Social Security Semantics

Jail FDR for starting Social Security?
In formal political debates, word choice is rarely accidental. And the word Texas Governor Rick Perry chose this week to describe Social Security — perhaps the most beloved government program in national history — was a colorful one indeed. “Ponzi Scheme.”

The dictionary helps us with a definition:

A Ponzi scheme is a type of investment fraud that promises investors exorbitant interest if they loan their money. As more investors participate, the money contributed by later investors is paid to the initial investors, purportedly as the promised interest on their loans. A Ponzi scheme works in its initial stages but inevitably collapses as more investors participate.”

This definition doesn’t describe the Social Security that Americans adore.

SOCIAL SECURITY ISN’T A “FRAUD.” A fraud is criminal deception. But for generations, the federal government has promised a benefit, and the federal government has delivered a benefit, like clockwork, as promised. A promise kept over many decades is hardly fraud.

SOCIAL SECURITY DOESN’T PROMISE EXHORBITANT INTEREST. Social Security contributions are invested extremely conservatively to ensure the safety of the principal.

SOCIAL SECURITY HASN’T SCREWED LATER CONTRIBUTORS. Many generations of Social Security contributors have been paid back, not just the first contributors.

If Social Security did fit these defining components of a Ponzi Scheme, Americans obviously wouldn’t love the program so much. The fact is, Social Security has been the very opposite of a Ponzi Scheme. Reliable. Fair. Conservative. Enduring.

Some will contend that Perry is saying that IF Social Security is neglected it could become a Ponzi Scheme. The promise could be broken. The conservative investing could be replaced with risky investing. The payments to new contributors could end.

But to be clear, Perry is saying, repeatedly:

“It is a Ponzi Scheme.”

He is not saying it COULD be one some day. He is saying it “IS” a Ponzi Scheme as it exists today.

Perry aside for a moment, I know a lot of folks think that Social Security is on a path to being a Ponzi Scheme. If that is your concern, you need to understand that this path to Ponzism is a) something that could happen only if the management of the program is neglected by future leaders (such as a leader like Perry who has long contended the program is unconstitutional) and b) is most likely to happen if we go in the privatize/”no new taxes”/dramatically shrink government direction advocated by Ponzi prophet Perry.

If you want to adjust Social Security to accommodate changing demographics, there are straightforward adjustments that can be made that have public support. If you want to. But the Texas Governor clearly has no interest in fixing the program.

Again, in formal political debates, word choice is rarely accidental. And the reason, Perry chose the unusual word “Ponzi Scheme” over the terms most leaders use — “strained,” “broken,” “inadequate” – is that a Ponzi scheme is not something you fix. A Ponzi scheme is something that you shut down.


31 thoughts on “Social Security Semantics

  1. PM. says:

    How much better is Mitt Romney on this issue?

    “Suppose two grandparents created a trust fund, appointed a bank as trustee, and instructed the bank to invest the proceeds of the trust fund so as to provide for their grandchildren’s education. Suppose further that the bank used the proceeds for its own purposes, so that when the grandchildren turned eighteen, there was no money for them to go to college. What would happen to the bankers responsible for misusing the money? They would go to jail. But what has happened to the people responsible for the looming bankruptcy of Social Security? They keep returning to Congress every two years,” – Mitt Romney, “No Apology.”

    He doesn’t seem to understand Social Security any better than Perry.

  2. Joe Loveland says:

    Perry is the strongest general election candidate who can win a primary, using the Austin metric. But this Social Security bashing will hurt Perry in the general election. There’s a good political reason Saint Reagan, who called Medicare socialism, spoke out about the need to strengthen Social Security.

  3. Joe: THis is a terrific post. On point. Irrefutable and oh, so needed. You nailed it. This guy is very dangerous. It would be a nightmare if he wins the GOP nomination and who’s to say with all the crazies in the party and the Tea Party, that he couldn’t. ROmney is no treat but this guy may be even worse than Michelle baby. Good job.


    1. Joe Loveland says:

      Thanks Dennis. It’s something, isn’t it? We’ll see if Social Security is still the third rail of politics.

  4. Healthcare System Withering Under
    Gov. PerryBy Noam N. Levey, Los Angeles Times

    09 September 11

    The governor and presidential hopeful has said the state can manage on its own, without President Obama’s overhaul. But more than a quarter of Texans lack insurance, the highest rate in the nation.

    When Texas went to court last year to block President Obama’s healthcare overhaul, Gov. Rick Perry pledged to do everything in his power to “protect our families, taxpayers and medical providers.” Texas, he said, could manage its own healthcare.

    But in the 11 years the Republican presidential hopeful has been in office, working Texans increasingly have been priced out of private healthcare while the state’s safety net has withered, leaving millions of state residents without medical care.

    “Texas just hasn’t proven it can run a health system,” said Dr. C. Bruce Malone III, an orthopedic surgeon and president of the historically conservative Texas Medical Assn.

    More than a quarter of Texans lack health insurance, the highest rate in the nation, placing a crushing burden on hospitals and doctors who treat patients unable to pay.

    Those costs are passed to the insured. Insurance premiums have risen more quickly in Texas than they have nationally over the last seven years. And when compared with incomes, insurance in Texas is less affordable than in every state but Mississippi, according to the nonprofit Commonwealth Fund.

    That has taken a toll, as nearly a third of the state’s children did not receive an annual physical and a teeth cleaning in 2007, placing Texas 40th in a state ranking by the fund. Over the last decade, infant mortality rates have risen in Texas while declining nationwide, according to the Centers for Disease Control and Prevention.

    Seniors, despite guaranteed Medicare coverage, also are suffering, as nearly 1 in 5 ends up back in the hospital within a month of being released, one of the highest readmission rates in the country and a leading indicator of systemwide problems.

    Similar healthcare dynamics drove Obama’s push for a national overhaul. In Texas, however, elected officials have done little to address the growing crisis, local health leaders say.

    “The philosophy has been the less public expenditure, the better,” said Dr. Kenneth Shine, who heads the University of Texas health system. “And some people will just have to make do.”

    For those who can get it, medical care in Texas can compete with the best in the nation. The state is home to internationally renowned medical and research centers.

    Perry promotes the state as a model for a private-sector healthcare solution. Low taxes and limited government, he and his allies say, lure businesses that can offer private insurance and empower working people to make their own healthcare choices.

    “The governor’s primary goal is to create an environment that encourages job creation and provides an environment of independence rather than dependence,” said spokeswoman Catherine Frazier. “Texas does provide an adequate safety net to those truly in need … and many individuals simply choose not to purchase healthcare coverage.”

    Frazier pointed to several initiatives, including medical malpractice limits and a year-old program to subsidize insurance for small businesses. As of August, the program had insured 4,266 people.

    But across Texas, health coverage – and health – are eroding even in places where jobs are plentiful.

    In San Angelo, a growing city in the cotton and sorghum fields of West Texas not far from where Perry was raised, unemployment is just 7.2%, lower than it is statewide and nationally. But the waiting room at the federally subsidized Esperanza Clinic is filled every day with working people who have no insurance.

    Connie Villarreal, who works the night shift at a home for disabled adults, said she scraped enough together to get coverage for her diabetes. But she brought her uninsured 13-year-old daughter to the clinic for a state-mandated physical so she could play soccer this fall.

    Buying family coverage wasn’t an option, Villarreal said. “It’d be most of my paycheck, so we’ve been winging it.” Villarreal just went to court to force her daughter’s father to pick up the tab to get the teenager insurance.

    Three-quarters of Esperanza’s patients have jobs, said clinic Chief Executive Mike Campbell. But because many businesses don’t offer health benefits, demand at the clinic is skyrocketing. Esperanza saw 13,000 patients last year, up from 11,000 the year before. “We are at the breaking point,” Campbell said.

    At Shannon Medical Center, San Angelo’s largest hospital, 30% of patients coming to the ER lack coverage, close to twice the national rate.

    And at the San Jacinto Elementary School clinic, exam rooms fill up with the children of working parents who don’t have insurance or a regular doctor.

    While some of those seeking care are undocumented immigrants, just a sixth of the uninsured in Texas are in the state illegally, according to the nonprofit Center for Public Policy Priorities. “The reality is that is not the big number,” said Republican state Rep. John Zerwas.

    For years, healthcare leaders here have urged elected officials to act. A 2006 task force of doctors, academic leaders and business executives warned of a “problem of epidemic proportions” that threatened “the economic vitality and health of Texas.”

    Perry enacted a major overhaul of the medical malpractice system, which helped doctors stay in practice. “We now have much better access to care,” said Dr. William Hinchey, past president of the Texas Medical Assn.

    But Texas still has among the fewest physicians per capita in the country, according to census data.

    This year, the governor and state Legislature slashed funding to train That came atop $800 million in cuts to hospitals and other medical providers that serve poor children, pregnant women and others who rely on Medicaid.

    Even before that move, Texas had one of the slimmest Medicaid and Children’s Health Insurance Programs in the country, spending less per enrollee than 41 other states and the District of Columbia, according the nonprofit Kaiser Family Foundation.

    1. john sherman says:

      Ironically Mass. insures something like 98% of its children, but Romeny can’t take credit for that because it was accomplished through an Obama-like program, which as we all know doesn’t work in the Republican mental universe.

  5. Newt says:

    You have to be kidding.

    Of course social security is a ponzi scheme. The obligations of the system far exceed its income. Today’s payers will get NOTHING when it comes time to collect.

    This is fraud on a scale that makes Bernie Madoff look like a shoplifter.

    Perry is 100% right. Wake up and see reality, for once.

    1. Joe Loveland says:

      Newt, it feels like your logic model goes like this:

      1) If Social Security isn’t adjusted to accommodate changing demographics (i.e. ordinary management), it won’t be able to meet long-term financial obligations.

      2) You don’t want to manage/adjust/fix Social Security, because you view it as unwanted socialism.

      3) Therefore, Social Security won’t be fixed, and therefore is a Ponzi Scheme.

      But that logic model only works if your #2 wish becomes reality. And in a country where we love us some Social Security, I can’t believe your #2 position will win the day.

      There are lots of ways to adjust Social Security to accommodate changing demographics. Have all Americans pay payroll taxes on every dollar of earnings (or most), not just require that of the lower- and middle-class. Means test benefits so the ultra-wealthy stop getting benefits they don’t need. You make those adjustments and Social Security keeps its promise, just as it has for decades.

      In other words, Social Security only becomes a Ponzi Scheme, if you want to convert the current system into one. And you’re badly outnumbered in that camp.

      1. Newt says:

        Joe, your logic is beyond belief.

        So if Bernie Madoff’s investors would only pitch in a little more, they too deserve to expect a return on investment?

        The average Social Security recipient burns through their contributions in the FIRST SEVEN YEARS OF RETIREMENT. The system (other taxpayers) has no rational obligation to pay them after they have exhausted their contributions.

        This is a Ponzi scheme pure and simple.

        At least have the honesty to call your plan a wealth transfer mechanism from the young to the elderly.

  6. I find it completely amusing that liberals charge conservatives with not wanting to do anything to seriously address the looming long term problems of Social Security (and more alarming, Medicare). Just what meaningful reforms have liberals proposed again?

    1. Joe Loveland says:

      Re: “Just what meaningful reforms have liberals proposed again?”

      President Obama:

      “Social Security is not in crisis; it is a fundamentally sound system, but it does have a problem, long-term. We’ve got 78 million baby boomers, who are going to be retiring over the next couple of decades. That means more retirees, fewer workers to support those retirees. We are going to have to do something about it. The best idea is to lift the cap on the payroll tax, potentially exempting middle-class folks, but making sure that the wealthy are paying more of their fair share, a little bit more.”

    2. john sherman says:

      For those having trouble with the basic concept, Nick Baumann at Mother Jones has a Venn diagram,

      If anyone really wants to worry about a government pension program, he or she should look at the Pension Benefit Resolution Guaranty Corporation which has obligations of $102.5 billion and assets of $79.5 billion, but since it exists to help corporations weasel out of the pension obligations nobody seems to care about it.

      It is unhelpful to lump Social Security and Medicare together as though they were one problem or even similar.

      If we could get the demagogues and crackpots, i.e. Republicans, out of the room, it would be comparatively easy to fix Social Security. The CBO issued a report, Social Security Policy Options (July 2010) and right there from pages 33-38 is a list of 30 options and their implications. Some I like better than others, but people of good will could sit down and horse trade and ensure SS for the next 75 or so years.

      Medicare is part of a world wide problem of increasing health care costs; fortunately, since we pay so much–twice a much per capita as many other industrialized democracies–and get such mediocre results, there’s a lot of fat to be squeezed out of the system. For example, I saw report of the executive pay for health insurance executives, and in 2008, the top ten took nearly $85 million out of the system; given that the skills for which they were being rewarded–keeping sick people out of the system and canning previously healthy people when they got sick–are now obsolete, that money could be put to use actually providing health care. My doctor tells me that a study showed that in 2010 the average gp’s office spent $72,000 dealing with insurance companies.

      1. What a dense comment….get the crackpots out of the room, as if all 30 of those ideas were liberal ideas. Oh, wait, the CBO is bipartisan isn’t it. Obama won’t even listen to his own deficit commission. Why listen to the CBO, other than to cherry pick the liberal ideas or should I say idea…raise taxes. Raise taxes. Raise taxes.

        What fantasy world do you liberals live in where one party is all good, has all the good ideas and the other is just crazy? This like debating 8 year olds. I usually come here for honest debate but this is turning into elementary school bickering.

      2. Jim Leinfelder says:

        Oh, and here I’d gotten the impression, Mike that you were here solely to be continuously amused by…(fill in the pejorative) liberals. Would that you could ever return the favor.

      3. Well, Jim, you would reckon wrong. Some liberals here used to actually offer constructive ideas without labeling others “crazy” “nuts”…blah blah blah. But lately, this is few and far between. It has turned into ridiculing any idea liberals don’t agree with…regardless of whether they would solve a problem.

      4. john sherman says:

        It’s very hard to tell what’s a conservative idea these days because if Obama adopts it, it becomes anathema. Remember that “Obamacare” is substantially based on what Republicans offered in opposition to Clinton as the fact that it’s what Romney put up for Mass. indicates; McCain/Palin ran on cap and trade; deficit commission, paygo are all ideas Republicans proposed and then explicitly or in practice repudiated.

        The point is one can’t negotiate on Social Security with people whose only goal is to destroy it. Tip O’Neill and Ronald Reagan figured out how to prepare the trust fund for baby boomers. I can’t imagine Perry or Bachmann or Palin or Paul even participating in the conversation.

      5. Mike Kennedy says:

        Come back to earth. Obama has completely ignored his deficit commission. To say Republicans have turned their backs on policies they all advocated is absurd. First, since when does an entire party agree on all positions adopted by some of the party leaders? Neither party does this. Your blanket assertion that all Republicans want to destroy Social Security is rubbish. The crux of the issue is that conservatives favor cutting benefits and liberals favor raising taxes. There are pros and cons to each, and I would guess both will play a role in “reforming” Social Security and Medicare.

  7. This idea wouldn’t solve the crisis — at all, given the fact that there aren’t enough high income earners to make a difference. It’s fiction. Liberals need to wake up.

    1. john sherman says:

      “Your blanket assertion that all Republicans want to destroy Social Security is rubbish.” Assuming that privatize and destroy are two words for the same thing, let me tell you who does want to destroy Social Security. Remember Bush started his second term with tour designed to get the American people behind privatization, though it didn’t go very well. Currently, there are three candidates polling in double digits: Perry, Romney and Paul. Perry has just put the issue in the news; as PM pointed out Romney said about the same thing in his book (2010) and ran on it in 2007, and these two are moderates compared to Paul.

      I imagine there are some reasonable Republicans, but they’re not in the leadership. Mike Lofgren a long time Republican congressional aide on the budget committees just resigned on the grounds the current Republican Party is less a political party and more of an “apocalyptic cult”; see

    1. Joe Loveland says:

      Mike, above you charge “the liberals offer no ideas.” But it looks like what you really mean is that “the liberals offer no ideas that don’t please this conservative.” There’s a difference.

      The option Obama proposes can either be the entire fix or part of the fix, depending on what other reforms are acceptable to the public (this one has very strong support). Here is what the Economic Policy Institute testifed before Congress:

      Due to growing income inequality, the share of earnings above the cap has risen from 10 percent in 1982 to over 16 percent in 2006. This is because incomes have grown strongly at the top while middle incomes have stagnated.

      This trend is expected to continue, meaning that a growing share of earnings will remain outside the tax base.

      The cap also means that higher-income individuals pay a smaller share of their income in Social Security taxes than middle-class employees. Including the employee and employer shares of Social Security and Medicare taxes, earners in the middle fifth of the income distribution pay an average effective payroll tax of about 11 percent. In contrast, the top 1 percent of earners pay just 1.5 percent on average.

      Let me turn now to different options for making adjustments to the cap.

      According to the Social Security Administration, fully eliminating the cap on taxable earnings would be sufficient to fully close the projected shortfall. If newly-taxed earnings above the taxable maximum were credited toward benefits, eliminating the cap would close most, but not all, of the gap.

      Short of that, raising and indexing the cap to capture 90 percent of earnings, as it did when the system was last in long-term balance, would reduce the shortfall by slightly less than half, assuming benefit adjustments.

      A third option would be to split the difference: eliminate the cap on earnings for employer contributions, and raise the cap to cover 90 percent of earnings for employee contributions. With earnings up to the employee cap credited for benefit purposes, this change would reduce the long-term shortfall by about three-fourths.

      There are several advantages to this last approach. It would eliminate most of the long-term shortfall, while maintaining a link between contributions and benefits. It would not lead to extremely large benefits for millionaires, which could be a concern if all earnings were credited for benefit calculations. Finally, self-employed taxpayers, who are responsible for both the employer and employee contributions, would not face as large an increase in payroll taxes as a full elimination of the cap.

      Further, this option would have a modest impact on the standard of living of upper-income taxpayers. On the employee side, this would mean an increase in tax payments of, at most, 2.6 percent of income. If income growth for the top 5% of households continues as it has for the past twenty years, and assuming that all 6.2 percent of the employer tax were passed on to employees in the form of lower wages, this additional tax obligation would be recouped by these households in less than 4 years. Affected taxpayers would also recoup some of these higher taxes in the form of higher benefits.

      Some will argue that an increase in the cap will create inefficiencies and cost jobs. Indeed, all else equal, I too would prefer to live in a world without taxes, but all else is not equal. If revenue is not generated by lifting the cap, it must be raised from other sources, or benefits must be cut.

      While no one likes to raise taxes, raising the cap on taxable earnings would, in my opinion, be a better option than raising tax rates across the board; thus, any policy to increase overall revenue through the payroll tax should have a higher cap as part of the equation.

  8. He makes my point, though full of verbosity. Yes, doing all this would close the gap…undoubtedly, but this is in direct contradiction to Mr. Obama who said he would “exempt the middle class.” There is no way this can be done. Say he thinks middle class is anyone under $200,000 per year. You cannot take all the above ideas, apply them to those making $200,000 per year and above and come near closing the gap. I’ve read that not even half the gap would be closed. Does he think anyone over $106,000 per year is wealthy? Well, OK. I’ll go along, but try hitting all those people up (lawyers, college professors and other liberal voters) and see where that gets you politically. I’m not saying it’s not an idea worth considering. I’m saying it will never get done politically and his idea of applying only to the “rich” won’t get you there….that’s fact, not opinion.

    1. PM. says:


      you are conflating 2 separate things–Obama wanted to exempt the middle class from his proposals (tax increases and spending reductions) to close the deficit. Those were rejected by the congressional Republicans. A totally different agreement has been reached. They are now completely off the table (until the debt commission comes up with proposals) or there is more talk about what to do with the expiring Bush tax cuts.

      We are now talking about a different proposal, of potential ways to solve the Social Security deficits. Obama’s prior pledges on a different topic simply are not germane. As far as i know, Obama has not amde any proposals specific to Social Security.

      Frankly, Social Security is not really in trouble. It will not be difficult to fix. A combination of means testing, raising the retirement age, and taxing more of people’s income will easily solve the problem. Medicare is more worrisome (because of the nature of inflation in health care costs).

      But this really isn’t a debate about how hard or easy it will be to fix–bottom line is that it is a very popular program, even among Republicans, and particularly among older people–a core republican constituency. I just do not think that any Republican can get elected if they have made any comments that will allow their opponents to demagogue them on Social Security–and Perry has done exactly this. It is just not smart electoral politics.

    2. Joe Loveland says:

      To recap, this seems to be the progression of the discussion:

      You charged that liberals have offered “no meaningful proposals.” Quite an indictment, were it true, because Social Security is a major issue for liberals. It would be shameful of liberals to have no proposals to sustain their signature program.

      When confronted with the chief liberal’s proposal, you switch to it “can’t make a difference” in closing the gap. That’s a very different argument than “have no proposals” but that’s a worthy discussion too.

      When confronted with numbers showing that lifting the payroll tax cap can close the gap, you switch directions again and say it will “never get done politically.”

      I’m getting dizzy by now, but I’m still with you.

      To your “it will never get done politically” point, the link in my post notes that 61% support raising the cap. In fact, raising the payroll tax cap is, as far as I know, the only major reform with substantial public support. On the other hand, two-thirds oppose raising the retirement age.

      I don’t know where Obama wants to draw the cap line, income-wise, so I don’t know if his version of lifting the payroll tax cap solves all of the problem standing alone, or whether it is only part of the solution, requiring other reforms as well. My personal position is that everyone over the cap level needs to pay more. It’s unfair class warfare to put the burden disproportionately on people earning below the cap level.

      Everyone in America seems to want to label themselves as “middle class.” But household income of $200,000 is not in the middle. It’s something like the 95th percentile on the income distribution tables. Household income of $106,000 is something like the 85th percentile on income distribution tables. In terms of self-identification, I agree that $200,000 is the “middle class.” Folks think that if they don’t live like gazillionaires, they are middle class. But in terms of statistics, this is the upper end we’re talking about taxing.

      1. Joe, you seem to have it backward. It’s liberals on this thread that accused conservatives of not having any serious proposals to fix Social Security and that all they want to do is do away with it.

        My charge was not that liberals didn’t have any…….I asked what “meaningful” reforms they offered, and later elaborated there is only one….raise taxes. The argument started from there — first on the chance that the way Obama positioned it, it would ever close the gap. The answer is no. Second, the chance it would ever get done politically. The answer, again is no. It’s a non starter. Doesn’t matter what polls show. If it did, health care reform would be ditched.

        What matters is what the politicans are likely to do, they being politicians and not wanting to rock anyone’s boat. My point, I have attempted to make several times, it there is unlikey to be one fix that A. Will provide all the necessary funding and B. that will be politically acceptable.

      2. Joe Loveland says:

        Re: Mike’s “My charge was not that liberals didn’t have any (serious proposlas to fix Social Security”)

        Above Mike queried: “Just what meaningful reforms have liberals proposed again?”

        I took from that that you felt liberals had made no meaningful reform proposals.

        Not that important. Onward.

  9. Mike Kennedy says:

    PM….I wasn’t conflating any issues. Read the quote Joe posted regarding Social Security from Mr Obama. That’s what I was addressing. You are correct that Medicare is in bigger trouble, though I disagree that SS underfunding is minor in comparison. I also think you vastly underestimate the lack of political will to do anything about it. Yes a combination of benefit cuts (means testing et.) and raising the earnings cap etc. could solve the problem. Right now, both sides are so entrenched with their bases that reform any time soon is unlikely. I also agree with you on Perry.

    1. Jim Leinfelder says:

      I’m not aware of anyone ever “fixing” a Ponzi scheme. What’s his plan, to garnish all the S.S. checks ever written to beneficiaries or their children and grandchildren and redistribute the money to those who were paying into the system at the time?

      That’s, more or less, what’s being attempted in an effort to “fix” Madoff’s Ponzi scheme. They’re not leaving the accounts open to future investors.

      But, of course, what Perry’s doing by sticking with his hyperbolic language even as he’s embracing mainstream thinking on Social Security is merely standard, right-wing moral framing, turning an accounting issue into a florid-faced moral outrage with no practical solution. “Government take-over of health care.” “Death Panels,” etc. The Right’s good at it. The Left’s not.

      Congratulations to him on articulating a minimal grasp of a long and well-understood issue that is the long-term solvency of SS, the solution to which is hamstrung by just such rank, self-serving demagoguery.

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