The Last Ditch -- DOUGLAS OLSON -- Social Security with the mask off


The Olson file

Social Security with the mask off


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The latest plan to "save" Social Security — the world's largest and most successful pyramid scheme — is extremely welcome because it finally rips away the pompous "insurance program" mask and acknowledges Social Security for the welfare boondoggle it has always been.

The plan is credited to one Robert C. Pozner, described in the media as a "Democratic financier," and it has been embraced by the Bush White House. It would implement a "sliding-scale benefit formula" for future retirees. According to the White House, the result would be "more generous benefits for low-income retirees," who paid the least into the system — and lower payments to middle- and upper-income workers, who paid the most in payroll taxes.

Karl Marx expressed the same principle much more elegantly and succinctly: "From each according to his ability; to each according to his need." There is no difference between the Marx dictum and the Pozner-Bush proposal.

For generations, politicians have continually played out a carefully rehearsed charade about the importance of paying the same benefits to everyone, based roughly on what he has paid into the system — whether he is Bill Gates of Microsoft or the bum down the street.

Social Security has actually been a form of wealth transfer (welfare) all along, because low-wage earners recover everything they put into the system within just a couple of years at the minimum benefit level, and then feast on the funds deposited by others. Those at the upper end of the pay scale take longer to break even, and those at the very top are actually forced to pay a second round of taxes when they get back a portion of the money taxed from their long-ago paychecks.

Of course, Americans have never had any "earned right" to Social Security payments, and the program could be ended tomorrow by a simple majority vote in the House and Senate followed by the President's signature. Equally easily, its payouts could be restricted solely to those who earned less than some arbitrary figure, at the same time maintaining or even increasing payroll taxes on the very workers who would not qualify for any benefits.

The Supreme Court affirmed that more than four decades ago, when it overturned a district court's finding of an "accrued property right" by participants in the Social Security program. In Flemming v. Nestor (1960), the court made it clear that the relationship between the taxpayer and the government "cannot be soundly analogized to that of the holder of an annuity, whose rights to benefits is bottomed on his contractual premium payments." Pointing out that Congress expressly reserved the right to "alter, amend, or repeal any provision" of the Social Security Act, the court reasoned: "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."

Translation: Taxpayers, you're screwed! (So what else is new?)

But it's not just the actual Social Security system that is an outrage — the entire concept is a fraud from beginning to end, and would be the blackest of crimes if perpetrated by any entity but the government.

The pyramid scheme is better known today by the name of the man who raised it to an art form in 1920 — Charles Ponzi. Ponzi, an Italian immigrant, opened an office in Boston and offered investors a 50 percent profit in 45 days on money invested with him. He simply paid off the old investors with money given to him by new victims — literally a "pay as you go" system — while skimming off enough to live luxuriously. When people saw that he actually was paying the first "investors" as promised, most didn't even collect after 45 days; they just rolled over their paper gains in return for more promises.

Ponzi claimed that his real business was buying and selling international postal-reply coupons, taking advantage of fluctuations in the currency markets to make a 400 percent profit. He even had a canned spiel, complete with complicated financial formulas, that actually fooled many financial regulators and law enforcement officials. Only after taking in millions of dollars from more than 10,000 people did the scheme collapse — and then only because newspapers printed a series of stories that weakened investors' confidence.

The U.S. government admits that Social Security is a "pay as you go" operation, in which today's retirees are paid from the taxes levied on current workers — a pattern that would be all too familiar to Ponzi's investors. Instead of reply coupons, the government claims it has a Social Security "trust fund" holding trillions in excess taxes, from which payments can be made when needed. The feds have a canned spiel, complete with complicated financial formulas, that fools many people.

Of course, there is actually nothing in that fund but government IOUs; the money has been "skimmed off" and spent by rapacious politicians. The "trust fund" is actually a government liability, not an asset; Americans must be taxed yet again to come up with any real money to redeem those IOUs.

The only real difference between Ponzi and Social Security is that a collapse in public confidence cannot undermine the latter scheme as long as the government has the naked power to force compliance with its charade of solvency.

Ponzi, it turns out, was the more honest and honorable of these two criminals.

June 7, 2005

© 2005 Douglas Olson.

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