In his presidential bid, Texas Gov. Rick Perry has called Social Security a Ponzi scheme, even though he surely knows better. His campaign is now spending a lot of time defending the line. It was a prime topic in the GOP debate early this week.
Why would Perry tell such a monstrous lie about a program that he has called a monstrous lie? Make no mistake: It’s a calculated move. Perry wants the attention, yes. But he’s also trying to ignite a real discussion about issues that most politicians won’t touch. Sometimes that takes hyperbole.
The Ponzi reference is brilliant. There is just enough truth to the assertion for Perry to stand behind it without pause. Strictly speaking, of course, Social Security is not a Ponzi scheme, where early investors are promised high returns and get paid with money collected from later investors. A Ponzi scheme requires an ever-expanding pool of contributors and will always go bust in the long run.
Social Security is a pay-as-you-go program, where current workers are taxed to fund the benefits of current retirees. It need not go bust. But to remain viable the ratio of workers to retirees must remain fairly constant over time; or taxes or benefits must be adjusted accordingly; or the country must borrow to smooth over the potholes.
For decades, Social Security took in more than it paid out. So it was that the first Social Security recipient, Ida May Fuller, was able to collect $22,888.92 in lifetime benefits after paying a mere $24.75 into the system during her working years. When the program started paying in 1940, there were 42 workers per retiree and surpluses as far as the eye could see. Today there are 3.3 workers per retiree. That is on its way to being just two by 2050, and last year for the first time Social Security started paying out more in benefits than it collected in taxes.
So we’re at a flashpoint. There is no reversing this course. It’s time to get serious. How do you create a sense of urgency over an issue that’s been simmering for years? Perry’s solution: Elicit the specter of Bernie Madoff and call it a Ponzi scheme.
After all, the Social Security system is taking money from one group (current workers) to pay off another group (current retirees) in a way that is unsustainable. This isn’t the way the Boston crook Charles Ponzi drew it up. But in the common vernacular, where any rob-Peter-to-pay-Paul system might invite a Ponzi reference, Social Security qualifies.
It’s this more expansive usage that Gov. Perry is playing on and which gives him ample cover. The truth is fixing Social Security isn’t that tough: delay eligibility, change the taxable portion, tweak the formula for annual increases. Any of these would reduce benefits. But you’d still have a viable program.
That’s why I suspect the real political message Perry is sending has more to do with our unwillingness to speak plainly about our retirement funding issues. Perry’s stand on Social Security is a gambit to call attention to our inability to make hard money decisions. And maybe, just maybe, Perry’s half-lie will begin to focus our attention on the vastly more problematic entitlement issue, Medicare, where costs are rising 5.4% a year and a typical mid-50s couple will collect three times more than they pay into the system.
We’ll see if it works. At minimum, though, he’s raised awareness, which is good. One day Social Security benefits may look more like a meal plan than a retirement plan. That’s material information for anyone planning to retire. No lie.