Mandatory Ponzi Schemes
9:00 am EST September 17, 2011
By Keith Rodebush, Contributor to US Daily Review
When Ida May Fuller received the first Social Security check for $22.54 in 1940 she had paid into the system in the amount of $24.75. By the time of her death in 1975 at the age of 100 years she had received payments totaling $22,882 and change. Is Social Security a Ponzi scheme? Of course it is, money from current investors was used to pay Ida May's bill far beyond her investment. But there is a distinction. Social Security is a mandatory Ponzi scheme.
This is no small difference as the downfall of all Ponzi schemes is when financial downturns make it impossible to keep up payments to past investors and the house of cards falls. With government, they just raise taxes or print money and the scheme rolls on in perpetuity; an effectual anchor on the economy.
Is Social Security constitutional? Article I, section 8 of the U.S. Constitution allows Congress to "...lay and collect taxes, duties, imposts and excises, to pay the Debts and provide for the common Defence and general Welfare
of the United States." Therefore, in theory the imposition of taxes to ensure that elderly citizens are not destitute is not beyond the reach of Congress. Whether the actual legislation imposed the tax uniformly, which is required by the same section, or whether it was coercive, RE: unemployment insurance by States, was decided by the SCOTUS in 1937. I fail to see how any court could ever decide otherwise after 76 years of implementation. Social Security is Constitutional. Whether it is intelligent is debatable. Notice also, that it is a general tax; nothing less, with no earmarks for use. There has never been a Social Security 'fund' for investing in your retirement. Taxes are entered into the Treasury and future demands are withdrawn from the Treasury with no required relation betwixt the two actions. And therein of course, lies the problem with which we have yet to deal.
So the question is this; "Can the American government continue to operate a Ponzi scheme without bankrupting the nation?" The reason the Founding Fathers worked so hard to minimize the power of the federal government is that they understood that with power comes corruption. When the government is empowered with providing support or relief to any individual or entity, it will leverage that power and perpetually increase and abuse it to the point of tyranny. At some point they determined the good people of America would right any wrongs that became too burdensome. Relating to a different Constitutional issue Thomas Jefferson in a letter to Wilson C. Nicholas stated, "...that the good sense of our country will correct the evil of construction when it shall produce ill effects."
Social Security, Medicare et al are creating ill effects. Will the good sense of this country correct it? It remains to be seen, though one must decline exuberance when members of the GOP in recent debates engage in the typical demagoguery that inherently accompanies such legislation. In fact one can argue that instead of providing for the general welfare of the public such programs actually provide for our general demise. No matter what manner of calibrations Congress may ultimately make to these programs, they will remain a vehicle for unscrupulous career politicians to make unreasonable promises to gullible citizens in return for votes. It is unlikely to the degree of impossibility that America will allow these programs to be completely terminated. The question then becomes; "How can we continue these programs while minimizing the corruption and politicizing of same?"
There is only one answer in my mind. Medicaid must be phased out federally and returned to the States. As parens patriae
the State is responsible for its citizens. Local control of indigent programs will ensure the greatest efficiency. Social Security and Medicare should be separated from the general government and implemented as self-reliant, free-market entities. Governments only role would be to ensure unfettered access to all citizens so inclined to participate. Participation must be voluntary with citizens taking full responsibility for their choice to decline. The system would basically become a large insurance corporation with a board of directors, CEO, CFO etc., all charged with operating within free-market principles to implement a budget that is revenue neutral. Any new promise of benefits must be met with increased revenue. Any decrease in revenue must be met with cuts in benefits or administrative costs. Yearly financial reports should be required and reviewed by third party accounting. The decisions made by the board and administrators will determine the confidence of the public and thereby the participation rate. If Americans want supplemental insurance
, they must pay for it at market rates. The system will live or die by its own merits.
Obviously, such a large change in course will require a national conversation, true principled leadership and the votes of the People to put in place the people needed for passage in Congress. Barring this or something similar, we will continue to revisit these issues, until the day when the sheer weight of the liabilities will completely crash our economy resulting in a depression like we have never seen. The resulting chaos, starvation and violence that will ensue may well transition this nation into an entirely different form of government, most likely dictatorial and most definitely tyrannical.
Keith D. Rodebush is a Christian, a businessman, a writer and an armchair scholar. He has a Bachelor of Science in Architecture from the University of Arkansas. Keith is currently working on a novel and periodically writes at his blog "Ignarus Semino Dominatus".
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