Friday, September 16, 2011

It's the Ponz! Heeeyyyyyyyyy...

Previously, I noted the brouhaha (man, I like that word) surrounding Perry's use of the phrase "Ponzi scheme," in reference to Social Security. Despite the very obvious similarity between a classic Ponzi scheme and the Social Security program, many journalists and talking heads (and Democrats) insisted that Perry was all wet, that of course the two were not that similar. In my previous bit, I even note an article that sought "expert opinion" to refute Perry's claim, even as past expert opinions are roundly ignored.

Those so insistent to prove Perry wrong have, however, likely succeeded in doing exactly the opposite: forcing others to prove him right. Heavyweights at Cato have already weighed in:
Of course, Social Security and Ponzi schemes are not perfectly analogous. Ponzi, after all, had to rely on what people were willing to voluntarily invest with him. Once he couldn't convince enough new investors to join his scheme, it collapsed. Social Security, on the other hand, can rely on the power of the government to tax. As the shrinking number of workers paying into the system makes it harder to continue to sustain benefits, the government can just force young people to pay even more into the system. 
In fact, Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.
Now, Charles Krauthammer has joined the fray as well:
The Great Social Security Debate, Proposition 1: Of course it’s a Ponzi scheme. 
In a Ponzi scheme, the people who invest early get their money out with dividends. But these dividends don’t come from any profitable or productive activity — they consist entirely of money paid in by later participants.
And like Michael Tanner from Cato, Krauthammer hits the crucial point of real departure in the comparison:
Proposition 2:The crucial distinction between a Ponzi scheme and Social Security is that Social Security is mandatory. 
That’s why Ponzi schemes always collapse and Social Security has not. When it’s mandatory, you’ve ensured an endless supply of new participants. Indeed, if Charles Ponzi had had the benefit of the law forcing people into his scheme, he’d still be going strong — and a perfect candidate for commissioner of the Social Security Administration.
The wrong-headed attack on Perry for saying something "controversial" has backfired completely. To those with functioning powers of reason, it's crystal clear that Perry said nothing outlandish, merely noted a reality that has been noted many times before. And now that simple reality has a spotlight on it, forcing those that would have us believe Social Security is something other than what it is to backpedal, obfuscate, and offer weaselly explanations to justify not accepting the comparison. Funny stuff.

Cheers, all.

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