Bernie Madoff ran the world’s largest Ponzi scheme by promising to invest his client’s money in productive enterprises and pay them generous returns, when in fact he spent the money and manufactured fake statements. Those returns, if any, were funded by money from new clients. The scheme collapsed when people quit investing. Losses were estimated to be as high as $65 billion.
The US government has its own Ponzi scheme – it’s called Social Security.
Although the government claims to have assets of close to $3 trillion, these so-called assets exist only on paper because the SSN payroll taxes collected end up in general revenue. And yes, they can do that according to a Supreme Court ruling in Helvering v. Davis, 301 U.S. 619, (1937) which said that the government wasn’t required to use money collected from Social Security taxes to pay Social Security. They can, the Court ruled, spend money in aid of the general welfare.
And that is exactly what the government did – they spent our Social Security tax money on pet projects, payroll, the military, etc. That so-called social security trust fund doesn’t exist except on paper and there is nothing in that paper account but a bunch of worthless IOUs. In other words, the left hand of government took money from the right hand of government and promised to pay it back on “some future date.” And just like Madoff, as long as workers continue to pay into the system, the government will continue to push the idea that the money is there, until it isn’t. But unlike Madoff, no one will end up in jail when it’s over.
At least Madoff’s clients willingly gave him money to invest. They may have been gullible, avaricious, or both but, they participated in Madoff’s plan with their eyes wide open. Taxpayers, on the other hand, have no choice but to participate in the government’s Ponzi scheme. Failure to pay into the system can incur fines or imprisonment, or both.
The Social Security Act was signed into law in 1935, and the first payments were made in 1940. At that time, there were 160 workers for each person receiving social security payments. In 1950, the number of workers was down to 16.5 for each recipient which was very manageable. The ratio continued to fall so that by 1980, there were only 3.2 workers for each recipient – an unsustainable situation. Prior to the lockdown and job loses there were 2.8 workers per retiree.
Experts agree that to keep Social Security solvent at its current rate, the birth rate would need to increase to 4.2 children per family and I don’t see that happening. Actually, the American workforce is projected to shrink by 7 million over the next 20 years. The future does not look bright!
According to the 2022 annual report of the Social Security Board of Trustees, benefits will be depleted by 2035 and after that, the government will only be able to pay out around 75% of the benefit’s due retirees and disabled workers. Of course, that is assuming that the US is still standing as an economic force in 2035.
Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed. Henry Hazlitt, Economics in One Lesson
Source: Who Has Better Ethics, the Social Security System or Bernie Madoff? By Patrick Barron, Mises Institute; Here’s What the Government Did With Your Social Security Money, Casey Research; 1937-1944: The worst Supreme Court ever: the complete series by Rob Natelson, i2i, org; The Population Implosion, Franklin County Patriots.com