This article was published by the McAlvany Intelligence Advisor on Monday, October 19, 2015:
Mug shot of Charles Ponzi
In its apologetic over Social Security, the New York Times saw the most significant problem facing the scheme, according to the program’s chief actuary, Stephen Goss, is “that fewer workers are paying taxes into the program … while more retirees are collecting their checks.”
And thus it has always been: every Ponzi scheme fails when “new” investors cannot be recruited into it in sufficient numbers to pay off the “older” ones. The only reason Social Security has survived for so long – it just turned 80 this year – is because of guns and badges and threats.
Charles Ponzi had no such power. He had to rely on ignorance and greed. His scheme ran for more than a year before the fraud was discovered and he was jailed. His shtick? He promised a 50 percent profit on any funds left with him for 45 days, or 100 percent profit in 90 days, all based on a plan to arbitrage the alleged difference between postal reply coupons sold overseas which he would redeem at par in the states. There was, of course, no such plan, just promises, enough to persuade a few “investors” to continue to send him money even while he was in jail! All he did was pay off the early investors with new money coming from later investors. The scam went belly up when he ran out of new investors in sufficient numbers.
Social Security, on the other hand, was sold to the gullible American people as “insurance” with “premiums” paid and accumulated in a “trust fund” in the early days of the New Deal. Called FICA, the Federal Insurance Contributions Act, “premiums” were collected from wages under threat of penalties and jail and deposited in the Federal Old-Age and Survivors Insurance Trust Fund where, it was said, they awaited the retirement of the workers whose wages had been confiscated.
The Republican Party – back when it saw things much more clearly than it does today – included this in its 1936 presidential platform:
The so-called reserve fund … is no reserve at all, because the fund will contain nothing but the Government’s promises to pay, while the taxes collected in the guise of premiums will be wasted by the Government in reckless and extravagant political schemes.
As the system gathered steam, early contributors to the scheme made out like bandits: Ida May Fuller paid just $24.75 into the system and by the time she died at age 100, she had received $22,888.92. Later contributors aren’t doing so well.
Last week the Social Security Administration announced that, for the third time in six years, beneficiaries wouldn’t be getting a COLA – a cost of living adjustment – to make up for the loss of purchasing power of the dollar thanks to the Federal Reserve – blaming it on the declining price of gas. Gas prices, according to the CPI-W formula that the SSA uses, dropped 23 percent in the last year, eliminating any chance of an “adjustment” for 2016.
In 1972 Congress modified Social Security so that it would reflect the loss of purchasing power of the dollar, resulting in the adoption of the Consumer Price Index, or CPI. At the time, the index measured the price increases (as a result of the inflation caused by the Federal Reserve) of a market basket of goods and services bought by wage earners, hence the moniker CPI-W.
In 1987, Congress, responding to pressure from constituents that the CPI didn’t reflect the real cost of living of elderly people receiving checks, directed the Bureau of Labor Statistics (BLS) to develop an alternate CPI for the elderly, called CPI-E. The BLS has been “developing” that alternate statistic ever since – 33 years and counting. It remains under study today, with little chance of adoption any time soon. The BLS has said, however, that since retirees 65 and older spend more than twice as much on health care as wage earners, and those 75 and older spend nearly three times more on health care than wage earners, a COLA based upon the theoretical/experimental CPI-E would have raised their annual increases by at least 0.2 percent year.
By not reflecting the true loss of purchasing power, beneficiaries have been swindled out of nearly a quarter of the purchasing power of their dollars since 2000, according to the Senior Citizens League. Since 2000, housing costs for seniors have increased by 44 percent, heating oil by 159 percent, eggs by 117 percent, and gasoline by 76 percent. Since then, however, Social Security’s COLAs have averaged just 2.2 percent per year.
But adjusting benefits accurately for inflation would have accelerated the end of the scam, now estimated by the so-called “trustees” to be no later than 2033, and that couldn’t be allowed to happen. Instead, other measures, invisible and opaque, are being used to extend the life of the swindle: raising retirement ages, increasing premiums, raising deductibles and co-pays in its sister program Medicare, and more. Candidates for president, both Democrat and Republican, believe the system can be saved: Democrats by raising taxes, and Republicans by cutting benefits.
Neither will do. The basic foundational underlying principles upon which Social Security rests are fraud, deceit, and force. Any system based on such immoral principles is bound to fail, and the sooner the better.
Boston University Professor Laurence Kotlikoff uncovered the lies and deceit buried in the latest report for the scam’s “trustees” in July:
Social Security’s 2015 Trustees Report came out just last month. It shows, in table VI F1 (which is deeply buried in the Report’s appendix), that the system has a $25.8 trillion fiscal gap…
The $25.8 trillion fiscal gap … takes into account all future benefit outlays [promises] and all future taxes [extractions]….
What does Social Security’s $25.8 trillion fiscal gap, which is far larger than our economy’s $18 trillion annual GDP, mean, exactly? It means that … [to be solvent] it requires a 32 percent immediate and permanent hike in Social Security’s 12.4 percent FICA tax.
Although this writer holds Kotlikoff in high esteem and regard for his exposure of the Social Security Ponzi scheme, he departs when Kotlikoff thinks the system can be redeemed. A system based on immorality, theft, lies, and opacity must be terminated immediately.
Ponzi’s investors lost an estimated $20 million when it ended in 1920. That translates (thanks again to the Fed) into about a quarter of a billion dollars in today’s money. Thanks to the enforced participation in the Social Security scam, investors, workers, survivors, and beneficiaries will lose, directly or indirectly, one hundred thousand times as much.
Sources:
USA Today: Government: No benefit increase for Social Security next year
CNBC.com: No Social Security increase next year, gas prices to blame
New York Times: Retirees’ Futures Hinge on Candidates’ Plans for Social Security
New York Post: Social Security is screwing over America’s elderly
Professor Kotlikoff: The Truth About Social Security’s Long Term Finances
Professor Kotlikoff: Social Security is 80 — here’s how to retire it
The New American: Medicaid Long-term Care Program Faces Long-term Deficits
Background on CPI-E, consumer price index for seniors/elderly/experimental
Inflation calculator: $20 million in 1920 is $237 million in 2015.
Ida May Fuller, the first beneficiary of Social Security
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