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.