Lil White Lies: Parsing Ponzi 2.0

Well here we go again with the social security system as a Ponzi, this time with Texas Governor Rick Perry of the “secessionist crowd”, just after PolitiFact scored him on his most recent book's tales of the indescribable horrors of the government holding a gun to your head and forcing you to buy a more efficient light bulb.

Social Security has a single similarity in common to Ponzi schemes: that is the “pay-go” or “zero balance” (ZBA) feature. As noted in the PolitiFact piece, many other journalists and pundits point to that single “Ponzi” identifier (emphasis added);

In a December 1995 op-ed article for The Washington Post, James K. Glassman (of late, executive director of the George W. Bush Institute at Southern Methodist University) wrote: "Workers think that they are investing for their own accounts, but actually their payroll taxes go straight to current retirees. … In a 1996 article posted on the Slate website, liberal commentator Michael Kinsley agreed that Social Security "is a Ponzi scheme. Payments from later customers finance payouts to earlier customers. The ratio of retirees taking money out to workers putting money in is rising, due to 1) people having fewer children, and 2) people living longer."

The pay-go feature was part of Social Security’s initial setup back in 1935. Other than that, nothing is the same. Consider these three most common “red flags” that a potential investment is a Ponzi scheme other than the fraud component:

Promised or "guaranteed" returns are inordinately high compared to conventional investments from traditional brokerage firms. For example, if bank CD rates are 2%, an investment promising 10% should raise suspicion.

There is a complete lack of transparency as to the existence of assets and accounting for gains and losses. Investors usually receive a "statement" that shows money in, money out and gains (never losses), but shows no accounting for the underlying assets.

"Hedge funds", "offshore investments", and "high yield" are terms that have been employed as labels for Ponzi schemes for decades and should cause you to investigate more carefully.

Ask yourself: does Social Security promise inordinately high returns at the outset? Is there a complete lack of transparency in its accounting? Is it labeled a “hedge fund” or “high yield” investment—is it just called an investment—even Bryan White has called it “[a form of] insurance” in past Facebook comments.

Economic imperialism theorizes Ponzi (the crime) as a system, with the criminal element of it a secondary consideration. Bryan White takes this economic theory and gives it precedence over the crime as his argument. It could be said, in his fallacy world, that he is making a “straw man” of this economic theory of Ponzi and ignoring its criminal foundation (he might call it “the underlying argument”), hanging on to the words he often quotes in a heavily formulaic economic study of Ponzi schemes he happened upon.  It can also be said that the two (criminal enterprise and economic theory) are being conflated (not conflicted as he would have you believe), as I noted in my previous analysis.

PolitiFact’s ruling on Rick Perry’s statement comes to the same conclusions (Social Security has a “superficial similarity” to Ponzi). PolitiFacts Wisconsin and Rhode Island point to the same “red flags” mentioned above in similar rulings, the element of deceit present throughout the Ponzi scheme and the lack of transparency. My previous post on Ponzi also covers other areas of non-similarity in more detail.

Unfortunately, as long as there’s the pay-go element of Social Security, I suppose there will always be a comparison to Ponzi.  

Note:  This post does not include the normal critique table because in this case it is a waste of time.