Perry's Social Security Voter Test

Can voters handle the truth?

  In last week's Republican Presidential debate, Texas Gov. Rick Perry reached out and grabbed the legendary third rail of American politics with both hands.

[Social Security] is a Ponzi scheme to tell our kids that are 25 or 30 years old today, you're paying into a program that's going to be there. Anybody that's for the status quo with Social Security today is involved with a monstrous lie to our kids, and it's not right.

It didn't take long for Mitt Romney to smell the burning flesh, pop up, and defend that "monstrous lie":

The issue in the book "Fed Up," Governor, is you say that by any measure, Social Security is a failure. You can't say that to tens of millions of Americans who live on Social Security and those who have lived on it.

The governor says look, states ought to be able to opt out of Social Security. Our nominee has to be someone who isn't committed to abolishing Social Security, but who is committed to saving Social Security[emphasis added]

To everyone's surprise, this week Gov. Perry doubled down, insisting that Social Security was in fact a lie to our children that couldn't and wouldn't ever be paid as currently set up.  His opponents, Republicans as well as Democrats, danced with glee as they contemplated his impending incineration.

Does Telling Truth Ruin The Truth-Teller?

They all overlook one small detail: Gov. Perry is correct.  Social Security is, quite literally by the dictionary definition and by longstanding court decisions, a Ponzi scheme.

You don't have to trust us for this.  You don't have to trust Gov. Perry.  Let us cite as authorities Nobel Prize-winning economists:

Milton Friedman, the supply-side-conservative-god, called Social Security nothing less than "The Biggest Ponzi Scheme on Earth" in an article by that name, published in 1999.

Too recent?  How about Nobelist Paul Samuelson, who also called it a Ponzi scheme in the 60s - though he said it was a successful Ponzi scheme because it hadn't collapsed yet.  However, he gave a caveat: success was based on an ever-growing economy - "A growing nation is the greatest Ponzi game ever contrived" - which Obama's America manifestly is not.

Too tendentious?  Let's hear Nobelist Paul Krugman - that's right, the rabidly partisan, deranged lunatic whose 9-11 essay condemned all patriotic Americans as evil frauds - called Social Security a Ponzi scheme that "will soon be over."

Too academic?  How about a 1959 court ruling acknowledging that the government has been lying about Social Security all along:

The OASI [Old-Age and Survivors Insurance] program is in no sense a federally-administered 'insurance program' under which each worker pays premiums over the years and acquires at retirement an indefeasible right to receive for life a fixed monthly benefit, irrespective of the conditions which Congress has chosen to impose from time to time.

While the Act uses the term 'insurance,' the true nature of the program is to be determined from its actual incidents.

The court had to decide whether Congress could stop Social Security payments to an individual who had done something Congress didn't like.  When his payments stopped, he did the all-American thing and sued.  He cited the statements of various politicians that Social Security was insurance.  He'd paid for his pension, he claimed, and Congress couldn't take it away from him.

The court ruled that Social Security is not insurance, it's a welfare program.  The law calls it insurance, but the Court said we know it's not insurance by what it does.  Unlike an insurance program where you pay a certain amount and get specified benefits, Congress can raise your cost to particpate by raising Social Security taxes at any time.  They can also change the payments you get at any time.

The bottom line: Social Security payments are just like any other taxes and the money can be spent just like any other government revenue.  The court ruled that what you pay in Social Security is not earmarked in any way.

There is no Social Security Trust Fund.  It's not an investment scheme, and never was.  It's not even a pension scheme, in the sense that your contributions purchase rights to a benefit of any kind.  That part of Social Security is a lie, pure and simple.

The dollars you paid in were spent to pay pensions of the people who got in before you did - precisely like any Ponzi scheme.  If a private insurance company did that, there'd be orange jump suits for everybody - which none other than Gov. Mitt Romney used to believe:

Let’s look at what would happen if someone in the private sector did a similar thing... They would go to jail. [emphasis added]

What is it with Massachusetts politicians and flip-flopping?  Maybe it's something in the water.

No Argument Any More

Let's go with the court ruling and myriad experts from both sides of the aisle, and take it as unarguable that Social Security is in fact a Ponzi scheme.  It's a welfare program which pays out more to early "investors" than they pay in - nothing more, nothing less.

This works only so long as fresh investors add more money.  Even though it was promised that Social Security would be voluntary, the government soon forced everybody to participate.  Running a Ponzi scheme is easier if you have the power to force new "investors" to cough up.

When the time comes for later investors to withdraw their funds, there won't be anything to take out unless even more new investors are shoveling money in.  America's falling birthrate and ever-increasing longevity has reduced contributors and increased withdrawals.  Combined with our stagnant economy, the collapse of Social Security is nigh.

Scragged has thoroughly documented this well-understood fact about Social Security; there isn't any room for sensible argument on this point.

Mr. Perry's opponents are far too intelligent and far too well-informed to believe that he's wrong.  Quite the contrary, they know perfectly well that he's right.

They are hoping that the American people are too stupid to understand what Gov. Perry is saying and that they'll opt for soothing lies about "shoring up Social Security" and "keeping our promises."  They're hoping that our voters will ignore the obvious truth that we're broke and can't possibly keep the promises our Federal government has been handing out like cost-free candy.

Are they making the right political decision?  Do Americans really prefer a comforting lie to a hurtful truth?  Or have the past years of misery and disappointment readied America to look unappealing facts squarely in the face, preparatory to grasping the bull by the horns while disregarding the fog of falsehoods and mixed metaphors?

Gov. Perry thinks they are.  Gov. Romney and the entire Democratic party from President Obama on down thinks they are not.

Scragged finds itself working alongside Gov. Perry to tell everyone the truth, no matter how distressing it might be.  Fascinating.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Politics.
Reader Comments

So Social Security is a Ponzi scheme, now what? We can either leave it as it is and ignore it, we can tinker with it and kick the can down the road or we can acknowledge that it is broke and fix it. Which one can be done? Of the three possibilities that I have outlined the probable outcome will be the tinker/kick the can outcome.

Our return on our Social Security taxes is around 2%. If that is not a failure by any standards then I do not understand investments. Even long term 30 year government bonds have a return of at least 5% so here we see where the politicians have once again surreptitiously taxed us out of our retirement savings. In this instance there is no risk like the liberals like to point out if Social Security were privatized since the bonds are US Government backed. This is how the county of Galveston invested their retirement money when they opted out of Social Security in the early eighties. Galveston's residents get over 50% more on their retirement income than a Social Security recipient. Where did that extra money go that the politicians stole from you? They built bridges to nowhere to pay back their campaign contributors and they used it to buy votes. Both parties are guilty on this count. There were precious few congressmen and senators that tried to stop the onslaught.

From a tinkering and kicking angle it would seem to me that freedom for the younger people should be the first concern. By freedom I mean the option to do with your money as you choose. They should be able to opt out of Social Security as we know it today and the money put into a retirement plan like Galveston's. The age cutoff would need to be studied and maybe a blend of Social Security and private plan like what GWB wanted to do in 2005 would be a segway to full privatization in time. This solution, if you can call it that, would be expensive as dollars that we are robbing from younger people would no longer be paying for the older folk's checks. In order to balance this shortfall we would have to cut spending and suck it up. Do we really have the guts to suck it up anymore? I don't think so but it will be done, either by force or voluntarily. The laws of economics are laws that even congress cannot repeal.

September 14, 2011 11:59 AM

With Romney/Perry, you've set up both a glaring false dichotomy.

There's no flip-flop in Romney's position.

He said that Social Security was mishandled, badly invested and in need of fixing. He said that a long time ago, and he's said it again right now.

His specific comment to Perry was that it needed to be "saved", not that it was a good concept as currently implemented.

Opposing the abolition of Social Security does not equate to thinking it's good or liking how it currently works. There's a lot of room in between for ideas on how to save it. There's even good compelling reasons for saving it (ie. not wanting 40 million irresponsible people becoming poor when they get old - leading to violence, theft and voting themselves favors from the middle class).

The assertion that there is no trust fund is wrong. You may not like *how* the trust fund works, or the fact that it purchases mostly government securities, but that doesn't change any the fact that it exists and it has several trillion in assets.

(Start reading here:

The fact that its assets are gov. securities is irrelevant. It had to buy something with the surplus, and it can't very well invest in the stock market because the government would then own equity in private companies, creating a conflict of interest.

Your probable response at this point would be the "it's all IOUs!" route, but that's also misleading. The SSA owns real assets. The Treasury Department, on the other hand, holds IOUs for the assets the SSA has purchased just as they do with every private investor that has purchased government securities. Yes, the SSA and DoT are both part of the same government but the SSA's assets are real. You and I can buy securities just like the SSA, and in fact there are many private investors holding them.

Now as far as the "Ponzi Scheme" rubric goes...

Yes, there is no question that the SS payment model is similar to a Ponzi Scheme in implementation because new investor money pays for old investor returns.

That being said, you're missing the chief requirement of all Ponzi Schemes: secrecy. SS is way too transparent with where and how it invests its money for it to ever be a real Ponzi Scheme. Frontline had a great story on Bernie Madoff that went in-depth into his history and formation. Over and over again, they showed the secrecy he imposed on everyone around him and the levels of separation he insisted on. No one, anywhere, knew what the accounts actually said or what the money was actually doing, even among his own family.

With SS, we all know exactly what is going on and have for decades. The fact that new investor money is paying for old investor returns (with some surplus building in between) has been the case from the very beginning and no one cares.

In the government's case, they don't need secrecy to keep the model going because they have force on their side. They can simply force everyone to contribute, bad investment or not.

SS needs myriad adjustments, no question, even an entire overhaul. But if we're going to fix it, we need to have an honest debate.

Saying it's a "complete failure" is not the way to have an honest debate. For 70 years, hundreds of millions of old people have lived off it perfectly fine. For all of those 70 years, checks continued flowing and the surplus in the trust fund continued to build (only in the past year has the surplus stopped building). The best estimates suggest that it has another 20 years to go at present burn rate, and factoring in the declining contribution trends, before it has any problems. That is not, by any objective measure, a "complete failure" as Perry and others have said.

September 14, 2011 12:27 PM

Another thing to remember...

Those that debate the existence of the "trust fund" tend to use the term as a misnomer.

They define "trust fund" as something that collects THEIR money and pays it back to THEM when they get old.

Everyone knows that the accounts that the SSA has created for each contributor are nothing but software records. None of the contributor's own money is held in any real sense and paid back later. Part of it goes out the door for current recipients, and part of it is surplus that is used to buy government securities (at least until recently).

The REAL definition of "trust fund" is something that collects assets and is held by a trustee so that some beneficiary can reap the rewards.

Here's the key words: some beneficiary.

When you pay the SS trust fund every month, you are not the beneficiary. Some old person in Florida is.

"Trust fund" is completely accurate.

September 14, 2011 1:50 PM

If I am not the beneficiary of my own funds or their proceeds, then "trust fund" is absolutely not the right term. "Distrust fund" is more like it - since I have nothing but distrust that the government will have one red cent for me when my time comes.

September 14, 2011 1:52 PM


You're using the term incorrectly. Look at my previous comment.

A trust fund has beneficiaries that do not have to include the contributor. In fact, this is the way MOST conventional trust funds work. Non profit endowments, estate trusts, etc.

If the contributor was going to put money into an account that came back to him at some later point, a trust fund would not be used. The whole point of a trust fund is to transfer assets to someone else.

That you don't "trust" the fund is irrelevant to the term.

September 14, 2011 1:56 PM

Sure. But a trust fund allows you to transfer funds to someone else SPECIFIED BY YOU. Does Social Security do that? Not in the slightest! It takes my funds and transfers them to someone else that our lords and masters like better than me, in exchange for a highly vague, legally unenforceable and economically impossible promise to do the same again on my behalf at some point in the indeterminate future. Phooey.

September 14, 2011 2:05 PM


VERY true. That is a difference. But that's pretty much the only one, and it's relatively minor.

I disagree with the rest of what you said though:

"...that our lords and masters like better than me..."

Recipients are not selected based on their affiliation to a political party or any other preference. Every old person gets it, not just some. Doesn't matter how much money you have or who you vote for, and it's been that way since day one.

In fact, if anything, the SSA doesn't discriminate enough. Even illegal immigrants over 65 can get it. That should be changed.

" exchange for a highly vague..."

Actually, if anything, SS is far too simple in its promise. Other than age, there's virtually no other requirement to receive it. That's something I would change.

Since we all know it's a safety net (and not an "investment" or retirement plan) we might as well treat it that way.

Step one: don't give it to rich people. If you're worth $100 million bucks, do you need an SS check when you're 65?

Step two: offer opt-outs to anyone that sets up a private retirement account. But make one or the other mandatory.

"...economically impossible promise..."

If you go back and read old op eds, you'll see that conservative have been ranting about it being "economically impossible" since the 70s - even a bunch of conservative writers that are now receiving it themselves.

I've read articles that show that pegging the recipient age to life expectancy would go a _long_ way to fixing the problem. There are a few other things that could fix it too.

September 14, 2011 2:23 PM

So Ifon, if transfer of funds is a minor difference, I suppose survivor-ship is also a "minor" difference. We have known there is a shipwreck coming for many years. You suggest we are good for 20 years. Lets see 25 years old + 20 years = at 45 you will be told "it is all gone, sorry. Do you have any savings of your own that we haven't taxed the heck out of?"

We have 8 people running for President that all could defeat Mr. Zero. The question is who would make the best president. Who should I vote for? I am looking for a strong President that will shut down unneeded programs, unwarranted programs and programs not filling their mandates. That rules out Huntsman and Romney who are too status quo. While jobs may be number one, once that is fixed will we fix the underlying problems of government micromanagement on a permanent basis, or just go far enough to "feel good". My mind is still open, but Perry gets a big "attaboy" for being willing to kick arse on this.

September 14, 2011 4:09 PM


I share your passion to get rid of President Zero which is exactly why I am so opposed to our candidate running on an anti-SS platform. It's a suicide mission.

The biggest issue, by far, for a Republican President in 2012 is repealing the healthcare bill. If that doesn't happen, nothing else matters. It will not be possible - no matter what else happens - to repeal national healthcare if Obama gets a second term. And in that second term, national healthcare will begin to be rolled out. In that time period these things happen:

1) New medicare taxes begin on those that earn 200k or more in 2012

2) More new taxes on wages and medical devices in 2013

3) Insurance companies will be banned from pricing medical plans based on gender

4) Insurance companies will be banned from denying coverage for preexisting conditions in 2014

5) Also in 2014, medicare expands to cover all Americans up to 133% of the poverty level. That's a good chunk of the middle class.

6) Also in 2014, medical coverage will be mandated

7) In 2016, new fines being on those not yet meeting the mandate

If this is not repealed, it will be too late by 2016 to do anything about it. Nationalized healthcare will become the new reality and everyone from the middle class on down will never vote for anything that takes it away.

We will, ironically, be exactly where we are now with Social Security. Millions of voters will be receiving benefits from it and it will become a new third rail.

2012 will probably be the most important election of our life times because we are on the cusp of another FDR-style entitlement program that will define spending and politics in America for the next century.

A few days back, Will Offensicht wrote an article about winning the conversation. We cannot win the conversation on Social Security by running at it with swords and spears. We must take it over, "fix" it by national perception, and then work on killing it off by phasing in something better.

Here's how we eliminate SS (in the long term) and win the conversation:

1) Stop saying things like "it's a complete failure" and "nothing but a Ponzi scheme" and "needs to be abolished" which scares old folks, whether that's your intent or not.

2) Start talking about fixing it and saving it FROM the Democrats. This gets old folks on our side. It shows we care about them, and that we care about sending checks to them AND their children. Old folks care about their children too. A lot of old folks aren't worried about themselves - they know their SS check will keep coming until they die. It's their children (ages 40-55) that they care about.

3) Peg the recipient age on a sliding scale that takes into account national life expectancy and the current age of near-recipients. Someone that is 1 year away from receiving it should not have to wait another 10 years at this point. I've seen reports that doing this alone would solve the problem almost on its own.

4) Anyone with a net worth of $10 million or more doesn't get a SS check. Those that only have $1 or 2 million tend to own tiny businesses or farms that make up their wealth. I did a quick Google. This would mean that about 3 million people wouldn't get SS checks. At current payout rates ($1,177 per month) that's $3.5 billion dollars in savings PER MONTH. More than $40 billion in savings per year.

[continued below]

September 14, 2011 5:34 PM

[continued from above]

5) HERE'S THE BIG ONE. Effective immediately, all employees that contribute to a retirement plan as part of their regular payroll process, don't have to contribute to SS. You basically make it simple option. Each payroll, if money comes out of your check for a 401k, IRA or pension plan, you aren't required to pay SS for that payroll. Payroll by payroll option. If you decide to stop contributing to your retirement on the next payroll, that time SS comes out of your check.

After a few years of doing this, conservative would have effectively changed the debate. Everyone would have switched over and you'd have the entire country carefully watching their own retirement. The current recipients would be paid-out until they died which general revenue funds (remember, the recipient age would be much higher at that point) and then there would be no more point to keeping SS around. You could easily legislate it away with no one worried about it. Conservative would have solved two long term problems:

1) Getting everyone to worry about their retirement from an early age by mandating it. Watching your own money grow is infectious.

2) Getting rid of SS in the long term.

3) Not losing the all-so-important 2012 election and thus not living with Obamacare for eternity.

If I had my druthers, I wouldn't have Romney or Perry in the WH. They each have areas where they tend to go liberal. I'd put in a barn-burner like Bachmann or Palin.

But we have to **win the conversation**. Perry isn't doing that. He's firing up the base. Firing up the base and winning the conversation are NOT the same things.

September 14, 2011 5:37 PM

Ifon is right, the goal is to get rod of O and get rid of Obamacare. Will be hard - liberals will filibuster and the MSM will scream about it.

SS IS a Ponzi scheme - secrecy not needed. Only the plan to pay off earlier folks with later money.

Question - would it be better to let it crash and fix from the bottom? Getting rid of the cruft will have hard - half the country gets more from the feds than they pay.

Where's willie? Wouldn't he say it was all a conspiracy of the rich to steal our retirement?

September 14, 2011 7:05 PM

Ifon has made some excellent suggestions for dismantling social security. What I have noticed in the conversation here on Scragged is that we have once again been duped by the left. We are using their terminology "trust fund". It's kinda like saying "investment in the future" which as we have come to learn mean higher taxes. The left has this warm, fuzzy sounding phrase, "trust fund" when in the classic sense, or at least how I use it, mean something else. I can see where Perry calls it a Ponzi scheme even thoough it is clearly not a Ponzi scheme. What we need do is not fight among ourselves over word that we have duped with but start challenging the left when they come up with a new meaning for the next phrase that they use to dupe the public. We are not good at this but we have to learn the game.

September 14, 2011 7:15 PM

lfon is completely wrong in what Social Security is. The courts AND the government have ruled it as a welfare transfer program. Calling it something different doesn't make it so.

There is no "trust fund". Secrecy isn't necessary for it to be a Ponzi scheme. Just stupidity. Secrecy helps if you're not stupid... It also doesn't help that the government has talked about of both sides of its mouth about what Social Security actually is, sewing seeds of confusion.

THE solution to Social Security is to phase it out. 55 and older, you're in. 50-55 and you can opt out based on a sliding scale that's age related. Under 35 and you're completely out - you get to do your own thing. The market will provide the solutions. This is true reform.

If you're 25 and stupid and don't create a retirement account for yourself? You're now reliant on the charity of others - family, church, somebody else. This isn't a bad thing. Having grandma/grandpa live with the family provides all sorts of benefits that we used to have.

Of course, our tax code would need to be modified (simplified, rates reduced, etc) to make it work as those who are under 40 won't be paying any payroll taxes at all.

When we've dismantled SS, we know we're on our way to returning our country to constitutional principles.

September 15, 2011 10:30 AM


You've totally mischaracterized what I said.

Go back and read my comments again, and then we can debate the **actual things** I said.

(Hint: I never said it wasn't a welfare program. In fact, I said it was.)

As far as "trust fund" goes, you and the others are continuing to misfire. Not only are you wrong in the literal sense - the actual dictionary meaning of the term "trust fund" is accurate for what SS does - but you're also misdirecting anger and passion at something **that doesn't matter**. Once you re-read my comments, you'll see what I mean. Win over the people using SS, create stability in the program, then transition people away by doing a payroll-by-payroll choice.

By allowing the perfect to be the enemy of the good, conservatives are going to lose on all fronts: lose on SS, lose on healthcare, lose the 2012 election.

September 15, 2011 12:09 PM

Look at it this way: Ponzi schemes aren't bad! You get in before it collapses, collect your money and don't reinvest. You come out way ahead. I think SS has affected us all that way. We think we can get ours before it falls apart. It is only when it looks like it is going to fall apart that we will panic and try something else (get our money back). The Government/Politicians have a vested interest in prolonging the scheme and telling everyone "all is well". What will force the issue will be hard facts that show it is failing, and probably faster than the politicians/government have told us. Expose the government lie about how soon it will fail and you will get action. Look at those numbers again.

September 15, 2011 4:02 PM
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