Social Security–The Ultimate Ponzi Scheme

Social Security Poster: old man

If Only This Message Were Still True!

NOTE: The post that follows is a flagrant violation of my own 199-word limit, per the slogan of the Itty Bitty Witty blog.  However, I previously wrote this piece for another blog two years ago.  Unfortunately, NOTHING HAS HAPPENED in the past two years to shore up Social Security.  If anything, the situation has gotten worse, as we now know just how dysfunctional Congress has become, as evidenced by the debt ceiling brinksmanship and pathetic, short-term resolution.  The outlook for Social Security is bleak, but never hopeless.  This is America.

Since “Ponzi Scheme” has been repeated a billion times of late in the media, ever since Bernie Madoff made off (pun intended) with billions of dollars of investors’ money, I felt this was the perfect time to talk about the Ultimate Ponzi Scheme–Social Security.  What makes it the Ultimate?  Three factors make it untoppable, even by the biggest cons ever to walk the earth: millions of beneficiaries, government mandated contributions by all workers, and an endless source of funds to keep the scheme alive for now.

First, for those of you with an ounce of doubt regarding whether Social Security could truly be considered a Ponzi scheme, let’s review a few facts.  My favorite online dictionary ( defines a Ponzi scheme as follows:

Ponzi scheme: A fraud disguised as an investment opportunity, in which initial investors and the perpetrators of the fraud are paid out of funds raised from later investors, and the later investors lose all funds invested.

Social Security is, in fact, disguised as an investment opportunity.  Put your money in each week while you are working, and the government will send you checks after that until the day you die.  Not a bad deal, for those who collect the checks.  That leads to the next part of the definition.  Those who collect on Social Security are funded by contributions made from later workers.  Everybody knows by now that there is no pot of money in the Social Security trust fund.  On the contrary, the checks are going out as fast as the government can bring the money in from current workers making their contributions.  This leads to the last part of the definition–later participants lose all funds invested.  There has been plenty of talk about when Social Security will go bust–start paying out more in benefits than it is taking in by way of contributions.  The question is not whether Social Security will run out of money but when it will run out.  Whether it is my generation or my baby boy’s generation, Social Security will go bust, and there will be lots of contributors who do not see a nickel of their money ever again.  So, there you have it.  Social Security fits the definition of a Ponzi scheme very well.  Now, let’s get back to talking about why it is the Ultimate Ponzi Scheme.

Let’s start with the beneficiaries.  If you are like most Americans, you have family members who wait for the check to show up each week from the good ol’ Social Security Administration.  Since Americans are notoriously poor savers, far too many Americans live off this money and could not make ends meet without it.  Then, there are the other seniors collecting their checks and heading to the casinos or far away places for nice vacations.  I have read statistics supporting that senior citizens today have a higher standard of living than in past generations.  This is all well and good.  Who doesn’t think that Grandma, Grandpa, or your parents should have a nice retirement?  However, all of these goodhearted people are pawns in the government’s Ponzi scheme.  Why?  Because they are voters, and because they believe they are entitled to their government check, no matter how insolvent the system might be.  This means that any attempt to fix the problem will be political suicide, if it means reducing payments to beneficiaries, unless the politicians behind it are shrewd enough to put the biggest burden on the smallest number of constituents.  Surely, that is where the solution will come someday (but not now, for heaven’s sake).

Next, let’s talk about government mandated contributions.  While some people feel sorry for the unsuspecting victims of Bernie Madoff’s Ponzi scheme, one thing is for certain.  Nobody made those investors put their money with Madoff.  It was by their own doing that they chose Madoff and believed in his big lie.  Social Security, on the other hand, has one-upped all other Ponzi schemes by making it federal law that everybody must contribute, whether they want into the scheme or not.  I am 37 years old as of this writing, and I am here to tell you that I would waive my future Social Security benefits in exchange for the choice to stop contributing immediately.  Why?  Because I do not believe in the Ponzi scheme.  Unfortunately, if I did find a way out of my Social Security obligation in each paycheck, I would likely end up in prison for tax evasion.  What a deal for the federal government!  Cook up a scheme that steals money from those who keep the lie going, and toss them in jail if they somehow stop making their payments.  The SEC requires that mutual funds and  publicly traded companies provide a wealth of information regarding the risks of putting money into their mutual fund or stock.  However, it is OK for the federal government to knowingly collect regular contributions from millions of young workers when there is no disputing that Social Security will become insolvent before some of those workers can collect anything.  If that doesn’t qualify as fraud, then I don’t know what does.

Lastly, let’s talk about the endless source of funds to keep the scheme alive for now.  It is no secret that the U.S. government has no qualms about spending more than it takes in.  This is how we get to a budget deficit projected in 2009 alone of about $1.8 trillion.  Our total national debt is estimated to be $11.8 trillion right now, and the government estimates that the next 5 years will add about $9 trillion more to this figure.  What this means is that the U.S. government, unlike you, me, or anybody else managing a budget, can solve its budget problems by simply borrowing more money.  How does it do this?  It does it by selling government bonds to investors, domestic and abroad, who still believe that U.S. government bonds are a risk-free investment.  As long as the rest of the world stays just a bit more corrupt, a bit more socialist, and/or a  bit less supportive of individual liberties and the pursuit of happiness, people will lend money to the U.S..  Whereas Bernie Madoff’s house of cards would surely have collapsed on its own if he had not fessed up, the U.S. government can keep the music playing, so to speak, for as long as it wishes.  All it needs to do is keep borrowing to meet its obligations, and it will not have to admit to the whole fraud.  If this seems too good to be true for the U.S. government, that is because it is too good to be true.  There will be a day when U.S. government bonds will not be perceived as “risk free.”  Investors will demand higher rates of interest on government bonds, and the government will be facing the same bleak situation as all those gullible ex-homeowners whose mortgages suddenly reset in accordance with the terms of their variable rate mortgages.  The government can tinker with just about every element of the free markets (and it has), but it cannot ultimately outwit the worldwide markets for debt, which presently make it possible for the U.S. to borrow at rates of interest that are not indicative of the true risk involved.

So, as you can see, there can be only one Ultimate Ponzi Scheme, and Social Security wins the award.  What should be done about it, you ask?  The President and Congress need to share the facts with Americans, and they need do what is most equitable.  Without question, the government will have to break its promises to many Americans, but bad news is not like wine–it doesn’t get better with age.  In the name of equity, even current beneficiaries should take a hit.  Actuaries need to help figure out what will be required to shore up Social Security, and Congress should take a long and hard look at Social Security before deciding whether to save it.  The private sector has long since gone away from pension programs (defined benefit, like Social Security) in favor of 401k plans (defined contribution).  Maybe it is time for Social Security to bite the dust also.  If each American could see an actual account balance and have some say in how that money is invested, then personal accountability could start to make its way back into society.  Guaranteed checks from the government sound good, but there is no such thing as a free lunch, as the expression goes.  I, for one, do not like being made a pawn in a Ponzi scheme.  In my lifetime, I have contributed $60,000 to Social Security, and my wife has contributed $48,000.  Still, I would rather that Social Security be exposed for what it is–the Ultimate Ponzi Scheme–than have to continue contributing to the scheme until the day I retire.  What is lost is lost, but what money I still have I can put to productive use in my own retirement planning.


10 responses to “Social Security–The Ultimate Ponzi Scheme

  1. Dan, I am with you 100% having used exactly the same word to describe the National Insurance scheme here in the UK. A pox on politicians everywhere.


    • Thank you, Tony, for reading my long-winded rant. I am pleased to hear that you agree, and this is the first time after your many comments that I realized you live in the UK. It is a sad reality that these problems are not unique to any one government or even continent, as you have attested. On a brighter note, a solution found somewhere could have far-reaching impact across the globe, just like a cure to cancer. Hmmm…cancer. An apropos metaphor. Cheers! –Dan


  2. Dan, if a point’s worth making, it doesn’t suffer from being made at length. It’s a sad thing that despite all the history between our two countries, it’s the same failings of democracy and demographics that are challenging us. These problems are not unforeseen – 25 years ago I sat and listened to an American futurologist expound on the changes that demographics was going to force us to face. But the Ponzi scheme rolled on and the bunch of left-wing idiots we had in power for 13 years kept on spending and tried to import people to solve the problem. The power of the internet lies in its ability to allow like-minded peoples lives to touch – but how we solve this one is beyond me. Now, how about making me laugh again? Best regards, Tony


    • Hey, Tony. I appreciate your response. I agree that the Internet can do wonders to bring people together. Even when the solutions are not clear, momentum for change begins with people talking about it and agreeing with one another. Though different in many ways, the Arab spring movement is evidence that well-organized government is not always the de facto winner when large numbers of people want change. The riots in London and the widespread vandalism of cars in Germany are further evidence that people want change, as much as many in London want to simply play off the riots as a bunch of young hoodlums running rampant with their Twitter accounts. I would be interested in your thoughts on the London riots. As for my blogging, I plan to take a hiatus, for the most part, from blogging, for personal reasons. However, I plan to remain active in expressing my views and sharing similar views, including humor, via my participation in the Twittersphere. Please follow me @OneFreshLens. I am following you already. Best regards. –Dan


  3. Hi Dan – followship in place. I recently blogged on the subject of the London riots ( ) by reflecting back on the prophetic words of Charles Murray (an American whose writings I much respect) from 1989. Certainly, there has been a toxic blend of fatherless youths, surging immigration & a shift to a knowledge based society combined with expectations of rights and ever continuing social benefits. We have had outraged talk here of the lack of social mobility as a cause but, sadly, it is fueled by flawed research from social scientists who are almost exclusively of left-wing persuasion. There is also talk of disaffected youth rebelling against the excesses of the political class – a sound enough reason but frankly I doubt the reading habits (or abilities) of our feckless rioters extend to following the day to day intricacies of the Westminster elite. Best regards, Tony


    • Thank you for the link to your blog post, Tony. I read it, enjoyed it, “liked it”, rated it, and commented on it moments ago. Good stuff. You mention in your comment above “surging immigration”. This is surely a common thread between the U.S. and the U.K.. Illegal immigration into the U.S. has been overlooked and mismanaged for so long that it is now politically risky to take a position against it or to suggest a change in course that would harm any of those who have entered our country illegally. Worse yet, we have a crazy law that grants citizenship to any person born here (“birthright citizenship”), even if to parents who are not legitimate U.S. citizens. Hence, we have second, third, and fourth-generation “Americans” who would never have been here had it not been for their criminal family members. Why has it been a scourge on America? Because a good number of these illegal immigrants and the families they have established here have become dependent on the social support systems. I do not believe in notions of any problem being “the root of all evil”, but I do know that a wealthy and free nation with social support programs is destined to fail with no legitimate borders or immigration control.


  4. A voice from the other side–just to liven things up a bit. The idea behind Social Security was never to rook young people out of their hard-earned money. It was a humanistic idea adopted by most “advanced” nations but the U.S. to “take care of its own” by pooling resources. Yes, it has its flaws and yes the coffers have been mismanaged.

    But leave it to a self-interested, greedy bunch of politiicans on both sides of the aisle to screw up a good idea. Social Security isn’t just for the old (who only started doing noticably better when the Medicare portion was added in 1965). It’s for widows and their children (I know that first hand, being one of those children) and the disabled (again, first-hand knowledge). Surely you’re not saying that these people should give up their vast stores of wealth?

    And speaking of wealth…only the first $106,800.00 of income is tapped for Social Security taxes. So while everyone pays in, the poor schlubs on the bottom and middle of the income scale get all of their earnings taxed while the rich get a free ride on everything above that cap. Does that seem fair? Think about how many more of our children and their children could count on Social Security if everyone was taxed on everything they made?

    Okay, that’s enough. I just wanted to bring up another perspective.


    • As always, thanks for your comments, Lorna. Yes, there are legitimate beneficiaries of Social Security, and I am not against the program in its entirety. My only gripe is that it’s insolvent, and everybody knows that, yet nobody seems to object to taking money from current contributors who, as it stands, will likely not collect a nickel of benefits. As you stated, the program has been mismanaged. With the federal government $14 trillion in debt, I suppose it is too much to ask that they would somehow be qualified to run a program with balanced books. –Dan


  5. Hi Lorna – I’m not familiar with the US system of Social Security but I certainly believe that there has to be a social safety net. The problem over here in the UK is that it has become so lax in its application that it has simply become a lifestyle choice for those who don’t like the thought of work. We now have whole families where no-one has ever worked and it now stretches into the 3rd generation.


    • Tony, your contributions are appreciated. I am stunned to read your comment. Here I thought things were bad in America! Even so, America is on a similar path, if we do not change things. What I find disturbing about all discussions about social programs is that funding them sustainably seems to be an afterthought. If such programs were conceived in the private sector, the plan for funding them would be STEP NUMBER ONE, before the programs ever got off the ground. Once the economics of the program fell apart, it would either be killed or kept alive by reallocating resources from elsewhere. With the government, a zombie program can just keep on bumbling around in a perpetual state of being half dead. A possible solution? Somehow run government more like private enterprise, without letting private enterprise run government. Easier said than done. –Dan


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