Friday, December 26, 2008

Just Another Ponzi Scheme

The recent disclosures of Mr. Madoff who made off, (sorry, I couldn't resist), with many billions of dollars has produced much lamenting. Actually, he didn't really make off with other people's money in the sense that he just wanted to get rich and retire in anonymity to some tropical island, as much as didn't want to lose face as the investor guru. I can imagine him thinking, "Just a little more time, just a little more money, and I can turn this thing around and all will be well.". (That's how most of us think about money when we borrow it, isn't it?) And we are all so appalled,aren't we? (No, I don't mean the nuts out there with anti-semitic conspiracy theories.) Many of us also think, "How stupid could these people have been to not know this was just a scam, a Ponzi scheme?".

For those of us who are tempted to think this way, why do many of us still hold on to the idea that Social Security is any different? There is no "lock box" which keeps our withholdings safe until we retire. It is spent before it is even collected. Our government requires those in the work force to give over 12% of their income to pay, not only current Social Security beneficiaries, but also for what other spending the legislative and executive branches have passed into law. This is the ultimate Ponzi scheme, and yet the majority of the country and special interest lobbyists complain when there is an attempt to reform it. With Social Security, the deep national debt, (which just gets bigger with every financial institution in trouble demanding a bailout), and pet projects of Congressmen, we are bankrupting our children.

Here are some statistics from the government's Social Security website:

The main reason for Social Security’s long-range financing problem is demographics. We are living longer and healthier lives than ever before. When the Social Security program was created in 1935, a 65-year-old American had an average life expectancy of about 121/2 more years; today, it is 18 years and rising.

In addition, more than 80 million “baby boomers” started retiring this year, and in about 30 years, there will be twice as many older Americans as there are today. At the same time, the number of workers ­paying into Social Security per beneficiary will drop from 3.3 today to about 2.1 in 2034.

These demographic changes will severely strain Social Security financing.


Many people think that the Social Security taxes they pay are held in interest-bearing accounts earmarked for their own future retirement needs. The fact is that Social Security is a pay-as-you-go retirement system—the Social Security taxes paid by today’s workers and their employers are used to pay the benefits for today’s retirees and other beneficiaries.

Social Security is now taking in more money than it pays out in benefits, and the remaining money goes to the program’s trust funds. There are now large “reserves” in the trust funds, but even this money is small compared to future scheduled benefit payments. In 2017 benefits owed will be more than taxes collect­ed, and Social Security will need to begin tapping the trust funds to pay benefits. The trust funds will be exhausted in 2041. At that time, Social Security will not be able to meet all of its benefit obligations if no changes are made.

Notice the word reserves is in quotations.I actually think the statistics on the demographics are optimistic. My reason for that is as of 2006, America's birthrate was hovering around 2.1 per woman, (which is replacement rate), and a good portion of this is due to immigrants from Central and South America. As our economy weakens, there are fewer immigrants willing to risk coming for a job that may not be here, and statistics show that second generation immigrants birthrates fall to the level of most Americans. I also think, that unfortunately in our culture, children are seen as an expense rather than a gift, and couples will limit the number of children they have out of fear. Oh, there's that word again!

Mr. Madoff seems to have been afraid to lose face and ended up costing others, including charities, billions of dollars. The economy is self correcting, but we are afraid of the short term pain, so we are going into massive debt in order to delay the inevitable. (We could really learn a lesson from Germany right now.) We are relying on our children to supply our Social Security funds, so that we may retire in some comfort, but we are afraid they're too much of an expense or burden, so we won't have very many. At some point, we are going to need to face reality with integrity, logic, intelligence, hope and love. If we don't, I believe we will end up with a country so paralyzed with fear and pain that we will allow things that remain unthinkable to occur for a sense of comfort and order. I pray we do not come to that. Indeed, I am hopeful, because I know it need not.

Kyrie eleison

No comments:

Post a Comment