There has been a lot of talk over the years about Social Security being a “Ponzi scheme.” I have addressed this issue many times before, so I don’t want to bore my regular readers with another long dissertation. But since a certain billionaire friend of President Donald Trump brought it up yet again, I will make three quick observations.
One: Social Security is not now and never has been an investment scheme. It is a social insurance program. (After all, the word “social” in Social Security means something!) In addition to providing retired and disabled workers, widows, widowers, and the minor children of a worker who has died with a basic and stable income, it was established to achieve larger goals for our country as a whole. For example, one of those goals is to raise the standard of living of lower-income workers in retirement. This is accomplished with a weighted benefit formula that gives them a higher “replacement rate” (when comparing their average income with their Social Security retirement benefit) than their more well-to-do fellow taxpayers can expect.
Two: Many emailers tell me how Social Security started out with thousands of taxpayers for each Social Security beneficiary, and how we now suddenly find ourselves at a 3-1 ratio, and how the entire scam will implode when we reach a 2-1 ratio. That’s a classic Ponzi scheme scenario, they say.
Well, obviously in the very earliest days of the program (the early 1940s), there were many more workers than Social Security beneficiaries. It was more like a 40-1 ratio. But as more and more people quickly qualified for benefits, the taxpayer-to-beneficiary ratio rapidly went down, and by about 1970, it had matured to the 3-1 ratio we have been at for 50 years now. As the baby boomers retire, we are indeed heading towards a 2-1 ratio. But with some modest adjustments to benefits and/or tax rates, the system can continue to operate quite well at such a worker-to-beneficiary ratio. If you want to read more about Social Security financing and review some realistic reform proposals, spend 15 bucks and get my book, “Social Security: Simple and Smart.” You can get it online from Amazon or at a Barnes and Noble store.
Three: Ponzi schemes, by their very definition, have short lifespans. Social Security has been around for 90 years now. (I always wonder when skeptics will finally accept the fact that the program is here to stay!)
And since I mentioned Trump’s billionaire friend, Elon Musk, let me make these quick comments about his Department of Government Efficiency. For me, it’s a case of deja vu. Back in the 1980s, then-President Ronald Reagan appointed J. Peter Grace (the Musk of his day) to head up a commission to eliminate waste, fraud, and abuse in the federal government. Or to “drain the swamp,” as Reagan famously said. Here is just one person’s view of that swamp drainage.
At the time, I was heading up an SSA office with a multimillion-dollar budget that wrote and produced all of the hundreds of pamphlets and fact sheets made available to the public to explain the Social Security rules that affect them. The Grace Commission people spent more than a month with me and my staff going over every facet of our operation. When they were done, here is a summary of their findings. 1) Unscrew every other fluorescent tube in the ceiling lights. 2) Use discarded paper from wastebaskets for scratch pads. 3) Turn off the hot water faucets in the bathrooms. That was it. Those were their recommendations to “eliminate waste, fraud, and abuse.” (And I’m not making this up.)
Speaking of Musk, here is a recent email I got from a reader.
I recall many years ago, when I still worked for the SSA, taking a claim from a woman who was filing for benefits as a divorced wife on her ex-husband’s account. The law says to get such benefits, you must have been married for at least 10 years. What the law actually says is that your marriage must have reached its 10th anniversary before the divorce becomes final.
Well, in this woman’s case, her divorce decree was signed just two days before their 10th anniversary. So, I had to tell her that her claim was going to be turned down. She appealed to me (as I’m sure I would have done if I were in her shoes) that she was just two days, a measly 48 hours, shy of the 10-year rule.
My heart sided with her. After all, there really was no difference between a 10-year marriage and a nine-year and 363-day marriage. But as a government agent, a bureaucrat if you will, I had to carry out the law. And that law said you must be married 10 years. The law didn’t say “about 10 years” or “sort of close to 10 years.” It said 10 years.
Suppose I had the power to tell the lady with the nine-year and 363-day marriage that we'd let it slide and allow her to get divorced wife’s benefits. What about the next woman who comes in and is just one week shy of the 10-year rule? Do we let her get benefits, too? How about somebody who is a month shy? Do you see my point? The law draws a line somewhere. And a government bureaucrat’s job is to carry out that law precisely as it’s written. It’s not the employee’s job to interpret the law the way he or she thinks it should be interpreted.
In addition to accusations of inefficiency, lots of times, bureaucrats get lambasted for being too rigid and too narrowly focused on carrying out the rules and regulations of the organization they work for. But what a chaotic country we'd have if this weren’t so.
