In the all the coverage of alleged con-man Bernie Madoff's $50 billion Ponzi scheme, I keep hearing that this could be the biggest swindle of its kind in history. That's just plain wrong.
The largest Ponzi scheme in history is run by the U.S. government and it's called Social Security. Now I'm not one of those people who wants to privatize social security or thinks it's definitely going to go bust.
But I can't deny the similarities between how social security operates and what Bernie Madoff was allegedly doing with his investors, or should we call them marks?
With the Social Security system workers pay 12.4% of their salaries into the system to cover payments to retirees, who themselves paid into the system when they were working. Except the original recipients of social security in the depression never had to pay
payroll taxes because the system didn't exist when they were working.
Now look at the definition of a Ponzi scheme courtesy of wikipedia: "A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business."
Hmm, returns to investors come from the money paid in by subsequent investors. That does sound a lot like social security. It's true there's no promise of abnormally high returns, and social security isn't an investment scheme at all, it's a form of social insurance, but the similarities are pretty jarring.
But the big question is whether social security is essentially fraudulent for younger workers paying into the system right now. Will the demographics of America 40 years from now allow people my age to collect the same kind of benefits that retirees are collecting today? If not, then reforming social security so it's not a big giveaway from the young to the old should be the second biggest political priority of anyone under the age of 30, right after dealing with this recession.
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We feel bad for the people who came late in investing with Bernie Madoff and got burned when his Ponzi scheme fell apart. Now, I don't begrudge anyone their social security benefits, but I also don't want my generation to be feeling sorry for itself when our time to collect comes around and the money isn't there.
I think most of the worries about the insolvency of social security are overblown, but if we have to reduce benefits or raise the age at which workers can collect at some point in the future, then that hurts my generation. So if you're young and you think what Bernie Madoff did was wrong, you might want to mobilize and prevent the U.S. government from doing the exact same thing to you. I don't think this is a left-wing vs. right-wing issue. This is about the young vs. the old; the potential victims and the current beneficiaries.
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