Social Security – The Great Ponzi Scheme

By Marlin6

Social security is not even on the radar screen in this election cycle.

In the 19^th Century, German Chancellor Otto von Bismarck had a big idea – that a worker with a pension depends on the state and is a more docile worker. He invented a pay-as-you-go social security system with a moral flaw that destroys the link between effort and reward. It makes benefits the product of political pressure rather than what you contribute by your work. This dependency on political demagogues has spilled over into other areas besides retirement. People say “Offer me more and I’ll vote for you.” That corruption of both workers and politicians has fed a culture of irresponsibility.

In the 1920’s, legendary con man Charles Ponzi devised a scheme that still carries his name and is now illegal in all 50 states. It works much the same way as von Bismarck’s system and the way U.S. Social Security works today. Ponzi convinced “investors” to put money in his coupons, promising big profits, but there were no profits, just a pyramid scam. Ponzi took money from the second round of investors and put it in the pockets of the first. Eventually he ran out of takers and money, was convicted of fraud and sent to prison. Like Ponzi’s scheme, Social Security makes no investments. Its “investors” are taxpayers, who, like the folks Ponzi bilked, won’t get paid unless there are enough new taxpayers to cover them. When the Baby Boomers begin retiring at the rate of 10,000 a day, there won’t be enough young taxpayers to tap, and just like Ponzi’s scheme, Social Security will collapse.

Is there a better way than Social Security to provide financial retirement security for U.S. workers? Yes! Personal retirement accounts are the answer. Here are examples:

The nation of Chile had a social security system that predated the U.S., having started in 1926. In the late 1970’s the benefit payments were greater than taxes collected and there were no funded reserves. The anticipated decline in the support/benefit ratio meant the problems were only going to get worse. In 1981, midway through the dictatorship of General Augusto Pinochet, the system faced bankruptcy if the government didn’t provide more subsidies. Pinochet hired a group of U.S. trained economists, who recommended personal accounts for the system, creating something like a mandatory 401(K) plan. Ten percent of a worker’s wages is automatically deducted and sent to one of several independently managed mutual fund companies selected by the worker. Chile allowed each worker to choose whether to stay in the state run pay-as-you-go system or put the whole payroll tax into an individual retirement account. Some 93% of workers chose the new system. They trusted the private sector and preferred market risk to political risk. Chile’s citizens proudly carry what looks like a standard bank passbook from the pre-computer age. They call it a “Libretta”, a deliverer of liberty. Ownership has changed the way workers see life. They are no longer at the mercy of politicians or union bosses. The typical Chilean worker’s main asset is not a small house, but the Libretta, with most worth over $100,000 that can be passed on to heirs.

The United States also has an example of a personal retirement plan that works. The Social Security Act of 1935 permitted municipal governments to opt out of the system – a loophole that Congress closed in 1983. In 1981, employees of Galveston County, Texas, chose by a vote of 78 percent to 22 percent to leave Social Security for a personal account alternative. Brazoria and Matagorda counties soon followed, swelling the group to 5,000 participants. Employees now pay 6.13 percent of income and the counties contribute 7.65 percent – for a total of 13.78 percent. Of that 13.78 percent, 9.737 percent goes to the employee’s individual retirement account that pays a 6.5 percent average interest rate, compounded daily. The cost of the program, known as the Alternative Plan, is virtually the same as Social Security, but the benefits are far greater. A person retiring at age 65 with 40 years of deposits and an annual wage of $20,000 will retire with $383,000 in a personal account and $2,740 a month vs. $775 per month for Social Security. A person with a wage of $50,000 for 40 years will retire with $956,303 in the account and $6,843 a month from the private plan vs. $1,302 a month from Social Security. The personal accounts are estates that can be left to heirs. Social Security leaves nothing. Life insurance for the personal plan is three times the worker’s annual pay (with a minimum of $50,000 and a maximum of $150,000). Social Security pays a one-time death benefit of $255 to a surviving spouse.

Because they were afraid voters would see through the Social Security scam, since 1983 members of Congress participate in Social Security. Senators and Representatives also participate in the Civil Service Retirement System or the Federal Employees Retirement System that went into effect in 1987. Like all federal government employees, current members of Congress contribute portions of their salaries to these programs as well as Social Security. However, Congressional pensions accrue at a higher rate than average – 70 percent higher, according to Representative Asa Hutchinson of Arkansas. Congress also has a special retirement plan that they voted for themselves many years ago. It works like this: When they retire, they continue to draw their full pay until they die, increased by cost of living adjustments. For instance, calculating an average life span for each, former Senator Bill Bradley and his wife may be expected to draw $7,900,000, with Mrs. Bradley drawing $275,000 during the last year of her life. They paid nothing into this. It comes from our tax money.

The Democrats in Congress, together with their willing sycophants in the AARP leadership, are trying to scare American senior citizens into believing personal accounts are a risky scheme that will take away their Social Security. If Social Security is so wonderful, we should take the Golden Fleece retirement plan away from Congress and put them in the system with the rest of us. Members of Congress who want to retain the existing pay-as-you-go system should share the fate of their mentor Charles Ponzi. They should be convicted of fraud and sent to prison.