Elon Musk – the richest man in the world – is doing a fine job shaking up Washington’s political establishment. He recently took to the Joe Rogan podcast where he said, “Social Security is the biggest Ponzi scheme of all time.”
This small dose of reality was enough to elicit excitement from big government statists. Rex Huppke, in an opinion piece in USA Today, provided the following counterpoint:
“Social Security is one of the country’s most popular and successful federal programs, and its pay-as-you-go arrangement is not a deceptive scam – it’s how the system was built to work.”
Without question Social Security is a popular program. Who doesn’t relish the prospect of getting something for nothing? But that doesn’t mean it isn’t a Ponzi scheme.
Charles Ponzi, if you didn’t know, gained notoriety in 1920 offering a tempting investment ploy. He promised a 50 percent return on investment in 45 days and a 100 percent return in 90 days. Trusting investors, dizzy with visions of easy riches, painfully discovered the returns were paid by the money of subsequent investors.
When incoming money could not keep up with payment of promised returns the show was over. But not before Ponzi’s suckers had been taken for about $20 million.
Musk’s point about Social Security is that the demographic ratio of working Americans to retirees, who are living longer than when the system was initially rolled out, is trending in the wrong direction. America’s birth-to-death rate no longer favors a young and growing population.
An estimated seventy-five million baby boomers will retire by 2030. The “pay-as-you-go” system will not be able to cover the costs of all the promises that have been made. Thus, Social Security, like all Ponzi schemes, is doomed to fail.
Dependents of the State
Naturally, this is all very upsetting to those who’ve paid into it over their working lives and are counting on it to make ends meet in retirement.
Central to the promises of Social Security are the central government and central planning authorities. They promise ease and comfort. In return, you become dependent. They promise a secure retirement, and free drugs, while running a scheme that’s beyond Charles Ponzi’s wildest dreams.
Social Security, no doubt, is an appealing idea. The government confiscates part of your paycheck every two weeks. Then, in return, and after putting in 45 years, your retirement is subsidized. You can enjoy your golden years in comfort.
According to Rachel Greszler, research fellow at the Heritage Foundation:
“[Social Security is] America’s favorite entitlement program, and part of the reason it’s so popular is it’s not solvent.”
Indeed, the most popular programs are those that promise people they’ll get out more than they put in. The promise is so tempting people trust that their government leaders will deliver something that’s mathematically impossible. Unfortunately, many of those counting on Social Security will suffer a grave disappointment.
At the time of Social Security’s establishment, it really didn’t take much abstract thinking to recognize that the program would eventually go broke. Any honest assessment could discern it was doomed to fail. All Ponzi schemes are.
In 1939, before the first check was ever paid out, John T. Flynn predicted Social Security would be under water by 1970 and insolvent by 1980. He was called a crank by the political elites of the day. Yet Flynn was right.
Differing Growth Curves
Without the Greenspan Commission and the Social Security Reform Act of 1983, Flynn’s prediction would have been off by merely three years. More importantly, Greenspan didn’t solve the Social Security problem.
By changing the terms and conditions, he merely extended it further into the future. In doing so he committed several more generations of workers to dependency. And once again, the Social Security Ponzi scheme is doomed to fail.
Right now, we’re on a collision course with disaster. Take government debt, for instance. Over the last decade, ending with Q4 2024, real gross domestic product (GDP) has increased from about $18.5 trillion to about $23.5 trillion. Over this same period, the national debt has increased from $18.2 trillion to $36.2 trillion.
There’s a fundamental divergence between economic growth and government debt growth. Over the last decade real GDP has increased by $5 trillion – or by 27 percent. Yet the national debt has increased by $18 trillion – or by 99 percent.
Over an extended period, this divergence results in two dramatically different growth curves. Government debt now dwarfs real GDP by $12.7 trillion. Do you think the USA can grow its way out of this?
The first people into a Ponzi scheme always make out like bandits. Ida May Fuller cashed the first Social Security check, Check No. 00-000-001, dated January 31, 1940, in the amount of $22.54. With just one check, she nearly recouped the full value of the $24.75 that she paid in.
However, Fuller continued to cash these checks until she died on January 27, 1975. In total, the $24.75 she paid in, ended up paying $22,888.92 back out to her. That comes to a return on investment of 92,380 percent.
Social Insecurity and the Fate of All Ponzi Schemes
One generation always incubates the bacteria of the ailments which dominate the next one. Yesterday’s actions reared the things which control the present. So, too, today’s actions breed the things which will control tomorrow.
At this very moment, we’re living with several unfavorable gifts from our forbearers. One of these is the fact that social safety nets constructed many decades ago are ripping apart at the precise moment when tens of millions of Baby Boomers need them most.
According to official estimates from the Social Security Administration, just 79 percent of promised benefits will be payable in 2033 due to depletion of its trust funds. Yet even though everyone knows Social Security will soon come up short, many people haven’t done a thing to prepare. Instead they’ve buried their collective heads in the sand like an unassuming ostrich.
If you can believe it, nearly half of American households have no retirement savings. The promise of Social Security has misled them in damaging and irreversible ways.
Perhaps Musk, like Greenspan before him, will come up with an acceptable plan for changing the terms and conditions of Social Security. This, in essence, would be some combination of raising the qualifying age requirements and lowering the payments received.
Again, this wouldn’t solve the Ponzi scheme. It would merely push its day of reckoning further out into the future. In the meantime, initial reform efforts by Musk, including the firing of 7,000 Social Security Administration staff, have brought dire warnings.
Former Social Security Administration Commissioner and former Maryland Governor Martin O’Malley is predicting imminent doom. Last weekend he warned on CNBC that:
“Ultimately, you’re going to see the system collapse and an interruption of benefits. I believe you will see that within the next 30 to 90 days.”
Is O’Malley merely being inflammatory?
Not really. His timing may be off; we shall soon see. But ultimate collapse is a given.
So goes the fate of all Ponzi schemes.
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Sincerely,
MN Gordon
for Economic Prism
Return from Social Insecurity and the Fate of All Ponzi Schemes to Economic Prism
dodge is the most blatant ponzi scheme yet.
It’s finding all the Democrat fraud, you’re just mad because the tranny opera funding is being cut.
“Social Security is one of the country’s most popular and successful federal programs, and its pay-as-you-go arrangement is not a deceptive scam – it’s how the system was built to work.”
“Without question Social Security is a popular program. Who doesn’t relish the prospect of getting something for nothing? But that doesn’t mean it isn’t a Ponzi scheme.”
Social Security Is Not Unfunded – Paid By The Employee & Employer.!
Social Security Could Be Easily Fixed. The Program’s Funds should simply be shored up by Placing Them In An Interest Bearing Account For Social Security & Disability Payments Only – Not The General Fund Where Our Corrupt Politicians Spend The Social Security Funds While They Try To Privatize Them.
It’s idiots like this who have drunk the International Banker’s Flavor Aid. Social Security was established as a trust. A trust, by law, requires that the trust benefits only to those named in the trust, and the trustees must do whatever is necessary to maintain the trust. That changed in the 1970s, which in reality, no longer makes it a trust.
As for Ponzi schemes, pension plans are often mentioned. Wall Street doesn’t like pension plans because they are pooled investment. They can also leverage better investments along with lower fees and brokerage house research to guard their investments. A few very large plans acting together, are big enough to “move the market”, something no individual investor, even Warren Buffet, could do. There is no question that some plans have problems. The plan sponsor owns the plan surplus. Some company plans have the surplus raided by the company, creating nightmares for the plan actuary. Having said that, Wall Street and the Chicago Futures are like big casinos where the house always wins at the end of the day.