Mandatory Ponzi Schemes

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 Taxes are entered into the Treasury and future demands are withdrawn from the Treasury with no required relation betwixt the two actions.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”.

  • kprice

    I liked this article… which is why it is included, but disagreed with the idea that these schemes are “constitutional.” It only “evolved” into such after the complete dismissal of limited government as seen in Article I, Section 8 of the Constitution. But your article is spot on, it has certainly proved to be a failure and is not holding up through the test of time.

  • Keith D. Rodebush

    As I stated, though probably not forcefully enough is that the only reason that it is Constitutional is that it is nothing more than a tax. This is the big lie of Social Security. This bill was written specifically to survive a Supreme Court challenge. They make the argument that with the Great Depression, nationwide famine and destitution of seniors would undermine the very ‘welfare’ of the union. Then they lay a tax to deal with it. But technically the legislation does not require the actual payouts. Basically SCOTUS is saying that the politicians lied to the people and that is not technically unconstitutional to lie. Pretty crazy.

  • Chakam

    I would very much like to remove myself from the hallowed rolls of Social Security once and for all, and simply “take my chances” later on in my life financially, knowing I have no part in this Socialist program.

    However, Uncle Sam doesn’t like it when we, as individuals, express our dissent with its, shall we say, Social Engineering experiments.

    I would also very much like to render unto Caesar what is indeed Caesar’s, which in my opinion, is nothing. I desire not one thing from the federal government, and State government ranks a very close second to this.

    *sigh*….but, being a true Conservative and a man bound by integrity, I will allow the fed to treat me like an ATM for someone else, and perhaps when the time comes that I retire, I might have “earned” about 150 bucks a month in SS benefits.

    Ponzi scheme? You betcha. And we are all part of it, thanks to the menstruating heart of a dead president who laid the sure foundation for the Camelot we see today in our government.

  • Keith D. Rodebush

    I believe that many share your frustration and perhaps the time is near when ‘We The People’ have the fortitude to phase out these programs. The problem is always, How? Millions of seniors depend on this program for basic sustenance. Again, my strategy is to get the politicians out and make it stand on it’s own. I think that when people see what the real cost is, they will reject it. These seniors think that they are just getting back what they paid in, with interest…that is not the case. And I didn’t even touch SSI.