Economics
Social Security IS a Ponzi Scheme. Here’s Why and the Way Out
Texas governor and presidential candidate Rick Perry is rattling the political world by maintaining that Social Security is a Ponzi scheme. Social Security (SS) is supposed to be the “third rail” of politics–a popular program that you criticize or alter at your own peril.
The pundits are drooling that Perry and the Republicans are in deep trouble if they continue to speak about changing the system that FDR gave us in the 30s to help elderly retirees.
I don’t believe it. I have come to this conclusion about Social Security:
What’s good for me is not good for America.
And if I and many others are not willing to put country before self over this and other vital national interests, then we’re probably finished as a just and prosperous nation.
Here’s why…
I am a Baby Boomer who could start taking Social Security in five years and expect to live another twenty or thirty. I’m also in the lowest tier of income earners in America (due to my choice to be a Christian missionary) who could greatly benefit by the monthly check from the government.
I also know many people who are currently on SS who would like to keep getting their monthly checks from the government. So would I. But I also realize that SS and other large entitlement programs will bankrupt this nation if we bury our heads in the sand, selfishly demand our checks, and don’t have the guts to do something about it.
Gov. Rick Perry has told us the hard truth.
Social Security is a sham–a fraud–and if left unchecked, will fail for everybody.
I don’t know the motivations of those who gave us Social Security. For argument sake, let’s say that the those who launched this social experiment many years ago were well meaning and thought that it would be a good idea to collect money from working Americans during their productive years to give back during retirement.
Fine. People were suffering greatly during the Great Depression and our leaders thought it might be helpful to especially protect the vulnerable elderly.
But good motives can have terrible consequences if ill-designed and delivered. Some of the worst financial consequences come from Ponzi schemes. Think Bernie Madoff–and the thousands who lost their life savings through his mischief.
And Social Security is nothing less than Ponzi-like. Erick Erickson explains:
“Social Security is, for all intents and purposes, a Ponzi scheme. Don’t believe me? Try out the Securities and Exchange Commission definition: ‘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.’
“Or how about from Wikipedia? ‘A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.'”
Note the clear definitions. Ponzi schemes are never good investments. They promise great returns in the future, but they spend more money in the present than what they save for the future, and only survive for a time by having new suckers come into the system to pay for the current obligations.
But the operation is a house of cards that over the long-run cannot be sustained and ultimately collapses–especially hurting the last investors to enter the charade.
In terms of SS, think of our children and grandchildren.
There is really only one difference between a Ponzi scheme and Social Security. In a Ponzi scheme fraud, the game always collapses when the criminal runs out of money. In American, the criminals (i.e. the government), don’t run out of money because they can always tax more and print more.
But alas! Those days are over. The American nation can no longer bear increased taxes or more fiat money.
The “game” is essentially over.
Here’s the truth about Social Security:
1. It was begun during a time in which most Americans lived to be about seventy. It was designed to help them with the last five-to-ten years of life. Today, many Americans live into their eighties and nineties and can collect SS for thirty years or more. Thus retiring Americans today will receive three to five times more money than they ever put in! That’s not a great return. It’s robbing future generations.
2. The monies that were collected since the 1930s were never invested or “held.” They were spent every year in the general federal budget. Social Security was never a fund or investment. It is a data-entry IOU. In the early years of the programs, there were plenty of younger workers to pay for retirees. But no longer. Social Security expenditures exceeded the program’s non-interest income in 2010. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are just the beginning of a half a trillion dollar short-fall by 2021 (CBO estimate). The retirement of the Baby Boom generation creates a desperate situation that will overwhelm the system. Not in the future. Now.
3. We can’t raise taxes to fix the broken system. There are simply not enough younger workers to pay for the older generations–unless they start giving 50-100% of their income to the federal government. This is not an answer. It is slavery and tyranny of the young.
4. The enactment of Social Security had two other negative consequences. First, it astronomically grew the size of government and created dependency for millions of Americans. This was never the American way. Secondly, it began to divide and diminish the American family. For hundreds of years, American families took care of their own–not just the nuclear family, but relatives of all types. If you read the literature of the 18th and 19th centuries, you hear of families being responsible for grandparents, aunts, uncles, cousins–everybody related to them. This was a good thing that placed the family at the center of society. Government has now taken its place–and no wonder the American family is dying. When you don’t need each other, meaningful relationships cease to exist.
Rick Perry is right. Social Security as it currently exists is a fraudulent program that is a financial cancer on the American economy. We must talk about it and we must makes some changes. I have a few recommendations:
1. Raise the age threshold as people are living longer lives. Continuing to work and be productive is a good thing. Retirement–for twenty or thirty years–is not a right. It’s a privilege and fruit of a well-lived life. Just raising the age to 67 or 70 would save billions of dollars per year.
2. Make Social Security a true savings instrument where the money is “lock-boxed” and invested in financial markets to multiply a return. This is the way that it always should have operated. The government must collect SS money, not spend it on other things, and invest it for future payments. And older folks should receive at retirement only what they’ve contributed and the interest it has earned–not five times what they put in.
3. If younger generations don’t want to invest in the government system, they can take their SS monies and invest them personally in other private instruments. If government cannot be competitive, then it shouldn’t be allowed to be in the retirement business at all. More choices will mean better returns.
4. Americans should be encouraged once again to be the primary providers for their own families. I am personally arranging my future finances around taking care of my own. There’s nothing wrong with children caring for their parents and grandparents in their later years–and even living together as a result of that commitment. This would strengthen and renew the American family. God knows this is one of our greatest needs as a society.
To make these ideas and other good reforms come to pass, we need to be dirt honest about the giant Ponzi scheme called Social Security and be willing to do the right thing–even at our own expense. Here’s the principle to which we must commit:
What’s good for me isn’t necessarily good for America.
Translation: The Ponzi-like Social Security check that I’d love to receive from age 65 to 90 is bad policy for my nation. I won’t take it. It’s better to “ask not what my country can do for me, but rather ask what I can do for my country” (John F. Kennedy.)
That means I need to work a little harder and longer, give up the money I don’t deserve, take responsibility for my extended family, and work to reform the system for future generations.
If we do, they will rise up in the future and praise us.
The Compromise: The Tea Party Erects a Speed Bump
The battle over increasing the debt ceiling for the United States government ended today when Congress approved and the president signed a bill that would raise the current debt limit by 400 billion dollars. The House vote was 269-161 and Senate approved the measure 74-26. It was a hard fought battle that kept the nation and world on edge for days.
I’m greatly disappointed in the compromise–though pleased with some details–and have been thinking about a phrase that describes the ordeal we have just experienced:
You can’t see the forest for the trees.
Here are a few of the trees: The mainstream media is calling the debt ceiling compromise a huge victory for the Tea Party movement. They say that Barack Obama’s showed strong leadership, politics as usual was demonstrated by both parties, and that the “compromise” was a good thing in the end.
They are wrong.
These are just trees–not the bigger picture.
What’s really happened is that the Tea Party managed to erect a temporary speed bump in front of runaway government spending and begin to re-frame the debate. The “forest” of financial disaster still looms in front of us–dark and foreboding.
We must continue to fight to save our Republic.
Before we discuss the bigger war and battles that lie ahead, let’s look at the “speed bump” that was erected this week.
Here’s how the Family Research Council saw it:
“The framework…would raise the debt limit by at least $2.4 trillion and get Obama and congressional Democrats past their target date: Election Day 2012. In return for this generous political cover, Democrats would agree to a modest $1 trillion in supposed cuts spread out over 10 years; $350 billion of those “upfront” savings come from gutting national security resources.”
“A trillion dollars over 10 years is not sufficient to impress credit rating agencies, which have threatened to downgrade America’s credit status. In fact, Moody’s announced that: “Reductions of the magnitude now being proposed, if adopted, would likely lead Moody’s to adopt a negative outlook on the AAA rating.” The current plan does not improve upon either of those earlier plans.”
“In addition to the $1 trillion, the framework sets up a ‘special’ congressional committee that would seek $1.4 trillion in ‘deficit reduction’ by the end of 2011. Of course, for liberals, ‘deficit reduction’ is synonymous with ‘higher taxes.'”
“If the commission’s recommendations are not enacted, across-the-board spending cuts would be triggered, half of which (nearly $500 billion) would come from national security spending. Every honest observer knows the problem is entitlement spending, not the defense budget or a lack of revenue. Defense spending has been on the decline for decades, as a percentage of GDP. It is currently below its historical average of 5.2 percent of GDP. Meanwhile, entitlements (Social Security, Medicare, and Medicaid) grew from 2.5 percent of GDP in 1965 to over 10 percent today and represent 60 percent of the total federal budget.”
The Heritage Foundation saw the debt ceiling compromise in these terms:
“Unfortunately for taxpayers, most of these cuts are to what the country would have spent, not what we are spending. In other words, the government will keep growing, just at a slower rate. The Left will have the satisfaction of raising our credit limit for six months but spreading the pain of cuts over 10 years. Obviously, we have no way to estimate what inflation will be in 2021, but we can look back on the cost of living over the last 10 years and see that the value of the dollar diminished by about 24% since 2001. If the next decade is similar to the last, then $1 trillion in cuts today will be more like $800 million in cuts tomorrow. “
“To help hold Congress’s feet to the fire on deficit reduction, the deal does asks for a second wave of spending cuts this year. The only hitch is, those cuts would be determined by a select number of congressmen. It’s been dubbed the Super Committee, and judging by the description, there’s a lot to dislike. Twelve members (six from each chamber and six from each party) will have to find ways to slash the deficit by another $1.6 trillion before the end of the year. If they don’t, a surge of cuts to the defense and Medicare budgets would automatically go into effect.”
“On the bright side, the agreement does make a vote on the Balanced Budget Amendment a condition of the final deal. Any victories the GOP can claim in this debate are owed to hard-core conservatives like Reps. Jim Jordan (Ohio), Michele Bachmann (Minn.), Steve King (Iowa), and Louie Gohmert (Texas), who held firm in the face of enormous political pressure. Without their resolve, there would have been little to negotiate.”
So here’s what it all means–to get back to the “forest” analogy. I want to lay this out in stark terms so that you don’t miss the big picture:
Today, the United States government is 14.5 trillion dollars in debt. In less than two years we will be over 17 trillion dollars in debt–and gobbling up 25% of our Gross Domestic Product (GDP). Our historic average is 18%. We are currently running deficits of over 1.5 trillion dollars a year–for as far as the eye can see. We borrow forty- three cents of every dollar that we spend. Next year, the so-called “cuts” will be a measly 22 billion dollars.
That’s six days of federal spending.
A dirty little secret–the true “Satan Sandwich”of our current deficit binge–is that none of the “cuts” that are mentioned above are actual reductions in spending. Federal entitlement programs–currently 60% of the US Budget–increase 7-8% each year. All so-called “cuts” are really cuts in the growth rate of Big Government–nothing more.
Imagine your family bringing in $60,000 a year in income, but spending $100,000. You are $1,000,000 in debt and it’s begun to grow exponentially. To stop the bleeding, you decide to spend $107,000 next year instead of $108,000. And on and on.
If you did that in the real world, you would crash and burn.
Sound crazy?
Well, that’s the Federal Government “dealing with the problem.” There’s no real reckoning with reality–just a slight retarding of a nasty habit that will have devastating consequences in this nation and the world economy if we allow it to continue.
Yes, we do need to give the Tea Party legislators credit. Without 120 courageous members in the House of Representatives, the debt ceiling would have been raised with a yawn–and there would be no discussion of “cuts” of any type. During the first two years of the Obama administration, when the liberals controlled all branches of government, we spent four trillion dollars inflating our National-Debt-and-Government Monster.
Thanks to the Tea Party, a speed bump has been erected. It doesn’t stop the runaway car–it just slows it slightly. It’s a small victory in a big war, but unless we win the war, the United States is finished as a nation.
A black, ugly, destructive forest of financial disaster still looms in front of us. The liberal elements still control the White House and half of Congress. If we do not stop them, the United States as we know it will be added to the ash heap of history.
We will be Greece–times one thousand–and fade into obscurity.
As people of faith and courage, our marching orders remain clear.
1. We must decisively win back control of the United States Senate in the 2012 elections to stop the progressive spending insanity. We must increase our majority in the House of Representatives.
2. We must defeat Barack Obama in 2012 with a conservative candidate with spine and vision to make the hard choices to pare down entitlements.
3. We must pass a responsible balanced budget amendment and have it ratified by the states. Our leaders in Washington will never have the guts to do it.
4. We must change our current tax code from a job-squelching progressive income tax to a fair tax or a flat tax. This would make the United States the investment haven on the world.
5. Over time we need to pay-off our 14.5 trillion dollar debt.
To accomplish the above legislative goals, we need to change ourselves first. As individuals and families, we need to reject irresponsible debt and live within our means. We need give up our entitlement mentality and take more responsibility for our own lives.
The government does not owe us a certain standard of living. It owes us an “honest money–just society” that gives equal opportunity to all people and protects us from our enemies.
And to accomplish that, we need more of God in our hearts and practices.
This coming Saturday, August 6, “The Response” is taking place in Houston, Texas, and many cities around our nation. I encourage you to participate. It’s a national call, led by Texas Governor Rick Perry, for America to return to its God-fearing roots.
The Tea Party erected a speed bump–a warning.
But only a prayerful, repentant response to God can get us completely turned around and moving in the right direction as a nation.
It’s Not the ATMs, Mr. President!
I was tempted to use a different head-line on this one:
“It’s Not the ATMs, Stupid!”
That would be a take-off on Bill Clinton’s famous slogan against President George H.W. Bush during the 1988 presidential campaign when he remarked, “It’s the Economy, Stupid!” while trying to frame the most important issue of that presidential campaign cycle.
But I don’t want to be be disrespectful to the president of the United States. I don’t believe he’s stupid and I greatly respect the office.
Yet, he sure said a dumb thing on the NBC Today Show on on June 15, 2011 that will come back to haunt him during the 2012 presidential campaign.
It also revealed a lack of understanding of basic economics.
Here’s what he said…
In a Today show interview with Ann Curry, President Obama talked about one of the reasons he thought employment numbers have been slow to rebound–self-service automation–specifically kiosks and ATMs.
In the interview, he said, “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate. All these things have created changes in the economy. “
According to the Washington Examiner’s Philip Klein, ATM Industry Association CEO Mike Lee sent him an email response that said, in part, that “President Obama should never use ATMs as an example of how technology replaces human labor because ATMs today play a critical role in providing extensive employment in the ATM and cash-in-transit industries.”
Economics 101: Innovation multiplies jobs–it doesn’t shrink them.
No, it’s not the ATMs, Mr. President!
It’s bad economic policies. In the past three years we have done all the wrong things to try and create jobs. Government intervention and growth doesn’t do it.
And it’s pretty scary that at the highest levels of our current government, they just don’t seem to understand how wealth is created, how jobs are made, and what economic drivers are essential for prosperity.
Now I will be the first to admit that economic theory in its various forms can be hard to understand. That’s why so many people call it an imperfect science.
But for the past twenty-five years, Shirley and I have home-schooled our kids on the tenets of modern free enterprise capitalism. Those basics include:
- It is individuals, and the businesses they start, that create wealth. Government doesn’t create wealth. It only distributes it according to its goals and desires.
- Tools are essential to increasing productivity. The more-and-better tools that man creates (including ATMs), the more wealth (capital) can be generated.
- Over the past five hundred years, the creation of the middle class–which has grown exponentially worldwide–has been due to the wonderful development in technology which has increased jobs– never taken away opportunities to get ahead.
Yes, it is true, whenever man innovates, or new technologies are created, then older jobs and trades go away. Certain jobs are lost when new technologies are introduced.
For example, there are millions of people in America today named “Smith.” They wear that surname because many of their ancestors were “back smiths” who worked with metals that were essential to an agricultural society. They made horseshoes, plows, and other metal objects that were vital for industry for hundreds of years.
But machines eventually took their place–did a better job of making metal objects–and all the “smiths” of the world had to move on to other professions.
Did the “Smith Family” suffer from these changes in technology? Maybe for a time. But I can guarantee that there are more wealthy, employed and prosperous “Smiths” in America today than in any other historical period. Innovation didn’t create long-lasting job loss. It actually became a vehicle for greater wealth among the Smith clan.
There are two classic examples of economic change–producing more jobs not less jobs–in the past few hundred years. The first was the Industrial Revolution.
The Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the economic and cultural conditions of the times. It began in England, then subsequently spread throughout Europe, North America, and eventually the world.
The Industrial Revolution was a major turning point in human history; almost every aspect of daily life was influenced in some way. Most notably, average income and population began to exhibit unprecedented sustained growth. In the two centuries following 1800, the world’s average per capita income increased over 10-fold, while the world’s population increased over 6-fold. In the words of Nobel Prize winner Robert E. Lucas, Jr., “For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth. … Nothing remotely like this economic behavior has happened before.”
In other words, using machines to do more for human beings did not decrease jobs or prosperity. It greatly multiplied job opportunities for billions of people. World population actually exploded because it was easier for people to live and work.
Starting in the later part of the 18th century, there was a transition in parts of Great Britain’s manual labour and animal–based economy towards machine-based manufacturing. It started with the mechanization of the textile industries, the development of iron-making techniques and the increased use of coal. Trade expansion was enabled by the introduction of canals, improved roads and railways.
The introduction of steam power produced dramatic increases in production capacity. The development of all-metal machine tools in the first two decades of the 19th century facilitated the manufacture of more production machines for manufacturing in other industries. The effects spread throughout Western Europe and North America during the 19th century, eventually affecting most of the world, a process that continues as industrialization. The impact of this change on society was enormous.
What are those impacts? More wealth, a higher standard of living, more jobs, and greater opportunities for all.
The Information Revolution
The second great quantum leap in job creation and increased prosperity has been the Information Revolution that has taken place in our lifetime–in the past thirty or forty years. Much of it took place through the invention of one tiny object: the micro-chip.
Arthur Laffer, Stephen Moore and Peter Tanous share the amazing benefits of that little innovation in their groundbreaking book, The End Of Prosperity: How Higher Taxes Will Doom the Economy If We Let It Happen:
“The dawning of the age of the microchip and all the attendant, fabulous technological advances have played a vital role in this wild and wonderful ride. Ingenious and daring entrepreneurs from Bill Gates to Fred Smith (there’s that name again!) to Larry Ellison to Google founders Sergey Brin and Larry Page launched whole new industries and made billions of dollars for themselves and billions more for workers and society. More wealth was created in the United States in the past twenty-five years than in the previous two hundred. In 1967 only one in 25 families earned an income of $100,000, whereas now, almost one in four families do.”
And millions of new jobs were created as a result of the Information Revolution. The tiny machines didn’t take jobs away–they exploded the opportunities for people to create wealth.
I sometimes wonder what many men and women did a hundred years ago when there was no such thing as hardware and software–or electronics. Think how many “geeks” have come into their own because one little mechanical innovation allowed them to use some God-given abilites that the hoe and plow never offered.
The lesson is extremely clear: Improved technology grows jobs if you’re willing to look for the possibilities.
And here’s where we get down to the troubling aspect of President Obama’s comments. Producing jobs and prosperity is really the result of a worldview–a “faith” that is always dreaming of more opportunities and improvements in life, family, and human culture.
Because what is really multiplied when technology enhances human life, even taking away some short-term job occupations in the process, is that it gives human beings a greater opportunity to be creative–to think through how the latest innovation can be enhanced and expanded. Greater leisure through better tools produces more time for creative thinking–and that valuable activity greatly multiplies human activity (i.e. jobs).
Better tools–like ATM machines–give us the time to use our creative imaginations to explore new ideas, make new applications, and create more products. We’re not enslaved to the ancient technologies or limitations.
Machines multiply creativity–if we believe there’s a Creator to follow and a world to improve.
That’s where the worldview is crucial: God. Man made is His creative image. A mandate to improve the world. Faith to do so by his power and grace. Innovation. Improvement. Jobs. Prosperity.
We need to say to ourselves “It’s the worldview, stupid!”
Then have faith and imagination to keep improving that world for our benefit and his glory.