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Is Social Security a Ponzi Scheme? Is the Washington Post a Criminal Enterprise?

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Ever since Texas Governor Rick Perry attacked Social Security as a Ponzi scheme as an opening gambit in his presidential campaign we have been treated to a spirited debate in the media on the truth of this proposition. Those of us who consider this to be ill-informed nonsense that has the effect of misleading the public about the state of Social Security's finances were told to lighten up. After all, what is wrong with debating the topic?

In this spirit of free and open debate, perhaps our attention should be devoted to the question of whether the Washington Post is a criminal enterprise. While it is ostensibly a newspaper that purports to give the public an objective take on key events in the country and the world, it has been involved in several actions that raise serious questions about this status.

For example, a few years back its management came up with a plan to have high-priced dinner events where lobbyists would be given direct access to the papers' reporters. The plan was to have the reporters lead discussions on important issues. The lobbyists would be given the opportunity to argue their positions, ensuring that the reporters knew these arguments the next time that they wrote on the topic. Needless to say, those who could not afford the price of admission would not get the same opportunity to educate the Post's reporters.

Thankfully this plan was nixed by some clearer-thinking folks in the Post's management after it got leaked to the public. But there is a more general question of whether advertising dollars influence the Post's news and editorial content. For example, the pharmaceutical industry is one of the Post's leading advertisers. It regularly runs large ads touting the benefits of new drugs.

Does this have any influence on the fact that it routinely misleadingly touts trade agreements that will increase protection for the industry's patents in other countries as "free trade" agreements? Do these ads affect the paper's editorial position that strongly supports such agreements?

Do the ads affect its willingness to run pro-industry columns? For example, it ran a 2007 piece from a Manhattan Institute-affiliated researcher "Yes, New Drugs Save Lives," that purported to find huge health and economic benefits from new drugs. It turns out that the research finding large benefits for new drugs also shows that higher income is strongly associated with shorter life expectancies.

These items, and many others, could be cited as evidence that the Washington Post is in fact not a real newspaper, but it is rather engaged in the business of selling its status as one of the country's premier newspapers to the highest bidder. Personally, I don't think the Post is engaged in corruption of this sort. The biases within the paper are more subtle. They are attributable to the narrow social circles inhabited by its editors and senior reporters much more than the direct influence of advertising dollars.

More importantly, the Post's editors and reporters would no doubt find it incredibly offensive that there would be a major national debate on the integrity of the newspaper. This should say a lot about how the public, the vast majority of whom either currently or in the future will be largely dependent on Social Security, should view the debate over whether Social Security is a Ponzi scheme. The comparison is quite deliberately intended as a slander against the integrity of the program. It has no meaningful basis in reality.

At the most basic level, Social Security has 100-percent transparency in its finances. Anyone who cares can find the past, current, and projected future income and cost of the program in great detail in the annual trustees reports. The basis of every Ponzi scheme is deception: the claim of enormous returns. There is zero deception in Social Security.

And, these projections show that the program can pay all benefits for the next 35 years with no changes whatsoever. They also show it can pay more than 75 percent of benefits indefinitely. A tax increase that is less than 5 percent of projected wage growth over the next three decades would make allow it to pay all benefits into the indefinite future.

The way in which Social Security is ostensibly similar to a Ponzi scheme is that it depends on new workers in the future to meet obligations that it incurs today. This also happens to be true of any debt issued by either the government or the private sector.

If the size of the working population in the United States collapsed tomorrow, then it would not have the tax revenue to pay off government bonds. Similarly, if the public stopped buying General Electric's products, it would also be unable to pay off its bondholders. Yet no one in their right mind would describe the bonds issued by the federal government or General Electric as Ponzi schemes.

The reality is that there is no realistic basis for the comparison between Social Security and a Ponzi scheme. The proper response to Governor Perry's charge should have been to ask whether he had any understanding at all about the country's most important social program. He had committed a gaffe of monumental proportions. The media should have focused on exposing the governor's ignorance, not trying to imply that in some alternative universe he might be right.

 

Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant (more...)
 
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