The Texas governor is under attack for telling the unpleasant truth. At the GOP debate in Florida on Monday, CNN’s Wolf Blitzer asked presidential contender Rick Perry whether he was changing his tune after other Republicans and pundits slammed him for saying Social Security is a “Ponzi scheme.” The Lone Star State chief executive stood his ground: “It has been called a Ponzi scheme by many people long before me.”
Mr. Perry is correct in his assessment, but Republicans shouldn’t waste air time arguing semantics. What matters is that the candidates show the American people that theirs is the party of action. President Obama occasionally refers to Social Security reform in speeches, but he has never made an actual proposal.
Meanwhile, Social Security’s trustees reported that the so-called trust fund will be depleted by 2036, and then taxes will cover only three-quarters of benefits. Left untouched, Social Security will collapse.
Republicans should be working on real results: raising the eligibility age for those under 55 and giving young people the option of private retirement accounts, among other possibilities.
In 1935, President Franklin D. Roosevelt sold Social Security as a program in which employees would pay into a government fund that would invest their money over that person’s lifetime. Once that individual hit retirement age, the fund would, over time, return the initial sum plus the accumulated growth.
The reality is that money-grubbing politicians immediately raided the flush accounts to bankroll big government. Social Security taxes on employee wages are transferred straight to the checks of current retirees, and the “fund” is just a pass-through account and past supluses were replaced with IOUs.
Fifteen years earlier, Charles Ponzi had a similar idea. The Italian immigrant convinced thousands of Boston residents to hand over their wages in exchange for a guaranteed return. Instead of being paid over a lifetime, Ponzi promised 40 percent dividends within 90 days.
The initial payouts were supposed to be backed by exchange-rate arbitrage involving international postage, but once the money began flowing, the planned trades never happened. As long as new, willing investors were at Ponzi’s door, he could make good on his payments. The Boston Post ended that by revealing Ponzi’s vaults had more IOUs than cash. The house of cards collapsed.
Today, the Securities and Exchange Commission (SEC) enforces laws meant to prevent this from ever happening again.
As the agency defines the practice, “Ponzi-scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.” That’s exactly what the Social Security law does when it guarantees seniors the full amount in benefits, no matter what happens with the markets.
The SEC adds, “With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue.” Thanks to the baby boomers hitting retirement, Social Security has more retirees receiving benefits than workers needed to meet payments. Consequently, Social Security was in the red last year - $49 billion more than came into the fund.
A Ponzi scheme always collapses. The question is whether the American people will elect a president who has the courage to rebuild FDR’s Ponzi scheme into something that can last.
Emily Miller is a senior editor for the Opinion pages at The Washington Times.