Some critics call Social Security a “Ponzi scheme.” Ponzi schemes fraudulently offer investment returns that depend on money flowing from new investors, not real investment success. They can work for a while, until new investors stop investing, and then they can collapse, leaving some investors high and dry. The operators and some early money “win,” unless they have to go to jail.
Social Security is not a Ponzi scheme. Ponzi schemes depend on free choices of willing, if gullible, participants. Social Security is based on a business model of coercion, of force. Social Security forces employers and employees to participate. Social Security reported taking in almost $800 billion in payroll taxes in the latest reported fiscal year. Ponzi schemes can be illegal, but Social Security is legal.
Social Security may not be a Ponzi scheme. Social Security is a fraud, however. A massive one.
This year, the Social Security Administration developed a new website for its “customers.” They call it “My Social Security Account.” The main message on the front page reads “Set yourself free. Open a my Social Security account and rest easy knowing that you’re in control of your future.”
A comforting message?
The U.S. government faces a massive, multi-trillion dollar funding gap for Social Security, which has worked so far because retirees have been paid to date on a system funded by many more workers than retirees. A coming demographic surge in retirements indicates that, under current law, the system will be swamped by unfunded promises.
The federal government makes its own accounting standards, developed in the Federal Accounting Standards Advisory Board. Under these standards, the federal government chooses not to include the present value of unfunded future Social Security promises as debt.
How do they justify this? In a 2007 public hearing, Stephen Goss, Chief Actuary for the Social Security Administration, explained:
“An overriding uncertainty exists under the Social Security (and all Federal Social Insurance) programs. This is the Government’s right and ability to alter potential future benefits. Until benefits become due and payable, there is no binding commitment over which a worker has control and so no liability can be recognized.”
So much for my Social Security Account. So much for resting easy. So much for my control of my future. So much for my freedom.