In about 1919, Charles Ponzi created his Securities Exchange Company which promised a 50 percent return on investments in 45 days or double your money in six months. He used a form of arbitrage which is the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset. By December of 1920, he was found to have invested nothing and though began repaying investors, he was found guilty and sentenced to 5 years in jail. He went through years of being sought by officials for other illegal acts and died penniless in Rio de Janeiro in 1949. The lesson is our possible investment and the ability of the company ( or government) to pay.
Trust a Government Advisory Council?
The Social Security Advisory Council was appointed jointly by a Senate special committee on social security and the Social Security Board in May 1937.
Recommendations were made of three main issues to revise the Social Security Act. Expanding benefits and coverage were of course made. Finance was the third issue and our interest today.
The council recommends that, instead of placing the burden of financing the old-age security program entirely on the payrolls, the government should make a contribution from the general revenues of about a third, the other two-thirds to come equally from the employers and employees. It is recommended that the taxes under the law should be credited automatically to the old-age insurance funds and not to the general fund of the treasury, for later appropriation each year, in whole or in part, as congress may see fit. It also recommends that the old-age insurance fund should specifically be made a trust fund, and dedicated exclusively to the payment of benefits.
Under social insurance programs…it is not necessary to maintain a full invested reserve such as is required in private insurance, provided definite provision is made for the governmental support of the system.
To ensure this it recommends the establishment of a “reasonable contingency fund” though it would permit the 1940 payroll tax rise…to go into effect in view of the uncertainties regarding yield and benefits.
The wider coverage recommended…may cause concern at first thought because of the larger cost that they involve. But it must be remembered that these do not necessarily in all cases mean greater expense
But a repeated theme begins to be seen in each Revise Social Security article written;
It is the welfare of society that we have to consider rather than the individual rights of the man who has made the contribution.
Never Ending Revision of Social Welfare
In the June 8, 1939 edition of the New York Times, articles repeating the subject titled Revising Social Security, discussed a new bill in congress with new changes which may make Social Security better. It outlined changes to the benefits of married vs. unmarried men, widows, and children and discussed the “social” importance and increase the cost.
The new bill abandons the effort to pile up a huge reserve fund. instead, it provides only for a contingency reserve that will not exceed more than three years’ anticipated benefit payments.
These added payments….tend to promote the general social security which should be our aim.
All of these changes tend to carry us away from the too close adherence to the principles of private insurance in the present act and toward the principles of social insurance. They consider the welfare of the communities as a whole rather than the strict individual “rights” or “equities” of the man who has made his contribution.
The new system of benefits will add greatly to the costs of the social security system in the years immediately ahead but is not expected to increase the ultimate costs.
For that reason, we must watch our new commitments very closely. We cannot afford to forget the warning of the Social Security Advisory Council: ” we should not commit future generations to a burden larger than we would want to bear ourselves.
Social Welfare as Ponzi scheme
As defined by the Unites States Securities and Exchange Commission;
Ponzi scheme organizers often promise high returns with little or no risk. Instead, they use money from new investors to pay earlier investors and may steal some of the money for themselves.
With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.
In 2012, Economist Paul Krugman wrote about his previous statement about Social Security;
From the older Boston Review article: In practice, it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in
In New York Times: Notice what I didn’t say. I didn’t say that the system was a fraud; I didn’t say that it would collapse.
The SEC defines some red flags for a Ponzi Scheme (my additions in Red);
- High returns with little or no risk. The risk would be not to get your money back out of what you put in. With the Government continuing to raise the age of disbursement, that is a possibility. Others may get more.
- Overly consistent returns. Why would politicians be arguing about Grandma not getting her Social Security check if there were known consistent returns? There must be a point at which the Government can’t guarantee the returns.
- Unregistered investments. What investments? Charles Ponzi never invested the money to get a return or grow the pot. Neither does the Federal Government.
- Unlicensed sellers. The Advisory Council for the old-age insurance, congress and President Roosevelt sold this to the American public knowing the goalposts were always going to be moving and the program always expanding. Private insurance is not allowed to do that. one can’t get a grip on the cost if the expense and coverage are always moving.
- Secretive, complex strategies. “we have to pass it to know what is in it”
- Issues with paperwork. Bureaucratic red tape is standard in all government programs.
- Difficulty receiving payments. Again… Grandma may or may not be able to get her expected Social Security payments per repeated political ads. This safety net is not a backbone of the original Social Security Act?
In 1929, the New York Times reports that then-Governor Roosevelt from New York was looking into an Old Age Aid Study. Governor Roosevelt stated about the study;
I want to emphasize that there is nothing socialistic in a program of this kind.
Then in a speech in 1932, then Governor Roosevelt;
I believe…that we are on the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.
Social Security: Failed Fed attempt at Old-Age Insurance For All
I will delve further into the above statements in further articles. Progressivism is just socialism using capitalism to fund utopias. The issues as evidence from above and needed discussion for the future:
- Government can’t create a product and know what price to charge without a free market or free patient/ physician exchange. Therefore, with old-age insurance or health insurance, the government can’t know the cost or expense.
- Government program growth has been demonstrated and proven by Social Security hundreds of times over many decades.
- Socialism is the government control of the means of production. The Coronavirus Pandemic is a great example of this most recently. The socialism definition has changed and is no longer the old Marxist definition. The Government does not need to own the title in order to control production.
- President FDR believed in socialist programs, even trying to say they were not. (we are told this is democratic socialism.) Can we identify supporters of socialism today?
- Without knowing a proper price for a product, patients will never be able to understand if the cost: benefits are worth the expense. That is why healthcare is expensive.