No, social security is not a ponzi scheme

"America is Greece!" and "Social security is a ponzi scheme!" are catchy sayings, but wild exaggeration about the U.S. economy doesn't solve anything.

By , Guest blogger

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    Republican presidential candidate Texas Gov. Rick Perry gestures during a Republican presidential debate Sept. 12, in Tampa, Fla. The author argues that sayings like Perry's famous equation of social security to a ponzi scheme make for catchy sound bites, but they aren't helpful. (AP Photo/Mike Carlson)


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I’d like to impose a new fiscal measure. Whenever you say either “America is Greece!” re our fiscal debt—or anything like that—or “Social Security is a Ponzi Scheme!” you have to send $10 to the US Treasury.

Today’s bond markets have the yield on the 10-year Greek bond at 23.54 and on the US ten-year note at 1.95. So enough about that…OK?

Social Security is pay-as-you-go. Ponzi’s scheme was not as it depended on continuous doubling the ratio of contributors to investors (read this wonderful treatment by Social Security’s historian).

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As the above link concludes:

“The first modern social insurance program began in Germany in 1889 and has been in continuous operation for more than 100 years. The American Social Security system has been in continuous successful operation since 1935. Charles Ponzi’s scheme lasted barely 200 days.”

Now, let’s just think for another minute about this pay-as-you-go process.

For much of its long and successful history, today’s workers have financed the benefits of yesterday’s workforce. When demographic factors have led to a funding imbalance, as was recognized in the Reagan years (!!), adjustments had to be made to extend full solvency.

Such adjustments once again need to be made and they are not daunting. In fact, the costs of the highend Bush tax cuts are about analogous to the shortfall in Social Security over 75 years, as both are about 0.8% of GDP. And do not be misled by the insolvency arguments: full benefits can be paid through 2036, at which point trust fund is exhausted. But at that point, courtesy of pay-as-you-go, the program can still pay 75% of scheduled benefits.

Now, forgive me if I get a little bit spiritual: as I’ve written before, Social Security was designed to “create a strong link between the aged and the working-age population–today’s workers create the capital, the technology, and the wealth that will support tomorrow’s generation. Embedded in its…formulas is the notion that those of us who came before, whether they were teachers, accountants, homemakers, mail carriers, barbers, cashiers, or lawyers, have built up the productive capacity of our nation.

When the children of these workers come of age (along with new immigrants), they will earn their living from this infrastructure while also making their own contributions. As they do so, we will peel off some portion of their earnings to provide pensions for their forebears, just as those forebears did for their own predecessors…Social Security is thus an elegant collaborative solution to a universal challenge.”

Maybe some people don’t want to accept the fact that we’re all in this together, but…we are. So unless you want to be sending a crisp Alexander Hamilton into the Treasury, don’t be talkin’ any of this stuff anymore…capeesh!!??

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