Wednesday, September 21, 2011

Less Ponzi than Pragmatic

The younger you are, chances are you agree with the pundits blasting Social Security as a Ponzi scheme.

After all, Texas governor Rick Perry isn't the first person to make that infamous comparison. And in our current season of malcontent over perceived inequities in entitlements, Social Security is the big target at which everybody wants to shoot.

(Although, if you ask me, a professional politician like Perry has no credibility telling people who won't benefit from his lucrative government pension & healthcare benefits how they should endure old age.)

Yes, in some ways, a Ponzi scheme a'la Bernie Madoff can look like the way Social Security works, since there's technically no guarantee that workers putting money into the program today will get to benefit from it when they retire.

But is that the fullest expression of a criminally valid Ponzi scheme? It's a politically convenient analogy, but like most of those, it's not entirely accurate. And I suspect the jokes and insinuations over Social Security's alleged fraudulency obscures its primary purpose, harms what benefits it provides our country, and distracts from valid efforts to re-engineer it.

Which I think is unfortunate.

Yes, it's broken, but it needs to be fixed, not scrapped. And comparing it to a criminal enterprise is disingenuous.

Nefariously Hidden in Plain Sight?

For all of the similarities between a generic Ponzi scheme, America's critical anti-poverty campaign for senior citizens is hardly a big con job, is it? The fact that some people don't realize Social Security is funded by current workers doesn't make it a fraudulent program. It shows how uneducated the American worker is, perhaps, but not how bad Social Security is. And nobody's ever promised bigger returns from Social Security than personal investments. Indeed, nobody gets rich on their Social Security benefits. On the contrary; it's often what keeps America's elderly from becoming full-blown welfare cases.

Plenty of older Americans have saved and invested for their retirements, only to live longer than those funds. Why penalize people for not dying before their money runs out?

Considering the volatility of the stock market, does it make much sense to put your retirement eggs in Wall Street's basket? The reason our government administers Social Security is because it will probably be around longer than many investments. Or at least have a better credit rating. Granted, credit is part of the problem that has Republicans setting their sights on Social Security in the first place. But few Americans trust the crooks on Wall Street more than the crooks on Pennsylvania Avenue.

Plus, it's human nature's tendency to avoid delayed gratification, at least in the United States. Our economy is driven by consumerism, and how many conservative owners of - and investors in - companies that make stuff want their customers to save more than they spend, fearful of running out of money in retirement?

What if people who turn 50 suddenly stop buying new cars, new homes, new clothes, new appliances and electronics, and start hoarding their cash as a safety net for when their employers eventually say they're too old to work? At least with Social Security, Americans have a moderate level of confidence that something will be there to help them out in their Golden Years.

If we didn't have Social Security, wouldn't we need to have some other mechanism to help our elderly survive? Not everybody can have six-figure salaries and sock away thousands of dollars they may never use. I talk a lot about the top five-percenters, but do you realize the baseline income for this elite group starts at about $160,000 a year? That means 95% of Americans earn less than that. Most American workers earn about $40,000 per year. And with property values dropping by upwards of 30% in some markets, retirees can't bank on their homes as a last-ditch source for cash in a pinch.

Fix or Scrap?

The key difference people fond of invoking Madoff along with Social Security forget is that in a true Ponzi scheme, participants don't have a chance to amend variables as the program matures. We do - and we need to amend the variables that can help make the same program our grandparents relied upon work for our generation and beyond.

Since we're living longer, raising the official retirement age to 70 from 65 makes sense, not only because workers will be able to contribute more into the system, but they'll have to wait longer before tapping into it. As the Baby Boomers retire throughout the next couple of decades, experts say America will experience a shortage of workers, so hopefully good jobs will be available longer for enough people.

We also need to have a rational, national dialog about what funding mechanisms can be tweaked on the federal level to stabilize Social Security while the mammoth Boomer population matriculates through old age. Personally, I'd like to see stricter enforcement of welfare regulations and a clamp-down on Medicaid fraud, so money saved there can be reallocated to people who've actually helped fund the retirement of previous generations of workers.

No, Social Security is not a perfect program. And no, having the government run a glorified retirement plan is not ideal. But it's what we've got, it's worked relatively well in the past, and Washington does not have a good track record of implementing new programs in our current bureaucratic malaise. Because if we scrap Social Security, a new program will have to be put into place to take care of many senior citizens in the United States.

For those who disagree with me, please go and ask your grandparents what they think about this reviled entitlement I'm defending. And then consult your own bank account statement, and see how much you could kick in to help keep them financially stable were they to be deprived of their monthly check.

If our Lord tarries, retirement will eventually come to us all. But financial wealth may not. And if you end up on the wrong side of the portfolio ledger, would you still consider Social Security to be the bane of American democracy?

Would you rather sweat out the deductions from your paycheck now, while you can work? Or then, when your youth is a distant memory of idealism... rather than pragmatism?


  1. Excellent post, Tim. I think you make a lot of fantastic points. When I defend Gov. Perry's right to say SS is a Ponzi Scheme, I do so only because there are elements of it that warrant the comparison. However, I do not think scrapping SS is a good idea. I just want to see a genuine, honest dialogue in Washington about how to fix it...not just what to call it. I think the current Perry/Romney spat has been anything but productive - as Herman Cain astutely pointed out last night. We need answers, not name-calling.

    On a side note, I think people are misconstruing what Perry is saying when he says SS has been a failure from the start. He didn't say it's never helped anybody, he said it's been a failure from the start. Assuming he means that it's been on an unsustainable course since it started, he's correct. It's like someone who opens a restaurant that fails after a year in business. Most likely it was a failure from the start due to a faulty business model, poor service, bad location, etc. That doesn't mean the restaurant didn't make some customers happy in the year they were in business. It simply means that the business model was doomed to failure from the beginning. I can definitely see how Perry would make that assertion, even though we may disagree that something lasting 100 years - based on current expiration dates projecting SS to end in the 2030s - is hardly a failure.

  2. Lol... "Genuine, honest dialogue in Washington..."??? !! You're living & working right now in DC, so I'm assuming you know how funny that sounds!

    I'm frustrated that Perry, who really does have the ear of the country right now, prefers rubbing salt in the wound rather than offering constructive input. It makes me wonder if he has any original ideas in his brain, or if he really is just a GOP Talking Head, more style than substance.

    Thanks for the feedback!


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