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Tuesday, May 22, 2018

Will all my readers out there who think Rick Perry’s ruggedly handsome mug should be carved onto Mount Rushmore please stop sending me emails about Social Security as a Ponzi scheme? The astute governor from Texas, apparently one of the country’s leading experts on Social Security, has been running around comparing the federal retirement program to such a doomed investment plan.

I’ve addressed this issue many times before in this column. I don’t want to bore my regular readers with another long dissertation on this topic. But since Gov. Rushmore broached the subject, I’ll make three quick observations.

First: Social Security is not an investment scheme. It’s a social insurance program. (The word “social” in “Social Security” means something!)

In addition to providing workers with a basic and stable income in retirement, Social Security was established to achieve larger goals for our country as a whole. One of those goals was to raise the standard of living of lower-income workers in retirement. This is accomplished with a weighted benefit formula that gives those retirees 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.

Second: Many emailers wrote to tell me how Social Security started out with thousands of taxpayers for each Social Security beneficiary, how we now suddenly find ourselves at a three-to-one ratio, and how the entire scam will implode when we reach two to one. That’s a classic Ponzi-scheme scenario, they say.

Well, obviously, in the earliest days of the program (the early 1940s), workers far outnumbered Social Security beneficiaries — but the ratio was more like 40 to one, not “thousands” to one. But as more and more people quickly qualified for benefits, the taxpayer-to-beneficiary ratio rapidly dropped, and by about 1970, it had matured to the three-to-one ratio that has held strong for 40 years now.

As the baby boomers retire, we are indeed heading toward a two-to-one 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.

Finally, third: Ponzi schemes, by their very definition, have short life spans. Social Security has been around for 75 years now.