There”.

  12. LOCKBOX!!!! I just had to get that off my shoulders.

    Now that Drum has pretty much admitted that SS really is a Ponzi scheme (but with touchy-feely caveats), what kind of leap o’ logic will it take for him to admit that detractors of said program were right all along? And maybe, just maybe, a further look into that cosmic bellybutton and an examination of all the other government scams.

    Nah, he would lose his readership. And therefore his job.

  13. Shikha Dalmia is correct to point out that SS and Ponzi schemes are different in that SS relies upon coercion. Kevin Drum is correct to point out that both also rely upon fraud.

    SS defenders have a yet another basis for their distinction between SS and Ponzi schemes. That is, SS was established by people with ostensibly altruistic intentions rather than avaricious motives and it is operated by the State in the collective interest of the nation. As long as the intentions are pure and the State purportedly acts in the collective interest, the statist can rationalize all sorts of fraud and coercion.

    1. SS defenders have a yet another basis for their distinction between SS and Ponzi schemes. That is, SS was established by people with ostensibly altruistic intentions rather than avaricious motives and it is operated by the State in the collective interest of the nation”

      Well they can’t claim it was “altruistic intentions” because it’s not altruism unless you are only voluntarily offering you your own money for something.

      When you cross over into using force to make other people pay, that has nothing to do with altruism.

      1. ^^^This!

      2. He did say “ostensibly”.

    2. Road to hell… good intentions…

    3. The issue is not coercion or non-coercion, it’s who has their fingers on the money and how they steal and spend it. Social Security was never intended to be a “slush” fund but a “trust” fund which was to be used only for payments to retired participants. It took several attempts but the Democrats managed to raid the fund to the point that it now does resemble a Ponzi scheme going down hill. Some time back I saw an article about a plan in Texas that paid three times the annuity than SS but I can’t find it now. Maybe someone knows about it. The point is, if the money is put into an account for an INDIVIDUAL and LEFT there, we would not incur these problems. Lock the money! How hard can it be? Coerced IRA? Maybe. Try it!

  14. So the argument is that SS is not a Ponzi because the money was taken from people under the impression that their money would be invested, but in fact the money was never invested.

    Isn’t that the precise description of a Ponzi?

    1. It also has aspects of a pyramid scheme since it requires that new contributors be recruited to fund the scheme. Which is easy since the Federal government just forces you to do so.

  15. It isn’t a Ponzi scheme because Ponzi schemes are financial fraud, which is evil, and SS is a political fraud that is only necessary because idiot voters won’t give Progressives what they want otherwise.

  16. Let’s go to the local Social Security office and see if we can opt out. Out of a contract I signed when I was 16, too young to enter into a contract. Or my daughter, who we signed up in order to get the fucking tax break. But we couldn’t get her into public schools without a SSN. It’s far more sinister than you can imagine.

    1. public school? No true libertarian…

  17. Social Security money should be invested. I figure they could invest it in public works projects, or just real estate. Let the all the young people pay for the elderly with their tolls going to work everyday, or with office rent. With the physical capital in place, the same can happen the next generation.

    But anyway even that’s a pipe dream. We’ll be lucky if the program doesn’t become bankrupt.

    1. So, because you believe Social Security fund administrators are sharp, relying on their financial acumen, they can compete against other far seeing investors and invest into realty such that they shall gain return on their investments which shall exceed their expenses of doing so?

      And which public works programs are worthy and which are not?

      Again, you believe that Social Security fund administrators possess the foresight to know what ought to get built?

      Even in the political arena of voting, politicians have proven to be fools many times over when it comes to what should get built, where, why, by whom and for how much.

    2. That’s just corporate welfare for public works firms and real estate. Shit man.

      1. Well, I figure the investors could be other people, or even just private investment firms who’d get a commision

        But the idea is that the SS money would be a HUGE pool of money, enough to create a bridge or highway somewhere. The tolls from such projects make SHITLOADS of money and easily pay for themselves many times over. So it’s the ideal investment.

        1. Um, hello?

          That’s the alleged entire purpose of government — “a HUGE pool of money, enough to create a bridge or highway somewhere.”

          Why run what amounts to two governments to attempt accomplish the same thing?

          Exactly who on earth wants to answer to two masters, neither of whom are himself or herself?

          Implied in your beliefs is that adults with IQs of at least 100 should be insured against failing in life from providing for themselves in old age, even if they would save money to invest directly or to turn over management of such money to specialists.

          For that is what Social Security is — welfare for oldsters too stupid to manage their monetary affairs as adults during their prime earning years.

          1. OMG holy shit, WTF are you talking about?

            Jesus Christ you libertarians go off on weird fucking tangents and get away from yourselves

            I dunno what the fuck you were trying to say, all I’m trying to say is that all the social security money should have been invested in real investments in the private sector from the beginning, like with private pensions and like other countries do with their welfare schemes

            The huge pools of money available to SS would have made it feasible to invest in something as expensive as a large bridge, for the tolls. That’s not to say the SS administration would manage it, dinkus, they’d hire a management company, and take the rest off the top as a return on the investment, so that the SS benefits could actually be paid later,

            you know, as opposed to the almost certain bankruptcy we’re facing now

    3. Yes, the money should be invested but not by any of these thieving bastard government dolts. John Hancock or any number of reputable houses dealing with mutual funds would keep your money reasonably safe and pay you more.

  18. Taxes come in, benefits go out. You can’t explain that….

    1. Needs a picture of Bill O’Reilly

  19. Someone needs to beat Kevin Drum with the drumstick designated for idiots.

    What a fucking moron that guy is.

  20. Here’s how Social Security works: every month we take in taxes from working people and every month we turn around and distribute those taxes to retirees. That’s it.

    I remember getting into a discussion about SS being a ponzi scheme and a simple redistribution prograam years ago- like in the late eighties– and the defenders claimed, and I quote, “No, Paul, you don’t understand, SS isn’t the crude redistribution scheme you claim it is…”

    Well, how things have changed, no?

    1. not really since the ponzi scheme meme is a small minority.

  21. Ponzi scheme: A fraud disguised as an investment opportunity, in which initial investors and the perpetrators of the fraud are paid out of funds raised from later investors, and the later investors lose all funds invested.

    First, the initial investors–current senior citizens–are getting their funds. Second, it is a fact that S.S. will be bankrupt under its current form, i.e. future ‘investors’ will indeed lose all of their money.

    This proves that S.S. is a ponzi scheme by very definition. The only thing we as Americans (as Rick Perry is doing) need to do is to collectively declare S.S. a fraud.

    It’s time to be honest and deal with the fraud. And because liberals have absolutely no concept of fiscal reality, we must leave them behind in this endeavor.

    1. “Future investors” won’t “lose all of their money,” unless either (a) the government gets rid of the Social Security system, or (b) there are no workers paying into the system at some point in the future.

      It may be that “future investors” will have to accept a reduced share of benefits compared with what they were expecting, but that isn’t the same as losing “all their money.”

  22. Just saw this headline and thought it was hilarious: Donald Rumsfeld cancels NY Times

    Apparently, he was pissed at Krugman’s “shameful” characterization of 9/11.

  23. SS was utter hokum from the beginning. When it was created, the age one had to reach to collect benefits was 65. The problem is that life-expectancy in the US at the time was only 59. It took 5 years before the first eligible beneficiary lived long enough to collect.

    1. I remember reading that little historical fact in the 80s. It may have been my first introduction into real politics and government BS. It led to a long “career” of political cynicism.

    2. I don’t even understand this comment.

  24. It’s all about jurisdiction. Once you check the Soc Sec box that you are a US Citizen, you are subject to the Federal Gov’t, which only has jurisdiction over the “ten mile square” seat of gov’t. They have no power in the States. Tricky bastards.

  25. If Drum is serious that we are “morally obligated” to provide pensions to seniors, we should let them keep more of their Social Security money in private accounts.

    c’mon sikha, you should have gone all libertarian attack dog and asked drum why he isn’t coughing up and paying for seniors out of his own wallet. I mean, I the joker doesn’t even volunteer for his local meals-on-wheels. Meanwhile, I crossed the country, unemployed to care for an elderly friend – on blind faith that I would be able to find a job (I was).

    But seriously, private accounts? That’s just quiet corporatism. The real problem is that it’s not actually POSSIBLE to save for your retirement, because big brother will erode your savings away via the pernicious process of inflation.

    1. *i bet the joker

    2. If we get to the point where private accounts can happen, I think we’ll have made the intellectual leap about fiat currencies as well.

      Even were that not the case, if private accounts had their choice of investments, precious metals and securities denominated in safer currencies would also be options.

  26. That’s it. That’s how it works, and everyone who actually knows anything about the program Ponzi schemes knows that’s how it works.

  27. Is it just me, or is Drum just getting more and more mendacious?

  28. Here’s Ruth Marcus’s argument as to why SS is not really a Ponzi scheme:

    Perry’s overblown rhetoric suggests to younger workers that they will have nothing to show for their contributions, like investors who lose all in a Ponzi scheme. In fact, even after the Social Security surplus is exhausted, the system could continue to pay out more than three-fourths of promised benefits. This would be an enormous problem for many retirees, but hardly a “monstrous lie.”

    Oh, well then, that’s completely different. That makes me feel much better to know that instead of getting 100% of what the government liars are telling me I have a right to, I’ll get 75 percent. Remember that when I promise to sell your four tires but then give you only three for the same price, you fucking left-wing, government apologizing progressive bitch. And don’t tell me my promise to give you four was a monstrous lie. I mean, it’s not like you’re getting nothing at all. And you should be glad you’re getting that.

    1. “Past political lies are no guarantee of future results.”

    2. In fact, even after the Social Security surplus is exhausted, the system could continue to pay out more than three-fourths of promised benefits. This would be an enormous problem for many retirees, but hardly a “monstrous lie.”

      SS defenders like Marcus always bring up this canard without pointing out its obvious conclusion–that a program which cannot pay out what it owes is broke, and the money to make up for it has to come from somewhere else (like, for instance, the IOUs which have to be purchased via cash from the sale of an interest-bearing bond sold by the Treasury to a primary dealer).

      Nor does she or Drum even mention the fact that we weren’t even supposed to get to a point where SS was paying out more than it was taking in until around 2020 or so; that date kept being pulled further and further back as inflation crept up and people lost their jobs. So for them to blithely assert that there’s nothing wrong with SS “a few tweaks couldn’t fix” is ridiculous on its face.

      Even applying the payroll tax to ALL income is a can-kicking exercise; do Marcus and Drum REALLY want millionaires and billionaires claiming benefits on all that wealth they were taxed on? Do they realize the strain that would subsuquently put on the system 20-30 years down the road?

      If not, they are ignoramuses that can’t do basic math; if they do, they are showing that they don’t give a rat’s ass because they’ll likely be dead and in the grave when the system they championed blows up, leaving their grandkids to pick up the pieces.

      1. “SS defenders like Marcus always bring up this canard without pointing out its obvious conclusion–that a program which cannot pay out what it owes is broke”

        The number of people who have successfully passed a semester of real calculus is really low in this country. But you really shouldn’t need it to know that Achilles eventually passes the tortoise in Zeno’s Paradox.

        A money drain is a money drain, and it eventually runs out. That you plan on being dead by the time it does run out doesn’t make it any more fair.

  29. If this is just a welfare program, then why do I keep getting statements from Social Security on my status? Why is it tied to the amounts I paid in? Why do people have to work for forty quarters to achieve eligibility?

    It’s funded as a straight welfare program. But when it comes to getting those welfare payments it’s still arranged as an annuity indexed to inflation.

    1. Bingo. Benefit payouts are tied to your lifetime earnings. If it’s just a pay as you go program like any other government program, we ought to start asking why we’re paying more to richer people who had higher incomes over their lifetimes than poorer ones. If it’s not an investment by the taxpayer, then what is the argument for paying richer people more than poorer ones, why aren’t we means-testing it?

      1. It is not “tied” to your lifetime earnings. Benefits are arbitrarily set to coincide with your lifetime earnings but are not tied down, set in stone, or otherwise guaranteed in any way whatsoever.

        1. Sure, but just try cutting them. Then a whole bunch of people will emerge to claim that you’re entitled to the benefits because you’ve “invested” in the program for 40 years.

          What I’m attempting to point out here is that there’s a vast contradiction between the claim that “it’s not fraud because it’s just a government program like any other”, and the fact that benefits are structured as if it was an investment, and even people like Drum refuse to entertain cutting those benefits or means-testing them… precisely on the grounds that it’s an investment.

  30. And the key to solvency is simple: making sure that those taxes and benefits are in balance.

    I wonder what Drum thinks about Obama’s notion that the payroll tax cut should not only be extended, but that the payroll tax should be lowered even further from where it is during this current “holiday”.

  31. The absolute key to this story is about the transferal of SS revenue to the general fund. For 70 years the US has been paying for war, interstate highways, ethanol subsidies, visits to the moon and mars, etc., with SS revenue. Today’s retirees REFUSED to pay the actual taxes required to pay for the services that most of them supported. Now that the demographics of SS have finally equalized, they say they are “taxed enough already” and they want us – today’s workers – to pay for both their cushy retirement and fund the wars, trips to mars, ethanol subsidies, etc., that they support (whether or not they call themselves Tea Party members).

    1. Bingo. SS was adequately funded at 12%. But the Boomers raided the fund to pay for all their stupid wars and federal programs.

    2. I’ll let anyone off the blame hook who can prove he/she supported Goldwater or has been a registered Libertarian as long as his/her state has permitted such a registration.

    3. My thoughts exactly.

  32. SS is worse than a Ponzi scheme. Its a Ponzi scheme where Charles wants you to die before you collect your money. FDR set the retirement age at the median death rate for a reason. The reason being that the government didn’t want you collecting what you paid into the system. Pols pretend like the government setup SS for you to collect for 20 years after retirement and that is simply not true.

  33. when it comes to getting those welfare payments it’s still arranged as an annuity indexed to inflation.

    In an annuity, there is a real correlation between the investment and the benefits. And you *own* the benefits; try leaving your social security “trust fund” to somebody in your will.

  34. “Social Security is nothing special. It’s just another tax-funded program. Taxes come in, benefits go out.”

    “Now, morally speaking, we certainly have an obligation to keep Social Security running.”

    Which means, SS is not like every other government program. Building roads and military spending does not put a moral obligation on policy makers to keep spending up at a certain level. Comparing the shortfall between SS costs and revenue as a percentage of GDP and saying that 1.5% represents a “tiny tweak” is ludicrous as that represents over 7.5% of revenues for a government that is already living well beyond its means.

    Drum in a nutshell: “What’s so bad about Ponzi Schemes and fraud in general if the government does it?”

  35. Hre’sth per problem with Drum’s analysis.

    The claim that we have a “moral obligation” to pay senior – all seriors – their promised Social Security benefits is predicated upon the assumption that their Social Security taxes are an investment, not a pay-as-you-go program.

    Once you admit that Social Security is a pay-as-you-go scheme designed to finance retirement for the elderly, you must begin to question whether some of those payments, particularly those ot wealthier elderly retirees are a necessary or justified government expense. Is paying $2,000/month to a relatively weathy retiree really the same as paying a soldier or a NASA rocket sicentist?

    Anythime you get to this people, the means-testing argument, people like Drum turn around and say “well, these people have been paying into the program their whole lives and …”. So we’re back to the claim that it’s an investment program, which is a lie.

    Which is it? If it’s a pay-as-you-go program and not an investment, why are we paying rich retirees benefits that are based on their lifetime earnings?

    1. Er, Here’s the problem …

      My keyboard is having issues …

      1. Aren’t the Hre’sth some alien species in some science fiction somewhere?

        1. Yes, but they’re constantly drunk and slurring their speech, thus always causing diplomatic incidents, but the silver lining is that they’re easily conquered.

          1. I’m not drunk! My keyboard skips characters , seriously!

            1. I bet that’s not even Hazel, but some Hre’sth insurgent.

  36. you must begin to question whether some of those payments, particularly those ot wealthier elderly retirees are a necessary or justified government expense. Is paying $2,000/month to a relatively weathy retiree really the same as paying a soldier or a NASA rocket sicentist?

    All government spending is equally good. duh.



    1. Oh, but you are so wrong. If we give money to poor people to do nothing a larger percentage of it will be spent on goods and services, immediately.

      So Social Security, at least in non-means-tested form, also fails the Keynesian stimulus test.

      (Disclaimer: Speaking entirely from within a neo-Keynesian mindset here)

  37. Poor people will spend it!

    It’s funny, but it seems as if all I ever get are dumb looks when I ask what’s wrong with using one’s government windfall to pay down debt.

  38. Never forget Flemming v. Nestor, 363 U.S. 603 (1960). There is no contractural right to receive these benefits. Wrap your head around all the FICA taxes seized from you, then wrap your head around the fact that you have no property interest in a return upon your retirement. Have a nice day. =(

    1. +50

  39. I’ve done the math for myself, and once you make somewhere around $35k, you’re already getting a negative return on your money in real terms even if your SS benefits aren’t taxable (which is generally true if you have no other taxable income), and assuming your life turns out to meet your typical life expectancy.

    From there it just gets worse, to where someone making up to the cap is -1% vs inflation (vs a long-term 6-8% equity risk premium), and would most likely have those benefits be taxable. So even as is, the system’s still shit versus private savings.

    However, on the current track (75% of benefits in perpetuity), almost everyone gets screwed. Even low earners would probably do better putting money in CDs. If your non-SS taxable income in retirement is $35k+, you actually wind up with a substantial negative return (around a 3% loss) on money that you invested over 40 years ago.

    Seriously, this is one of the shittiest systems imaginable. Anyone who talks about how it helps the poor is full of shit; it’s an incremental return that’s generally lower than a 40-year investment in stocks over any time horizon, including the Great Depression. And it’s not even “risk-free,” like a typical diversified investment in high-rated government bonds; there’s no guaranteed income stream. Almost all of the benefit went to current and previous retiree. It was a pure intergenerational transfer, where our parents and grandparents voted themselves a share of our money. On a pay-as-you-go basis, any ostensible “benefit” from redistribution is dwarfed by the awful return. There is nothing of value for younger generations. Period.

  40. What are the other “investments” that evaporate if you die at 63?

  41. Hypothetical scenario:

    If a corporation established an involuntary defined benefit pension plan for its employees (with contributions and benefits structured exactly the same way as in Social Security), and then invested the plan assets in the company’s own debt securities, would that be legal?

    1. No. You can’t invest your company pension plan in your company’s own corporate bonds.

      Of course that’s fraud, and we’ve already been here.

      The argument is that Drum’s saying it’s not fraud because SS was never an “investment” in the first place. It’s just a government program to pay certain people certain amounts of money.

      1. Then pay it out of the general revenues and drop the extra scam tax.

        1. But then it loses its fascade as anything other than welfare.

          1. Yeah, too bad about that, huh?

        2. Then why are we paying benefits proportional to lifetime earnings?

          1. It’s a scam, Hazel. A scam perpetrated by the Hre’sth overlords.

            1. Now you’re hurting my feelings.

    2. Well, it’s more like an equity investment. Ostensibly, it’s “invested” in Treasuries, but you have no claim on the assets or any returns, so it doesn’t make a difference one way or the other.

      1. * non-voting, involuntary equity investment, of course

        As the weight of your vote isn’t determined by how much you have “invested.”

      2. Investing SS funds in Treasuries is equivalent to investing a company pension plan the the company’s corporate bonds. That’s the point.

        The company’s own corporate bonds are an equity investment too, right?

        1. No, because that investment entitles you to a fixed stream of income and ownership of the company under bankruptcy.

          An “investment” in Social Security “entitles” you to a residual income stream that’s always subject to political revision. That’s more similar to how a company will refuse to pay dividends.

          1. So, it’s actually worse than if the company invested the pension fund in it’s own corporate bonds.

            It’s more like the company invests the pension funds in it’s corporate bonds, but then continually modifies your pension benefits and contributions so that the payouts to current retirees are always less than the incoming contributions.

  42. Does anyone see a realistic solution short of bankruptcy? A solution that could get past “Libertarians want Grandma to eat dog food” and the fact that seniors are a large voting demographic. I see any true fix/repeal of SS, if we could get it, lasting about 20 years. Just as long as it takes for some progressive to come up with video of some senior citizen, who did not invest or invested poorly, living on the “street”.

    1. Yes. Currency devaluation.

      It’s the path of least political resistance.

    2. Canada “fixed” its Social Insurance program without resorting to bankruptcy.

      Originally, Canada Pension Plan was more or less a simplified version of Social Security… a pay-as-you-go system with its annual surpluses “invested” in federal and provincial government bonds.

      By the mid 90’s it became clear that the system was going to collapse unless major changes were made. So, the following major changes were made:

      1. Increased the amount of contributions to a combined 9.9% of income up to a yearly maximum.

      2. Created an independent investment manager to actually invest the surplus funds in legitimate assets, without any political interference. Over time the plan is to grow the surplus funds to an amount sufficient to cover 20% of total liabilities by 2014. (So it will still be 80% “pay-as-you-go”, with the assets serving as a buffer to ride out demographic peaks and troughs.)

      3. Deny politicians any power to screw it up in the future. (Changes to CPP’s contribution and benefit formulas require referendum approval by 2/3 of the provinces representing at least 2/3 of the population… exclucing Quebec, which has its own plan).

      Seems to be working so far, but time will tell.

      1. #2 is never going to happen.

        The closest we came was Clinton’s “lock box” scheme. Whatever the fuck a “lock box” in investment terms is … I’m assuming he didn’t literally mean a big vault full of gold.

        Of course Clinton would never have had the balls to propose putting social security surpluses into real assets. The money stream was too juicy.

        The parliamentary system does tend to overcome these problems easier since the government can never be divided. This is sort of one of those cases where it pays to have an elected dictator. One party wins. One party controls the government, and they do whatever the fuck they want. Party discipline is pretty strong in Canada. So the liberals (or was it the progressive conservatives?) could pretty much force the public to swallow spending cuts. It’s much harder to do that in the American system.

    3. Let people opt out, thereby foregoing any future claims. Make anyone who wants out have to pay in for another, say 5 years if you’re older (whatever some actuarial math leads to), and then they’re out for good. Younger people might have to pay a few years longer but they they’re out forever. Everyone gets screwed somewhat instead of some (especially those least deserving) getting it totally. All the “extra” money would actually have to be put aside instead of squandered so I guess this plan really isn’t very realistic after all.

  43. “A solution that could get past “Libertarians want Grandma to eat dog food””

    Nope. Not a chance.
    Any workable solution will immediately get that response.

  44. The argument is that Drum’s saying it’s not fraud because SS was never an “investment” in the first place.

    Fraud is the gap between the sales pitch and reality. Drum is ignoring the fact that SocSec has been, and is, packaged up like some kind of “real” defined benefit plan with this big old pool of assets backing it up. The fraud is that its not a defined benefit plan at all, and isn’t backed up by anything that anyone would consider an asset.

  45. ” Indeed, as I noted previously, these taxes have been raised 40 times since the program’s inception so that the 12.4 percent payroll tax that we pay today represents a 400 percent increase over the original after adjusting for inflation.”

    You dont need to adjust this for inflation. Its a percent. not in dollar terms. The percentage change is already adjusted for inflation. The tax rate is over 6 times higher than it was when it started.

    1. Speaking of inflation, when the inevitable happens and these issues aren’t resolved, how high will inflation run as the dollar falls?

    A women from Caribbean who procured a deceased child’s Social Security number, is just one of the hundreds of thousands that are stolen every year. Any private investigator or researcher can explain that obituaries can glean a new identity, by searching for young children who have recently died or were in an unfortunate accident or brought down by illness. A researcher can go to any rural newspaper, which publishes those deceased columns, near to their age and get the basic material to acquire the personal details of that individual and take on that identity. Annually the American people are finding their credit compromised by criminal illegal aliens or nefarious individuals.

    There is a billion dollar business with the protection of Citizen or green card possessor, but even so hundreds of people have found their credit crippled or even the theft of the equity in their homes. The majority of illegal aliens make up their own number, but the criminal element or the temptation is already there to steal somebody’s person information. In 1999 I found myself in the same predicament, when I was at a car dealership, finding that my Social Security was being used by 3 other people. I contacted the Social Security telling them a person unknown to me, was employed at a San Antonio, Texas Security company using my name and SSN. That said, I never heard any word about the crime of any of these three people. Like so many other people, I informed the police, and then began the long road back to reviving my good credit.

    This escalation of foreign nationals and other criminals stealing people’s identity, the federal government should assess issuing a mandatory official picture Identity card to every American. The cost would be a worthwhile causing to halt the theft of people’s personal details, even if it the final tally was a billion dollars to pay for it? This personal ID card could be used for voting (that has been badly compromised by the Liberals and Democrats that seem unconcerned of illegal aliens voting) Illegal immigration has effected every bodies life, including jobs, the economy of 113 billions of dollars hemorrhaging from both federal and state treasuries. In fact another Amnesty that both sides are pushing Congress for, would be 2.5 trillion dollars from your pockets in taxes. IT IS TIME FOR AN OFFICIAL ID CARD, WHICH CAN BE CROSS-REFERENCED WITH OTHER ID SUCH AS A DRIVERS LICENSE, MILITARY, STATE OR EVEN A PASSPORT.

    If you come to America unlawfully; it should be punished as a felony. This is absolutely ludicrous that foreigners can steal not only your credit, but the equity in your home as well. Even small businesses are not exempt from theft, finding ways to promote credit lines and then disappearing into the streets. No new laws to aid the US population will be enacted by the GOP establishment or any Liberal or Democratic politician. The TEA PARTY leadership will stand firm against the Rick Perry, Mitt Romney or any other Presidential precursor for the White House. Either man has a failing grade in stopping the invasion of illegal immigrants from across the globe. Perry specifically, as in his earlier speeches advised the Texas legislators to pass another amnesty as well as taxpayer paid tuition for the children of illegal aliens; another State Dream Act. Only Michele Bachmann has the highest grade on NumbersUSA website.

    No business will be exempt from observing the immigration law of 1986, which will be punished by the full extent of the law. Amnesties will be a thing of the past and entry into the United States, will be with the permission of the people. Dream Acts or Sanctuary cities will be none existent under the elected government of the TEA PARTY. The 20 million plus living here through unlawful entrance will eventually be caught and deported.


    It is finally happening! A mandatory E-Verify bill is moving through committee. We can see this into law THIS FALL — if we push hard enough. Go to NUMBERSUSA to phone and insist on this bill be passed.

    Legislation is finally moving through committee (a) to mandate E-Verify nationally, (b) to take away the ability of illegal aliens to use stolen identities to steal American jobs, (c) and to begin opening up hundreds of thousands of construction, manufacturing and service jobs for unemployed Americans.

    The “mark-up” (the process of considering amendments and voting out the bill) was announced to start Thursday morning.

    Now is the time to pour every bit of activism you can give to helping Members of the U.S. House of Representatives Judiciary understand why they must pass this bill.

    H.R. 2885
    New Bill Number for Lamar Smith’s “Legal Workforce Act”

    Since Rep. Smith (R-Texas) introduced this bill early in the year (as bill number H.R. 2164), he has gotten a lot of feedback and made enough changes to decide to re-introduce the bill under a different number.


    All the basic elements that we’ve described in the past are still in the bill (despite huge efforts by powerful forces to water it down).

    But this bill has a wonderful addition.

    The bill creates an office within ICE Immigration and Customs Enforcement (ICE), whose sole purpose is to respond to — and investigate — state and local governmental agency complaints about businesses hiring and/or employing illegal immigrants.

    This new office is required to respond within five business days of the filing of the complaint.

    Attorneys General, prosecutors and other state and local officials who believe they see a pattern of a business employing illegal aliens will have a direct line to ICE with a guarantee of rapid response. As these complaints will be a matter of public record, failure of ICE to obey the law will provide direct evidence for congressional hearings into Administration misfeasance.

    Fortunately, another office of this type that has been operating as a complaint desk on another immigration matter has a reported high degree of compliance by the feds and satisfaction by state and local officials.

    Rep. Lamar Smith (R-Texas) is the Chairman of the Judiciary Committee. Major forces have attempted to get him to keep postponing the moving of this bill. We had campaigned hard to get a vote in committee before the August recess. We are ecstatic that Chairman Smith has made this bill such a priority and are moving this so soon after Labor Day.

    Capitol Switchboard

    Go to the Heritage Foundation website, NumbersUSA or Judicial Watch and read for the dollar figures that will turn your stomach sour. Discover information at American Patrol, the Liberals and Democrats want to keep concealed.

    1. “But this bill has a wonderful addition.
      The bill creates an office within ICE Immigration and Customs Enforcement (ICE), whose sole purpose is to respond to — and investigate — state and local governmental agency complaints about businesses hiring and/or employing illegal immigrants.”

      Don’t sound “wonderful” to me.

  47. i don’t think social security is a ponzi scheme……yet. there’s still time to fix the raiding of the trust fund, and otherwise, by design, it’s dissimilar from a classic ponzi scheme. this is one of those cases where the critics and supporters are both neither right or wrong.

    although, it needs said that whatever argument we have about social security, it exists for one basic reason only. the government has decided that people can’t be trusted to properly invest toward their own retirement with positive results. and they’re right. now, maybe that doesn’t justify it nonetheless, but those are the foundational truths of the program, and we need to start from there.

    1. People might find it a lot easier to save/invest if the gov’t wasn’t confiscating 15.3% of their paycheck. Think about that for a minute, how much money that is over a long period, hundreds of thousands of dollars.
      Of course many wouldn’t save anything and would eventually be destitute. So what? That is their choice. If you wanted you could still help them with your money. If you thought there was a better use of your money then you could choose that. Now you don’t have that option since gov’t makes the (bad) choices for you by enslaving you so the fruit of your labor can go to others. No one would have any reason to complain. The foolish would reap what they’ve sown. There’s nothing wrong with that. They would also serve as a cautionary tale to others who would see that bad choices lead to bad results rather than a gov’t check.

  48. Social Security is horribly immoral and should be phased out as soon as possible, period. Hundreds of thousands (if not millions) of dollars forcibly taken from each worker by the gov’t to “protect” us in our old age yet nothing to be passed on to heirs. It’s simply criminal and sickening. Let people keep their own money and take responsibility for themselves…you know that little thing called “freedom” that so many fought and died for. How many people pay in their whole lives and never collect a cent? How many fewer foreclosures or other emergencies would be averted if everyone had an extra 12.4% in every paycheck? Instead fools wanting freedom from responsibility vote in fools to rule over everyone instead of just the fools.

  49. I think SS should be shut down completely. However that is not going to happen with the current oligarchy. It would have been better if the surplus taxes collected had been actually invested, not squandered on other government spending. But that’s water under the bridge. Sorry seniors and the disabled, but your check is going to shrink or get cut. Means testing is going to happen whether you want it to or not.

  50. This is the problem:

    Your Social Security
    Just in case some of you young whippersnappers (& some older ones) didn’t know this. It’s easy to check out, if you don’t believe it. Be sure and show it to your kids. They need a little history lesson on what’s what and it doesn’t matter whether you are Democrat or Republican. Facts are Facts!!!
    Social Security Cards up until the 1980s expressly stated the number and card were not to be used for identification purposes. Since nearly everyone in the United States now has a number, it became convenient to use it anyway and the message was removed.
    Our Social Security
    Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:
    1.) That participation in the Program would be completely voluntary.
    No longer Voluntary
    2.) That the participants would only have to pay 1% of the first $1,400 of their annual Incomes into the Program.
    Now 7.65% on the first $90,000
    3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,
    No longer tax deductible
    4.) That the money the participants put into the independent ‘Trust Fund’ rather than into the general operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program.
    Under Johnson the money was moved to The General Fund and Spent it.
    5.) That the annuity payments to the retirees would never be taxed as income.
    Under Clinton & Gore Up to 85% of your Social Security can be Taxed
    Since many of us have paid into FICA for years and are now receiving a Social Security check every month — and then finding that we are getting taxed on 85% of \the money we paid to the Federal government to ‘put away’ — you may be interested in the following:
    Q: Which Political Party took Social Security from the independent ‘Trust Fund’ and put it into the general fund so that Congress could spend it?
    A: It was Lyndon Johnson and the democratically
    controlled House and Senate.
    Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?
    A: The Democratic Party.
    Q: Which Political Party started taxing Social Security annuities?
    A: The Democratic Party, with Al Gore casting the ‘tie-breaking’ deciding vote as President of the Senate, while he was Vice President of the US
    Q: Which Political Party decided to start giving annuity payments to immigrants?
    A: That’s right!
    Jimmy Carter and the Democratic Party.
    Immigrants moved into this country, and at age 65, began to receive Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!
    Then, after violating the original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away!
    And the worst part about it is uninformed citizens believe it! If enough people receive this, maybe a seed of awareness will be planted and maybe changes will evolve. Maybe not, some Democrats are awfully sure of what isn’t so.
    \But it’s worth a try. How many people can YOU send this to?
    Actions speak louder than bumper stickers.

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