The Bernie Madoff Ponzi Scheme

The Evil Bernie Madoff got 150 years in prison for running the greatest Ponzi scheme of all time. Actually, it's the second greatest Ponzi scheme of all time. The greatest Ponzi scheme is the Social Security System.

Like all Ponzi schemes Social Security worked pretty well as long as there were a lot of people putting money into the system. All those "contributors," i.e., workers, from CEOs to packing plant employees -- that's 95% of the work force -- have put a Congress-decreed part of their earnings into the system. Most of the money collected goes right back out again in payments to "earlier investors," i.e., people who managed to live until age 65, along with permanently disabled workers, and the survivors of workers who had died. Along the way, politicians promoted the illusion that workers had a pension fund building up in the system, but that was never true.

Fortunately for the politicians the proportion of workers to Social Security recipients was large -- around 40 workers per recipient at the end of WW II. In 2006 that ratio had dropped to 3.3 workers per recipient. Two things happened: advancing medical technology gradually extended life spans, and after the post-war baby boom faded people began having smaller families. The net result is that many fewer workers are having to pay into a system that immediately redistributes their tax payments to a growing number of recipients. Uh-oh.

Of course, Lyndon Johnson wanted to have his shot at a presidential legacy so in 1965 he persuaded Congress to exacerbate the problem by adding Medicare into the Social Security System. Bad idea. Medicare is simply adding to the funding problem. The Ponzi scheme is getting nearer to collapse because the number of people putting money into the system can't keep up with the number of people getting money out of the system. Now that's a legacy.

Some politicians actually have a conscience and have tried to fix -- or propose a fix to -- the funding problem our government-sponsored Ponzi scheme faces: adequate funding. Former Senator Bob Kerrey (D) Nebraska was one. It has been about twelve years ago now, that Kerrey and his RINO compatriot, Chuck Hagel, periodically would come back to Nebraska to pitch his fix for Social Security. Of course, he was only talking about "fixing" the old age benefits, but at least he was on the right track. He wanted to privatize at least a part of Social Security so that workers would have more control over the amount of cash they would have at retirement. It was pretty clear that Kerrey and his aides had at least looked at the problem in proposing partial privatization. Hagel clearly didn't have a clue and was just mouthing politi-speak as a warm up act to Kerrey's ideas. Of course, the idea never took off among Democrats, and when Republicans started proposing privatizing Social Security the Democrats fell on them like a mob of screeching seagulls.

So the problem remains and the Obama administration wants to do more of what Social Security already does: spread the wealth. We already are getting a preview of how well an expanded income redistribution system works: it's running out of funds. Taxation is a dead weight on the economy and smothers economic growth so adding more taxes to pay for more income redistribution is going to be a killer for growth and the jobs growth creates. Most of the "green jobs" we hear about don't really exist, and when they do they are in some other country where specialized knowledge and lower labor costs already exist. Most of the "green jobs" I've heard about are in the administrative bureaucracy, i.e., the unproductive overhead, that will monitor, regulate, and ultimately stifle whatever innovation comes from this move toward a "green economy."

So. Who will take the fall when this, the biggest of all Ponzi schemes collapses? It won't be the politicians, unless voters finally learn the truth about this long-running scam. In truth, the generation now growing up will be taking the fall because, as Margaret Thatcher once said, "The problem with Socialism is that sooner or later you run out of other peoples' money."