Wednesday, November 23, 2011

Amy Ridenour's Social Security "Ponzi scheme" Foolishness

The last time I had a run-in with pundit and gasbag Amy Ridenour was nearly 10 years ago in a letter exchange, after which she'd tried to argue for "natural climate change", i.e. based on the Sun. When I dutifully informed her that there was no evidence for solar irradiance levels being as high as she appeared to claim, she became sarcastic and questioned my sources. Since these were all from bona fide climate science journals, I realized that any further discourse would be futile. She was attached to an ideology and her think tank (the conservative 'National Center for Public Policy') would never let her think or write independently.

Now, one of her more recent columns has embedded itself in the long standing canard that Social Security is "unsustainable". This is understandable given that all domestic social programs are under attack by austerity mongers, their lackeys and propaganda puppets. What I will do here, is show how and why Ridenour is wrong on several of her counts, because these will also be applicable to all the other pundits that parrot them.

First, she writes:

"The Securities and Exchange Commission says Ponzi schemes involve 'the payment of purported returns to existing investors from funds contributed by new investors'. Check! Social Security pays benefits from funds contributed by younger workers."

Implying that Social Security makes this crtierion for a Ponzi scheme. But as an Economist editorial counseled barely three weeks ago, this is a false standard to apply to Social Security because first, everyone already knows how it is paid for while actual Ponzi schemes keep hidden the mechanism for current payments, and second, Social Security is not and never has been an investment scheme - it is rather a savings program. Moreover, the way it funds itself is exactly the same as all other social insurance programs around the world! Hence- uncheck!

She goes on:

"The SEC says Ponzi schemes 'require a consistent flow of money from new investors'. Check! Benefits enjoyed by beneficiaries are dependent upon contemporaneous payroll tax revenue, not returns on an investment".

But again, as I noted in the early rejoinder, Social Security was never set up as an investment program but a social insurance program! Hence, this criticism is moot. FDR in fact knew that the only way Social Security could be practically implemented was to use the same system as Germany, Denmark and other social democracies: by withdrawing a certain amount from every paycheck year to year. In this way, the program would automatically fund itself, and never be vulnerable or subject to appropriations deliberations in congress. Imagine what it would be like if every year Social Security checks and benefits were subject to congressional approval - say like the current fiasco surronding yearly approval of AMT or alternative minimum tax adjustments, or Medicare payments to physicians.

This is also exactly why extending the payroll tax cut is a terrible idea, no matter how much politicians (including Obama) pander to it. In effect, it de facto destroys the premise for Social Security' stability while also handing radical austerity hawks more ammo to use to argue that its financing is unsustainable. If this cut is extended, $170 billion will be lost in Social Security funding next year! How will this self-inflicted deficit be made up? More IOUs to make the Reich wing screech monkeys howl for its abolition, or conversion to a privatized plan?

Above all, Democrats ought to be against anything that dilutes or compromises the one thing protecting Social Security from attack or disruption!

Ridenour again:

"The SEC says 'In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier stage investors'. Check! Supporters of the current structure, such as President Obama, seek new Social Security taxes on workers earning over $106, 800."

But the lady here is guilty of false analogy, because in fact, increasing the payroll tax threshold is simply rectifying an existing unfairness and defect in the system! The reason? All workers, no matter their earnings, are entitled to collect Social Security. Nor is there any "means testing" as of now.

So, in effect, the current workers earning over $106,800 are able to collect Social Security without having to pay their fair share into it, like those earning less! And once more, Ridenour's investor analogy doesn't apply because Social Security isn't an investment program!

In fact, Ridenour in her next paragraph illustrates herself exactly WHY Social Security isn't a Ponzi scheme (apart from the fact the SEC isn't investigating it for such as all her SEC-invoked "checks" would imply!). She writes:

"To be sure...there are differences...Social Security is mandatory while Ponzi schemes are not. And when a Ponzi scheme is about to collapse, it can't raise your taxes!"

Bingo, missy! Because Social Security is a SOCIAL INSURANCE scheme predicated on pay-in taxes, extracted from paychecks. THIS is the beauty of it, compared to an investment scheme - liek Bernie Madoff's - where indeed one can lose everything!

Ridenour is correct when she writes that the Social Security And Medicare Board of Trustees has warned that projected long run program costs aren't sustainable under currently scheduled financiing"

But this isn't a result of the system's internal pay defects, but rather:

a) Congress raiding it from year to year, already having taken more than $3.3 trillion out since 2000 (and often using it to fecklessly diguise the size of the deficit)

b) People who are unable to collect further unemployment benefits, and unable to find jobs, applying and getting Social Security Disability. Right now, according to the WSJ (Nov. 20) there exists a backlog of 721,000 cases to approved and already more than 22 million are drawing down on the Social Security funds. This is also why payroll tax cuts are insane at this time, and also any other gimmicks that threaten Social Security funding.

As for Ridenour's warning that Social Security won't be able to cover the 76 million Baby Boomers, hardly - not as long as the proper adjsutments are made now, including raising the payroll tax level to at least cover incomes over $250,000, and no more payroll tax cut foolishness - a bad idea if ever there was one.

Maybe Amy would do better to stick with her faux climate change issues!

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