Resurrecting Another ‘Big Lie’: The Myth of Social Security as ‘Ponzi Scheme’

Hundreds of union activists from the American Federation of Government Employees (AFGE) rallied at the Minneapolis Social Security Field Office on Aug. 27, 2014, to shed light on the Social Security Administration’s plan to close virtually every field office in Minnesota and across the country; limiting customer service options for American seniors and persons with disabilities. (Photo courtesy of AFGE, Flickr | CC 2.0)

In these pestilent, perilous times, when the very idea of distinction between truth and falsehood is under siege, it’s more critical than ever to keep a sharp lookout for destructive false analogies. Without an anchor in provable fact it’s dangerously easy to get taken in by them. So I am particularly exasperated by a sample dished up by scaremongers, namely that the Social Security program, our rock of security and stability for an aging population for the last 80 years, is a Ponzi scheme — a swindle designed to cheat Americans out of their money with false promises.

This especially ugly lie resurfaces periodically like the Loch Ness Monster and the Abominable Snowman and is just as devoid of proof, but at least those fakes are harmless. The same can’t be said of the presumed equality between Ponzi’s scam and Social Security, which was aired during last fall’s campaign by such eminent would-be Republican candidates as Chris Christie, Rick Perry, Mike Huckabee and Rand Paul in the gang scrimmages that passed for debates. In condensed form, here’s why.

Charles Ponzi was undeniably a swindler. In 1919 he was a resident of Boston, an apparently well-liked, clever and gregarious “businessman,” with a secret past that included two felony convictions and imprisonments, one for check forgery and the other for a role in a scheme to smuggle illegal immigrants from Canada into the United States.

In the start of the boom year that we call the Roaring ’20s he launched a new con, promising investors in a securities firm that he set up, that he would double their money in 90 days or increase it by half in 45. Skipping the details, which can be found easily in many search engines, it involved speculation in foreign postage stamps, which in itself was legal. Palpably impossible promises were not. All the same, suckers lined up in their thousands, as Ponzi himself blossomed out with a lifestyle appropriate to a millionaire, supposedly thanks to his personal investment. So did some of the early dupes — the catch being that Ponzi was paying them and himself with the deposits of later starry-eyed dreamers of overnight riches that he had not yet used to buy more stamps. Ponzi was, however, caught in his own trap of clearly false promises. There was no possible way that the profits on any investment could earn such mountainous rewards in so short a time. Ponzi soon found himself sinking deeper into debt. Financial reporters and officials smelled a rat and before Ponzi could take the money and run, if that was his intention—and even if not — he was arrested in the summer of 1920 on mail fraud charges and sent to prison for 14 years.

Bear that demonstrated fact in mind. Though the cheat itself may have predated Ponzi, his name clung to it, and by definition a “Ponzi scheme” is a criminal enterprise to fleece the gullible.

Now consider Social Security. It was launched by act of Congress in 1935, in the pit of the Great Depression. It is a completely self-funded program fed by a mandatory payroll tax, each worker and employer putting in a percentage of the worker’s salary. The annual retirement benefits vary and are paid basically out of the sum collected from that tax. If, after the paying the benefits, there is a surplus left in the Treasury, it goes into a dedicated fund, popularly called a lockbox, from which future benefits are paid.

And here is a bedrock reality: The system works. Through the years, despite sweeping changes in the economy, the size and longevity of the population, and changing ratios of retirees to still active workers, all of which required adjustments, Social Security has paid the beneficiaries in full and on time. The first one was a Mrs. Ida May Fuller, who got a check for $22.54 on Jan. 31, 1940. A little less five months later, on June 14, I was enrolled in the program on my first job as an office boy. The minimum wage, which I received at that time, was $12 for a 40-hour week. I still proudly show my original signed card. Not only does the system work but the evidence is overwhelming that public opinion from all points of the political spectrum is rightfully determined to preserve it.

Now think for a moment about what the tea party-dominated Republicans are actually saying: That this government-run public insurance program which for more than two generations has allowed seniors to live their post-working lives with a modicum of dignity and security is identical with a genuine criminal enterprise. It’s beyond outrage. It is a super falsehood spewed out of the publications of well-funded right wing think tanks and the mouths of well-paid right-wing radio and television liars.

What they claim is that the lockbox is a fraud, an accounting trick. It’s filled with government bonds, which are simply IOUs to ourselves, and will decline in value as the national debt, swollen by “entitlements” like Social Security and Medicare (but not gigantic military expenditures) mounts toward the stratosphere. They point to borrowings from it under certain legally permissible circumstances as “raids” to fund such sinful extravagances as programs to feed hungry children, fund research into curing treatable diseases or provide temporary unemployment benefits to working families whose jobs have been outsourced or automated.

The “Ponzi scheme” lie folds neatly into the prediction of the doomsayers that the growing number of retirees combined with the shrinking of the work force is leaving the yearly intake less than the outgo and will soon cause the system to go broke, ultimately leaving current and future beneficiaries — the old and the young as high and dry as Ponzi’s victims.

The math is not wrong. But it is a problem that can be fixed with adjustments to the tax to boost collections, and a start might well be made by raising the cap that allows salaried employees to escape payment after their paychecks reach $118,000 and the tax is a smaller bite out of their income — a regressive idea if ever there was one. Or by other reasonable adjustments to retirement age, the percentage of deductions in the payroll tax, the progressive taxation of the benefits, or means tests to eliminate the rich from the system altogether. I would personally deplore that last option because it violates the concept of social insurance rather than handouts to the improvident. In any case measures like these could extend the life of the system for decades.

Ah, yes, but that’s when the shortfalls are considered a problem, not a crime, and the doomsayers of the far right want it to be a crime because it fits so neatly into their longstanding basic agenda of demonizing government as the root of all evil. The mindset of the Wall Street plutocrats, whose greed has no limits, and their free market ideologue allies is one that aches at the very thought of some public service that could be turned into a fountain of private profit. They claim that deregulation and return to “free market” economics is the pathway to prosperity for all. Their recent success in pushing public policy in that direction has given us the “honor” of having the greatest income inequality in much of the developed world.

The “Social Security is a Ponzi crime” scam continues because it is essential to the deceptive mythology of unregulated capitalism’s billionaire class, and it is especially cruel because it has already convinced many young workers that in fact they will never receive a penny in Social Security benefits and struck fear into the hearts of those already collecting benefits that they will lose them — the young and the old alike. That is both vicious and cruel, and to expose and denounce it, especially in this age of flourishing frauds, is the duty of any rational and fair-minded person.