| |
| META TOPICPARENT | name="FirstPaper" |
|---|
| |
<
< | Social Security is a Ponzi Scheme? | | | Toby: More college kids think they'll see UFOs than Social Security checks.
Bartlet: But they don't tell you how many believe in UFOs; that's the number we ought to be worried about. | |
<
< | -- By AndrewMcCormick - 27 Feb 2009
The Idea
The idea is this: Social Security can be distinguished from Ponzi schemes, and the (often accompanying) argument for radical privatization can be characterized as a con or damaging social exercise.
Where we left off:
It was suggested in class that Social Security is a Ponzi Scheme. The comment was probably only an observation that current inputs are financing current outputs. But, claims that Social Security is a con are not new; Googling “ponzi social security” returns 359,000 results.
The distinction offered in class was pragmatic. Roughly, it was “Social Security is successful; it brought a huge portion of the elderly out of poverty, and is a moral imperative. Deal or scheme, it looks like a good one, but it is a challenge to explain why. In the spirit of Holmes, looking at its practical effects is probably a good place to start.” | | | | |
<
< | Social Security is distinguishable from Ponzi Schemes (but it will not keep Ron Paul from saying otherwise) | >
> | Sales and Cons: How Public Policy May Differ. | | | | |
<
< | Social security is argued to be a Ponzi Scheme because it uses current inputs to fund current outputs. Technically, I think, this is an illicit treatment of the major term of a syllogistic rationale (“All cats have four legs. Hey, look at that dog. It has four legs, it must be a cat!”). Even if all Ponzi Schemes use present investors to pay benefits, and social security uses present investors to pay out benefits, it does not necessarily follow that social security is a Ponzi scheme. | >
> | -- By AndrewMcCormick? | | | | |
<
< | Ponzi schemes promise gigantic returns, Social Security does not. It may be countered that the first “investors”, people very near the retirement age when social security was created, received huge benefits relative to their contributions, as would someone who is terribly injured early in their career. But this is irrelevant: Ponzi schemes’ large payouts are lures. | >
> | The Idea | | | | |
<
< | Ponzi schemes pay off early investors to either corroborate false explanations of a money earning monopoly (e.g. a non-existent currency trading scheme), or, recently, to lend credibility to a dark-grey financial operation. Here, an investor pays out huge dividends without explaining the source, allowing present investors, and potential investors, to assume some strong market advantage exists, creating the play of the pseudo-secret and exclusive money mill, which actors want part of. | >
> | The idea is this: the sale of public policy is unique. It bears some resemblance to the cons and sales of Leff, but is fundamentally different. Significantly, the mechanics of selling policy are different from the mechanics of selling political candidates, and the assumption that public policy moves forward on the principles of electioneering is false: simply put, public policy can be driven in through the back door in a way sales, cons, and candidates cannot – specifically, diversion. | | | | |
<
< | However, Ponzi Schemes and chain letters both fundamentally differ from Social Security. Chain letters are mathematically flawed and fail by design; Ponzi schemes, if revealed, have no justifiable purpose. Social Security, on the other hand, is not mathematically untenable, even if the group paying-in is shrinking, and the groups being paid out to is growing, it is not an exponential function. Also, the money in Social Security not being used to pay out, is invested in a trust fund, rather than funneled to the operator. | >
> | Private pensions, a fundamental element of retirement security, are disappearing. Public preoccupation with Social Security, and not private pensions, is a diversion, and a normatively bad one. By creating a fiasco around the financing of Social Security, fixed-income plans have been driven out the back door without the public noticing. | | | | |
<
< | The Social Security trust fund is at the center of many arguments that Social Security is a bad deal. The trust fund lends money to the government, in exchange for, essentially, IOUs. The rabble-rousing argument is essentially “hey, this is what Madoff did!” Except for the IOUs. And the creditor is the United States. | >
> | It may work for David Blaine, but it’s bad policymaking: | | | | |
>
> | Con or sale, it is difficult to sell people a toaster oven by convincing buyers they should be upset by not owning an encyclopedia set. Similarly, it is difficult to convince people to vote for a candidate by distracting them from that candidate. Some of the decisions we make require individual action, at least minimally. Public policy, compared to toasters and senators, can be pressed on people by directing their attention elsewhere. Diversion, it seems, it more commonly a tool of magicians and thieves than Leff’s seller/conman. | | | | |
<
< | Privatization: arguments and role playing. | >
> | The Mythology of Social Security in Crisis – The Diversion | | | | |
<
< | The arguments for privatization gained momentum after the 2005 State of the Union. Because of the present economy, it is easy to argue privatization would have been disastrous. It might be useful to investigate whether the arguments for privatization manipulate social roles, as used in sales and cons. | >
> | It was suggested in class that Social Security is a Ponzi scheme. The comment was probably an observation that current inputs are financing current outputs, and, significantly, an echo of a common, sensationalist political message. As discussed below, these claims are without basis. But, claims that Social Security is a con are not unusual; Googling “Ponzi social security” returns 359,000 results. | | | | |
<
< | Conservatives drive the conversation by insisting social security is an investment program. They are arguing away from Social Security being a monopololistic redistributive system, well suited to serve present needs. They instead describe it as a bank account, held in the state’s perilous hands. Inviting marks to protect their investment, advocates invoke the rationalizing power of free-market economics. This also gives them an explanation their lack of success (“if this is such a good deal, why has it not been done?”), invoking a social myth, and well-rehearsed playlet. Leff’s “This would be good for everyone, but you stand to gain because you believe in me”, becomes “but you are smart enough to understand that the free market is better than government”, or alternatively “only the lazy suffer from the market, and you’re not one of those people”, triggering a shift in the mark to the economically rationalizing homo economicus. In this role, a person will believe that because Social Security is not driven by market economics, it cannot be a deal. | >
> | The disappearance of private pensions has gained no such notice; a Google search of “disappearance of private pensions” returns 24,000 results, 93% fewer than “Ponzi social security.” Of the first ten results, only three are stories about the United States. One of those -- a hit in the New York Times archives -- is from 1883. Eighteen eighty-three. Adjusting the search terms (e.g. “retirement plans”) can improve the results, but not significantly. Fixation on Social Security may indicate a collective shove to the shoulder, distracting us from our (future) pockets being emptied of the pensions we are not paying attention to. | | | | |
<
< | Simultaneously, the seller offers dramatized risks in the status quo. They argue that a large investment has already been made by working marks, and that they risk losing it if Social Security goes under. “You’re no dummy; you know a Ponzi Scheme when you see one, and know the only way to win is to get out. C’mon, lets go and buy some stock in banks, like real investors do.” | >
> | Private pensions support the working-class elderly; social security provides only a subsistence level income – private pensions are a way to improve the situation of the elderly through fixed income. However, today, fewer than one in five people has a private pension, and that number is diminishing. Companies are quickly moving to 401(k) programs, and fixed-income pensions have virtually disappeared in the private sector, and are disappearing in public employment. Normatively, the disappearance of private pensions should be a concern of voters. By comparison, the solvency of Social Security, politically and financially, is relatively safe. | | | | |
<
< | Advocates capture the benefit of peoples’ strong desire for self-improvement. People play the roles they are given, even if false: here, playing a rational investor that knows better than the government, and is sure to ‘win’ in the investment game. People like to believe they are good at shopping, and the choices presented in privatization appeal to our “strong heuristics for self-improvement”, ignoring the reality of investment-- that there will be losers, and the cost of losing is tremendous. | >
> | The distinction between Ponzi schemes and Social Security offered in class was a pragmatic explanation, and emphasizes the strong position of Social Security. Roughly, it was “Social Security is successful; it brought a huge portion of the elderly out of poverty, and is a moral imperative. Deal or scheme, it looks like a good one.” Assuming the current downturn does not send us back into the Bronze Age, America will always find it advantageous to provide a safety net to keep the elderly from destitution. | | | | |
>
> | Minor tinkering with tax policy, Re-institution of the estate tax, taxing only inheritances above $7m (far more conservative than proposed democratic initiatives), and directing the revenue to Social Security would provide 75-year solvency. Minor adjustment of the payroll tax could also be effective. Why is it then that such effort is spent talking about Social Security going bankrupt? Google itself is eager to panic; after typing ‘social security ban’, Google suggested I search ‘social security bankrupt’ (1.2m hits), ‘social security bankruptcy’ (4.2m hits), and, startlingly, ‘social security bankrupt 2008’, with 1.29 million hits. This is the result of an intentional campaign designed to be divisive, provocative, and distracting. | | | | |
<
< | What can we do with it?
The positive effects of Social Security are significant. But, Social Security requires periodic adjustment. In making changes, looking at what Social Security does, and the effects of changes is preferable to the rhetoric of buying, selling, and scheming. Rationality is preferable to rationalizations, and pushing the discussion toward rationality and justice is a job that may be done by lawyers. | >
> | Can the Behavior of Buying Explain this Paradox? | | | | |
<
< |
- I'm surprised you feel that the subject deserved this much treatment. It seems to me the whole thing can be put this way:
| >
> | People are consumers of information, and our information consumption mimics, to a degree, our material consumption. If we accept that people “buy” these ideas (perhaps in the way we talk about “buying into” arguments,) the deal/con can be analyzed. However, as suggested in the introduction, something strange is happening here: people “buy” something (a Social Security crisis) so they can be sold/conned into giving up something else (pensions). This diversion strikes me as an element of deception rather than sale. | | | | |
<
< |
-
- In the United States, we have an incomes maintenance policy designed to prevent poverty among the elderly, the permanently disabled, and the children of workers who have died. All three components take the form of social insurance systems, to which employers, workers and society as a whole contribute. For historical reasons, some portion of this policy takes the form of a notionally individual savings plan, in that workers can see the contributions they have made in relation to their eventual retirement benefits. This connection is often exaggerated by those who want to privatize the management of all that money.
| >
> | The artistry of theft might be more useful than the artistry of cons/sales in describing this public focus. When a man in Times Square acts shifty, and sells a ‘stolen’ Rolex, that of course turns out to be a fake, a con has taken place. When young boys in a foreign country toss their infant brother into your arms, and proceed to empty your pockets, it is not a con -- it is a theft. | | | | |
<
< |
- If you've gone no further here, which—a few decorations aside I think is the case—you've established what happened in both 1935 and 2005. But making terminological efforts to define "Ponzi scheme" so as to prevent an essentially metaphorical use seems peculiar to me: you can't prevent other people from using words in a loose sense by careful definition.
| | | \ No newline at end of file | |
>
> | Google suggests the Social-Security-Ponzi-scheme concerns are widespread, although without serious basis. Their popularity strongly suggests they command many peoples’ concern. When government fights about Social Security, I am reminded of a common scene in any number of detective movies; when two protagonist partners are captured by the bad-guys, they begin to feign loudly fighting each other; they will then usually steal their guard’s keys. If lawyers are the figurative guards, as Mr. Hu suggests, and responsible for ensuring justice in the law, and the captives are the lawmakers, we would do poorly to spend too much time worrying about Congress’s theatrics, because we hold the keys to the welfare of grandparents. |
|