The strange politics of Social Security

 This morning, we shall contemplate the intricacies of everyone's favorite Ponzi scheme, and yes, by the technical definition, Social Security is a Ponzi scheme.  The Ponzi scheme, named after Charles Ponzi, was not actually invented by Charles Ponzi.  In fact, he stole the idea, which is appropriate, but it works like so.  I tell you, the very few readers of this pretentious, little blog, that I have a fascinating investment opportunity.  WAIT!  Where are you going?  This is good, trust me.  I found the best coffee ever.  (And yes, I glanced at my desk, saw the coffee mug, and that's the product for today's demonstration.)  This coffee is so good, and such a stable investment, because everyone drinks coffee every day, that you can't lose.  You'll make 25% every year, no matter what is happening in the market!  Like I said, it is amazing coffee, and people need their coffee.  I certainly do!

So anyway, you, trusting readers, give me your money to invest.  But I don't actually invest it.  I do whatever I like with it.  Nakaya pens, Martin guitars, whatever.  Next year, you want your 25%, so I need to find a way to get you your 25%, but having spent your money, the only way to do that is to bring in a new batch of investors for my fascinating investment opportunity in coffee.  So, I find some new "investors," to pay you your 25%, keeping whatever I don't use to pay you.  The next year, I need to keep paying you your 25%, and I need to pay those new investors their 25%, which means, yes, I need even more investors!  I can keep the Ponzi scheme going until I run out of new investors, at which point I skip town, or get arrested.  Go read about Bernie Madoff, and even better, read Emily St. John Mandel's outstanding novel, The Glass Hotel.

Yes, kids, Social Security meets the technical definition of the Ponzi scheme.  When it was created, the idea was that you would pay into your own fund, it would earn interest, and that would be the money you would get back.  The math never worked on that, and here's why.  As soon as it was created, there were beneficiaries who were supposed to collect checks, but who never paid into their own accounts.  The first batch of oldsters!  That money had to come from somewhere.  Someone.  Some ones.  Ones, plural.  Everyone else.  That means the initial batch of "investors" weren't paying into their own accounts, because they were paying directly for the first recipients.  So who paid into the accounts for them?  The next crop, and so on.  That's unsolvable math.  When you start with beneficiaries who never paid into the system, the only way the math works is by bringing more "investors" into the system to pay what is due to the people who came into the system earlier, because their money went to the earlier "investors."  That's a Ponzi scheme, because nobody's money goes into their own accounts, and it only works so long as you get new investors.

The difference between Social Security and a privately run Ponzi scheme is that the government can require the young'uns to pay into the Ponzi scheme, which avoids one method of failure, but it still depends on a rate of population and economic growth.  

That, of course, is why Bernie went off to the clink, and Social Security is still around.

Social Security has required tinkering because nobody ever pays into their own accounts, but because of population and economic growth, along with a federal law that requires you to "invest," the system has remained afloat, but mathematically, it is a Ponzi scheme.  That has always been the big lie of Social Security, but there remain failure points.  Insufficient economic or population growth, and bu-bye Social Security.

And yet even pointing out this math, which is math, is anathema to the left because the normative goals of the program are so universally accepted.  Hence the State of the Union spectacle, Rick Scott's political blundering, and a minor but politically important observation.

Sen. Rick Scott (R-FL) has, in fact, put forth a plan that would require frequent reauthorization of Social Security, along with Medicare.  Why?  Ideological opposition.  A sunset provision creates a difference between what we call, in political science jargon, the status quo point and the reversion point.

Huh?

Normally, if you do nothing, nothing changes.  The status quo remains in effect.

However, sometimes doing nothing means that policy changes.  It reverts to something different from the status quo.  A "reversion point."  If a policy has a sunset provision, then failure to reauthorize it creates a "reversion point" in which that policy goes away.  A sunset provision is something you want if you don't like the policy because Congress is biased towards inaction, so you can use that bias to try to get the reversion point.

Short version:  Rick Scott, and a lot of other Republicans, don't like Social Security or Medicare.

Funny thing, but one of Ronald Reagan's most quoted lines was this:  "We will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free."  Do you know what the supposed danger was?  The creation of Medicare.

A lot of Republicans sincerely dislike Medicare and Social Security.  They are poorly planned Ponzi schemes based on wealth redistribution, which cost a lot of money.  So Republicans don't like them.

Yet most of the time, Republicans are not actively seeking to alter or reduce funding.

Why not?  Because these programs are popular, and most Republicans are smarter than Rick Scott.

Think of it like this.  A lot of Democrats would like to mimic a certain Australian policy, of which they speak in hushed tones when they're trying to sound wonky and technocratic (I'm not supposed to talk about this), but when Republicans accuse them of wanting that policy, or incrementally moving towards it, or creating a slippery slope, their response is a "how dare you, sir!"  When you know that what you really want is wildly unpopular, only the dumbest say it out loud.

Hence, the strange Kabuki Theater of Social Security.  Charles Ponzi has returned as the populist hero, and none dare name him, yet the mechanics of campaigning are such that when any party holds a belief that it knows to be unpopular, it mostly keeps that belief quiet, excoriating its own heretically honest members for admitting what they all truly want.

Third Rail, "Grounded," from South Delta Space Age.