Ponzi Schemes

The topic for this Freedom Friday is Ponzi schemes. Ponzi schemes are illegal. The largest Ponzi scheme in the nation – our Social Security System - threatens to destroy the economical freedom of our rising generations. I am not alone in my belief that Social Security is a giant Ponzi scheme as Rick Perry, Governor of Texas, recently stated the same belief.

The name “Ponzi” for this type of scheme came from Charles Ponzi, an Italian immigrant to the United States in 1903, but the idea came from Charles Dickens in his novel Little Dorrit published in the 1855-1857 time period. Ponzi became famous for using the technique in early 1920 when his scheme took in so much money that it was known throughout the United States.

According to Wikipedia.org, a “Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned…. The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected….”

Seniors today insist that their social security checks are not handouts because they paid into Social Security and Medicare. This is only partially true. According to Jagadeesh Gokhale (senior economic advisor, Federal Reserve Bank of Cleveland) and Laurence J. Kotlikoff (professor of economics at Boston University) and quoted by Dr. Walter E. Williams, “A male reaching 65 years of age today (in 2000, the year of their study) can expect to receive $71,000 more in government ‘transfer’ benefits (of all kinds at both the federal and state levels, but mainly Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes.”

Young people will pay much more in taxes than they will ever receive in transfer programs. “For example: A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will receive in benefits.”

Social Security is a Ponzi scheme because it is a better deal for those who get on board early. It is a system that leaves younger people paying for the checks that go to seniors.

Geoffrey Kollmann and Dawn Muscular of the Congressional Research Service reported, “Until recent years, Social Security recipients received more, often far more, than the value of the Social Security taxes they paid. … For example, for workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years.”

Senior citizens who want economical freedom for their posterity need to join the fight for reform of the entitlement programs. Our nation must take some corrective actions because past generations were duped into thinking that the government could take care of them in their old age. We now know that the government does not and will not have enough to pay for all the entitlement programs it has legislated.

No one wants to abolish the federal senior programs, but most people understand that our nation cannot continue to pay out more than we take in. Costs for maintaining Social Security ($710 Billion), Medicare ($456 Billion), and Medicaid ($327 Billion) will bankrupt our nation. We must find a way to compassionately lessen the public cost of our elderly and ill citizens in order that our rising generations can breathe under their burden.

Ponzi schemes are illegal in most instances because they take from one group of investors to pay other investors. The federal entitlement programs brought to us by progressive administrations are nothing more than enormous Ponzi schemes, which will eventually collapse on us.