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.