Ye olde Ponzi scheme

It’s become popular these days to blog on how Social Security is or is not like a Ponzi scheme. I hope readers understand what’s going on though. This is all about perception and framing. There’s not a lot of meaning to the use “Ponzi scheme” in this context. You can’t actually convey anything useful about Social Security by labeling it thus.

Here’s what’s going on: First, you’ve got a program, Social Security, that is in need of modest changes* if it is to maintain projected levels of full benefits over the next 75 years. This is not news. Nobody in public policy should be shocked. It is not as if some new malfeasance has been discovered.

Next, somebody who doesn’t care to see tax revenue raised to pay out more Social Security benefits decides to label the program a “Ponzi scheme.” But that’s just a label. It sure makes the program sound bad, though. It conjures up memories of Bernie Madoff, and who is a fan of Bernie Madoff?

But does this label relate to any novel development or insight? No. One could just as easily claim Social Security accounting is a “farce,” and many have. Or, just to mix things up, one could say Social Security is a “cherished social contract” or is as “American as apple pie.” Now it’s sounding good again. I like apple pie!

What do any of these labels teach us about Social Security and its problems or virtues? Not much.

Instead of a useless label, Kevin Drum delivers a few, simple sentences about what Social Security really is and how it works. He put the key bit it in bold so that it is not hard to miss.

Here’s how Social Security works: every month we take in taxes from working people and every month we turn around and distribute those taxes to retirees. That’s it. That’s how it works, and everyone who actually knows anything about the program knows that’s how it works. Taxes come in, benefits go out. And the key to solvency is simple: making sure that those taxes and benefits are in balance.

This is, of course, the way every government program works. Taxes come in, payments to soldiers go out. Taxes come in, payments to NASA rocket scientists go out. Easy! [Emphasis not mine. Kevin’s!]

If this is a Ponzi scheme, it’s a very old one, older than America, in fact. It’s as old as tax and spend. It’s Ye Olde Ponzi Scheme and it’s the way governments work. If you don’t like how Social Security and other government programs work then you just don’t like government.

OK, so maybe the label does convey some meaning, but not about Social Security. It says a lot about the views of individuals who uses it. Now we’re getting somewhere.

* Yes, of the myriad woes facing federal entitlement programs (like Medicare), what’s needed to shore up Social Security is quite modest.

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