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Elon Musk, head of the “Department of Government Efficiency” (DOGE), described Social Security as a “Ponzi scheme” on “The Joe Rogan Experience” podcast. Democrats and other Leftists denounced the “Ponzi scheme” claim. Apparently, they don’t know what a Ponzi scheme is:
A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.
The main difference between what Charles Ponzi and other schemers have done is that the Social Security System is run by the government and mandated by law. Under “investment” Ponzi schemes like those of Charles Ponzi, no one is forced to “invest.” You’re a sucker if you do, but there is no law forcing you to invest. In addition to describing Social Security as a Ponzi scheme, it’s also been called a pyramid scheme and a chain letter.
“The World’s Biggest Chain Letter—Unless You’re the Government”: Social Security is a pay-as-you-go retirement program. Those paying in now are paying those receiving benefits now. Social Security works like a chain letter. Some people have described SS as a “Ponzi scheme,” named after Charles Ponzi, a con artist who bilked people of a lot of money. How did he do it? He would tell people that he would pay them a huge return on their investment within a few months. Then he would take their money and pay off the previous investors. It worked great for the first ones to (unknowingly) get in on the scheme. Ponzi then used his early “investors” as testimonials to attract new “investors.” After a time, the number of investors ran out, and so did Ponzi with their money. Ponzi had worked the “pyramid scheme”: the people at the top (those who get in early) receive the benefits that are being paid in from those at the bottom (those getting in late).
The following appeared in Parade Magazine (March 28, 1976): “Social Security is a wonderful plan. People say it’s going bankrupt. Don’t believe them. It works. I know. My uncle reached 65 and he sent in the appropriate forms. In a week he received a wonderful letter: “Dear Mr. Gold. Welcome to the Social Security System. Attached is a list of ten names. Just send $100 to each name on the list and retype … a new list with your name at the bottom. But remember, don’t break the chain!’”[1]
Before 1983, state and local government workers, and non-profit organizations were permitted to opt out of Social Security. Did you know that Congress exempted itself from Social Security until 1984. Get this. “Social Security was initially designed as a tax-free benefit when it was first introduced in 1935. However, changes in the 1980s and 1990s introduced taxation on up to 85 percent of benefits for higher-income retirees. This has led to frustration among many who feel they are being taxed twice on their income.”
Christian Economics in One Lesson
Christian economics must begin with the issue of ultimate ownership. This sets it apart from modern economic analysis, which begins with the issue of scarcity. Second, this leads to the issue of theft, which in turn raises the issue of ethics. The ultimate form of causation in human history is ethical: right vs. wrong. Modern economists do not share this view. In fact, it goes beyond this. They openly reject it. They proclaim economic analysis as value-free—this is self-deception. It is a variation of an ancient temptation: “Hath God said?” Yes, He has. “Thou shalt not steal.”
Buy NowIn 1979, government workers in Galveston County, Texas, and two other counties, decided to opt out of the Social Security system. Instead, they deposited approximately the same amount of money into private accounts. On average, the investments have achieved an 8.64 percent annual rate of return since inception. Some retirees had retired with more than a million dollars in their account.
The first people who get into the system get a big payoff, but that payoff comes with a price. Later participants are needed to fund the early recipients. (That was 30 to 1 when the program started. Now it’s around 3 to 1. It might be 2 to 1 by now.) Social Security “and Medicare tax rates,” Forbes reports, “combined (and also for employees and employers, together), increased steadily from just 2.25% of pay between 1935 and 1953 to 4.50% by 1960, 6.90% by 1970, 8.10% by 1980, and 15.3% by 1990. Meanwhile the income on which these higher tax rates apply has been repeatedly increased.” What started with $3000 in salary is now more than $176,100.
If you and I devised and implemented such a plan and sold it to the public, we’d be in jail. But if the government does it, it’s called public policy. Bernie Madoff is in prison for perpetuating a Ponzi investment scheme.
In a 1936 publicity pamphlet describing the program to Americans, the Social Security Administration pledged that after 1949 the combined payroll tax rate of 6% (employee and employer) would apply only to a worker’s annual income up to $3,000 and “that is the most you will ever pay.” Yet that 6% rate was breached under JFK (1962) and today’s rate (15.3%) is more than double the 1949 promised rate. Worse, today’s high rate applies to as much as [$176,100] of annual income, which is more than triple the inflation-adjusted equivalent of what $3,000 was worth in 1949 (i.e., $28,642). Thus instead of paying $1,718/year (6% on income as high as $28,642), we’re now forced to pay $16,340/year (15.3% on income as high as $$176,100)—an increase of nearly ten-fold.
The idea of creating a supplemental retirement system called “social security” sounded like a good idea when President Franklin Delano Roosevelt signed the Social Security Act into law August 14, 1935. With the Great Depression a recent memory, selling security to the American people was easy. Each month, the federal government would take a small percentage of money from an employee’s paycheck. The employee’s employer would also be required to “contribute” an equal percentage. At retirement, any person who paid into the system would get a monthly check from the Social Security Administration.
Productive Christians
First published nearly half a century ago, it is more relevant and more prescient than ever. Chilton’s crystalline prose and take-no-prisoners style is as entertaining as it is informative. This is the way books on economic issues should be written: biblical, understandable, and practical. This new edition also includes a 23-page appendix that Chilton wrote 43 years ago. "Studies in Amos" is an eight-part article series originally released in 1980.
Buy NowOn January 31, 1940, the first monthly check was issued to a retired legal secretary, Ida May Fuller, of Ludlow, Vermont. She received a check for $22.54. Fuller continued to receive benefits until she died in January 1975 at the age of 100. During her 35 years as a beneficiary, she received more than $22,000. For Fuller, Social Security turned out to be a great investment since her total “contribution” to the program was only $22.00.
[1] Quoted in North, Government by Emergency, 4-5.