Fisking Yglesias: Social Security Not a Ponzi Scheme, No Different than 401k – UPDATED

Over at Think Progress, a George Soros outfit, Matthew Yglesias is actually comparing the Social Security System to your 401k, claiming there’s really not that much difference:

What happens here is that you work while you’re working age. You earn money. You take some of that money to buy shares in firms. Your expectation is that at a future date when you’re not working anymore, you’ll be able to exchange those shares for money. More money than you paid for them in the first place. Why would that work? Well, it could work because you were just stupendously lucky. But the reason we anticipate that it will work systematically is that we anticipate that there will be economic growth. In the future, people will in general have more money, so assets will be more valuable. Save today, sell tomorrow.

Social Security is not a prefunded pension plan or a savings scheme. But it’s actuarial situation is just the same as a stock market investment in this regard.

In a word: no.

To expand on that word, let me as this: who has ever been forced by the federal government to participate in a company’s 401k plan?

No one. 401k is a voluntary program. Furthermore, the payout from my 401k is a result of how much of MY money I volunteer to invest and the decisions I make regarding where to invest it. It isn’t dependent on how many people are paying into a 401k fund in the future.

To try to compare a personal 401k to a collective Social Security fund is completely idiotic.

But he wasn’t finished there:

A Ponzi scheme is a fraud where in the end the whole pyramid goes bust a bunch of people wind up with no money at all.

That’s right. In Yglesias’s mind, you can only define a Ponzi Scheme by the way it ends, in this case with a bunch of people winding up with no Social Security checks. With that being the standard, how does this report highlighted on ThinkProgress factor into that definition:

The Bipartisan Policy Center studied Treasury Department receipts and expenditures for August 2009 and 2010 and determined that the government likely would not have enough revenue to pay the full $23 billion payment to Social Security recipients due on Aug. 3.

On that day, according to the analysis, the government would take in about $12 billion in taxes and other revenue but would owe $32 billion, creating a $20 billion shortfall. It happens to be the first Wednesday of the month – the day a majority of Social Security recipients get their checks.

Isn’t that a scenario where “a bunch of people wind up with no money at all?”

Yglesias qualifies the “no money at all” definition with “The absolute only reason Social Security could ever go bust like that would be if elected officials decided they wanted to stop paying benefits.”

So, if Bernie Madoff wanted to keep paying his “investors,” and was able borrow the money to maintain those payments, or force new investors to pay more, then it wouldn’t be a Ponzi Scheme?


No, Social Security is as close to a government run Ponzi Scheme as it can get. As I have written before, compared to the Federal Government, Madoff is a piker.

Boortz created a graph to back up my assertion. Well, that might not have been his motivation, but it backs me up 100 percent:

Takes money from investors with the promise that the money will be invested and made available to them later Takes money from wage earners with the promise that the money will be invested in a “Trust Fund” and made available later.
Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts. Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying.
When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors. When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the geezers.
When Madoff’s scheme is discovered all hell breaks loose. New investors won’t give him any more cash. When Social Security runs out of money they simply force the taxpayers to send them some more.
Bernie Madoff is in jail. Politicians remain in Washington.

There is one BIG difference between a Ponzi Scheme and Socials Security, and I noted it here:

Ponzi didn’t force anyone to invest with him.

Nor does any 401k plan.

It’s really quite stunning that someone with the supposed intelligence of Matthew Yglesias would make such a ridiculous comparison. It’s not as stunning that the glassy-eyed liberal myrmidons in the ThinkProgress comments section nod in virtual agreement to such an asinine premise.


Michael Chamberlain over at Cranky Hermit sent me a message about this post that I wanted to share with you, because it’s chocked full of awesome:

One other thing: the money in Social Security does not belong to you. No less than the US Supreme Court has said as much. Your payments are at the whim of Congress.

What that also means is that the money you paid into SS does not proceed directly to your heirs. When you die, the assets in your 401k go to your wife, kids, whomever you designate. Not so with your SS. In many cases the money simply disappears as far as your heirs are concerned. The most your family members can hope for is a reduced amount of the payments you had been receiving or would have received had you lived.

One of my old bosses retired and turned his business over to his son on his 65th birthday.. He’d paid into Social Security his entire life, including paying the max for the last couple decades. He died less than a month after his 65th birthday and didn’t live long enough to collect a single dime from Social Security. Nor were any of his family members eligible to receive survivors benefits. Of all the money he paid in they collected a grand total of zero.

What really gets me is that almost without exception is that the argument of those who claim SS is not a Ponzi scheme boils down to: Social Security good, Ponzi scheme bad, therefore, they are completely different.

Cross posted at All American Blogger.

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