Social Security is not a Ponzi scheme (TNT, 12-19): It is a benefit for the political class.
When Social Security was enacted in 1935, the average life expectancy was around 62. That meant half of the participating workers would never see a dime of their Social Security retirement payments.
Franklin Roosevelt knew this, of course, but setting up such a system didn’t do him any harm because Social Security, like a state lottery, allowed the average guy to fantasize that the program was something of value. That got FDR re-elected three times.
Social Security alone is not a retirement program because it provides very little in what is needed to survive. It is not an investment because its returns are terrible, and there is no ownership stake for the individual. Nobody “owns” any shares of Social Security.
So, what is Social Security? It is a fund that politicians raid to bankroll projects in their home states and districts in order to win re-election. They direct the Treasury to replace the current surplus funds in the Social Security “trust” fund with short-term government bills and notes. When those notes mature, they’re simply replaced with more IOUs.
The problem we’re facing is that life expectancy has increased to the point where our assumptions about the trust fund’s survival are wrong. Social Security is destined to fail in the long term unless we make the hard choices to save it.
The surplus is vanishing, and government will have to redeem those IOUs sooner rather than later.