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Is Gov. Perry Right In Calling Social Security A Ponzi Scheme?



by Don Azarias
September 16, 2011
In his 2010 book, “Fed Up!”, GOP presidential candidate and Texas governor, Rick Perry, called the Social Security a “Ponzi scheme.” Ignoring the warnings from his advisers and fellow Republicans not to say it, Gov. Rick Perry, not lacking in courage, didn’t back away from it and stood by his remarks.

“You cannot keep the status quo in place and call it anything other than a Ponzi scheme,” Perry said at a Republican debate in California. Acknowledging that several have called his remarks controversial, he added, “Maybe it’s time to have some provocative language in this country.”

Fellow GOP presidential candidate and former Massachusetts governor, Mitt Romney right away attacked Perry’s stance by saying that Perry is “reckless, wrong on Social Security. Our nominee has to be someone who isn’t committed to abolishing Social Security but to saving Social Security.”
 
What an exaggeration. With all due respect, Mr. Romney, Rick Perry didn’t say that he wants to abolish the Social Security program, but you have to admit he has a valid point. The popular federal government program, in its current shape or form, operates the same way as a Ponzi scheme. And, whether you and your other fellow presidential candidates like it or not, that’s the sad truth that you have to accept. Perry is not calling for an end to Social Security. He’s just trying to find ways to overhaul the system to make the program solvent and viable. He said that he wants “to fix Social Security and make it financially viable for generations to come.” I don’t see anything wrong with that.
 
I do believe that his rivals should stop attacking Perry for being forthright is his campaign rhetoric. In my own personal opinion, Perry seems to be the type of politician who is honest and truthful. He says it as he sees it without shooting himself on the foot and, unlike other politicians, will not only say what the voters want to hear. He is also tough on crime as evidenced by his record as governor of Texas. 
 
Responding to the attacks, Perry’s campaign fired back, saying that Romney himself wrote that Social Security resembles a “fraudulent criminal enterprise.” Which enterprise might he have been thinking of? Likewise, Senate Majority Leader Harry Reid called borrowing from the Social Security trust fund “embezzlement, thievery,” saying that if he had done this in the private sector “I could be criminally prosecuted by the district attorney.”

You’re right on target, Mr. Reid. As I’ve written in the past, political leaders, like you and your Democratic allies in Washington, D.C., have been raiding the Social Security Trust Funds and surpluses for years in order to pay for all of those unafffordable social service programs and entitlements being espoused by your political party. You, movers and shakers in the nation’s capital, are the ones to blame for the Social Security’s and Medicare’s financial shortfalls.
 
As Perry pointed out, politicians have for too long made “fraudulent promises” to Americans about the health of the government’s Social Security program. American workers contribute to Social Security with the expectation that they will receive similar benefits once they retire. Surveys show many younger Americans don’t think they’ll receive a check, and yet pay into the program with the implied promise of future benefits. However, according to Social Security trustees, the program will only be able to pay 77 percent of promised benefits by 2037.
 
Perry also contends that the “trust fund” needed to pay benefits between now and 2037 is not sitting in a bank vault somewhere. It’s been spent by the federal government on everything from the war in Iraq and Afghanistan, on food stamps, on agriculture subsidies and other entitlement programs. And, in order to pay Social Security trust fund back, the government will have to borrow money or raise taxes.
 
On the other hand, I’m not saying that Perry is totally right in his assertion. Strictly speaking, his comparison is only half-right. A Ponzi scheme, named after Boston conman Charles Ponzi, is a fraudulent investment operation. The prominent aspect of a Ponzi scheme is its intent to defraud. It’s essentially designed to con people. Participating investors don’t earn interest on their investments but are instead paid off by other unsuspecting investors who fell into the scheme. As long as the con artist is able to recruit an ever-increasing number of new participants to pay off earlier investors, the program is assured of indefinite continuity but will eventually collapse as soon as the number of participants dried up.
 
Personally, I don’t believe that Perry really intended to disparage the Social Security itself. But what makes his point valid is the similarity in the way Social Security/Ponzi scheme are financed. In both cases, early participants receive payments, not from interest on their own investments, but directly from incoming participants. The mechanics of how Social Security’s financing works is exactly the same as a Ponzi scheme’s.
 
We have to bear in mind that Social Security is a government insurance plan that offers seniors a small financial security when they retire. It’s true that, at least, in its present form, the Social Security program is unsustainable because the U.S. has an increasing number of participants due to a large number of retiring “baby boomers” and fewer number of workers, who managed to survive massive layoffs, to support them. Let us not forget that there are currently more that 14 million unemployed Americans who are not contributing to the Social Security system.
 
In reality, the Social Security program, as envisioned by President Franklin Delano Roosevelt is a great entitlement program that can provide help to those retired workers and people with disability. The program should be allowed to go on forever and Congress should make the changes necessary to keep the system from going broke. Those political leaders in Washington, D.C. should work together and find ways to ensure its perpetuity for the benefit of all hard-working Americans. And, if they don’t, let’s vote them out of office come 2012. Or, maybe, what we really need is someone, like Gov. Rick Perry, in the White House. For most American voters, he has earned an image of strength rooted in principle.



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