According to Politifact, the candidates’ statements at yesterday’s Tea Party/CNN sponsored Republican Presidential debate contained a surprising number of inaccuracies (even given the low expectations most people have of such events). But perhaps the most egregious, in my view, is Rick Perry’s claim that Social Security is a “Ponzi scheme”. Politifact rates this claim as simply false. Here’s why-
So how valid is the comparison?
Mitchell Zuckoff, a Boston University journalism professor who has written a book on Ponzi, noted three critical dissimilarities between Social Security and a Ponzi scheme, which by definition is both fraudulent and unsustainable.
“First, in the case of Social Security, no one is being misled,” Zuckoff wrote in a January 2009 article in Fortune. “…Social Security is exactly what it claims to be: A mandatory transfer payment system under which current workers are taxed on their incomes to pay benefits, with no promises of huge returns.”
Second, he wrote, “A Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted. That’s when the last people to participate are out of luck; the music stops and there’s nowhere to sit. It’s true that Social Security faces a huge burden — and a significant, long-term financing problem — in light of retiring Baby Boomers. … But Social Security can be, and has been, tweaked and modified to reflect changes in the size of the taxpaying workforce and the number of beneficiaries. It would take great political will, but the government could change benefit formulas or take other steps, like increasing taxes, to keep the system from failing.”
Third, Zuckoff wrote, “Social Security is morally the polar opposite of a Ponzi scheme… At the height of the Great Depression, our society (see “Social”) resolved to create a safety net (see “Security”) in the form of a social insurance policy that would pay modest benefits to retirees, the disabled and the survivors of deceased workers. By design, that means a certain amount of wealth transfer, with richer workers subsidizing poorer ones. That might rankle, but it’s not fraud… None of this is to suggest that Social Security is a perfect system or that there aren’t sizeable problems facing the incoming administration and Congress. But it’s not a Ponzi scheme. And Ponzi himself, who died in a hospital charity ward with only enough money for his burial, would never have recognized it as his own.”
We agree with Zuckoff’s interpretation. We rated Perry’s November 2010 comparison of Social Security and Ponzi schemes False, and we stand by that ruling. The comparison still deserves a rating of False.
Putting aside the Ponzi scheme charge, the fact that Social Security could be saved in perpetuity simply by raising the cap on the amount of wages subject to the payroll tax (currently set at $106,800), along with a modest, phased in increase of a year or two in the age at which one can receive full benefits, puts the lie to the often-heard claim that young people should not believe that benefits will be available to them. The simple truth is that such an outcome is likely to occur only if young people come to believe the claim and act to end the program, making it a self-fulfilling prophecy.
There may be principled grounds on which to be against Social Security, but basing opposition to the program on the fantasy that it cannot be saved is not one of them.