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Social Security is No Where Close to Being a Ponzi or Pyramid Scheme

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Message Gregory Paul

I have had it with the lie most prominently proclaimed of late by the latest theocon Texan whom wants to be an anti New Deal President that Social Security is a Ponzi scheme. That's a through the teeth, outright Texas sized lie because it's simply not anywhere close to being technically accurate. Nor is Social Security a pyramid scheme as many on the right contend.


A pyramid scheme is, hello, shaped like a pyramid. Check out the excellent description at en.wikipedia.org/wiki/Pyramid_scheme. There are tiers of pseudoinvestors, each layer being smaller progressing towards the pinnacle, ergo the pyramid analogy. It is a vertical affair with the tiny elite at the top making huge amounts of money, which flows vertically up to the peak. The few a bit lower in the upper layers may do pretty or fairly well too, but the great majority that make up the lower levels will be badly screwed. Pyramids are also unstable bubbles vulnerable to collapse. Often opaque at least some degree, they may or may not be legal.


A Ponzi is a very specific type of con. It lacks layers, all the deluded pseudoinvestors handing over their cash to the organizer who is lying through his teeth that he is investing the money in some fashion, it's a secretive and entirely illegal fraud. It is therefore a vertical transfer to a person (and perhaps a small clique of collaborators he may have at the top). A fraction of the take may be redistributed back down to those who are sending it in to keep the illusion afloat for as long as possible, but all Ponzis are bubbles that inevitably collapse and leave all the participants holding a financial bag (the only way the con can avoid being caught is to flee before it is to late, or die before the financial crap hits the fan). Note that the key problem with a Ponzi is not that money is being transferred between individuals without it being invested or the like, but that it is being illicitly diverted into the pockets of one or a few persons, so the victims never see the great majority or all of their contribution again. It's sheer theft.  


Social Security is a generational rollover system. It's very efficient, entirely legal and above board, anyone can find out exactly how it works. Here's how. Every working generation sends money to the current retirees. As each age cohort retires they are paid by those still working. It is a form of insurance via a horizontal transfer of monies from one large group to another large group in which all get something assuming they don't keel over before they retire (a risk in any insurance system). Because there is no great concentration of the money towards a small elite or an individual no one makes out big time relative to the rest so it's fairly equitable, no one gets rich off of it. As long as there are workers putting into the system the retirees will always get paid; they may not get entirely as much as they expected (about 25% less down the road if adjustments are not made), but they will not be left entirely bereft -- the system trades the lack of potential gains via investments for stability so everyone gets something at a time they may be unable to work or invest for the future. That means the arrangement cannot collapse. SS has the shape of a horizontal conveyor belt rather than a vertical pyramid. Ergo it is not a pyramid scheme, or a Ponzi.


To understand how perversely manipulative the anti-SS lie is, consider that privatization means replacing it with Wall St type investments that are a lot more like financial pyramids! Privatization will transfer a good chunk of the trillions the poor and middle class will put into their commercial retirement investments right up into the pockets of the financial elites at the top of the pile. And as per pyramids the new system will be far less stable than SS, leaving many seniors in the monetary lurch in their not so golden years.


The hard right is lying about the nature of SS because they are desperate. It remains the immensely popular third rail of Ameropolitics. Their only and frankly faint hope of bringing Roosevelt Insurance down is to so grotesquely distort the public image of the system that the majority somehow becomes dumb enough to hand it over to Wall Street. So they have to try something no matter how false it is.


SS is not perfect. No retirement scheme is. If you don't like it for one reason or another then criticize it for what is actually is. Don't lie about the New Deal deal for base propaganda purposes.


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Gregory Paul is an independent researcher interested in informing the public about little known yet important aspects of the complex interactions between religion, secularism, culture, economics, politics and societal conditions. His scholarly work (more...)
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