Social security versus six-buckle boots

During the Republican debate Wednesday night (9/7/11), I watched Rick Perry really step in it by calling social security a fraudulent “Ponzi scheme”—and not letting go of that stance even in follow-ups. At that moment, it hit me that Perry had obviously missed out on some very important advice I’d heard twenty years ago from a cowboy (...let’s call him Hank). According to cowboy Hank, he had received the advice in question from his mentor, a veteran ranch hand, on rookie Hank’s first day at work:

“When you’re wearin’ six-buckle boots,
don’t stand in eight-buckle manure.”

Too bad Rick Perry apparently never got that advice; if he had, he might have been more careful in the debate. I’ll be very surprised if Mitt Romney and Jon Huntsman don’t ride that one for everything it’s worth for the foreseeable future.

Social security doesn't pass the Ponzi-scheme test. It has a long history of taking in more than enough to cover its outgo. It’s a system in which those who funded it have counted on receiving future benefits from it, and those who managed it were willing and able to deliver them—similar to the system that builds interstate highways, the system that launches weather and military satellites, and the system that builds aircraft carriers and anti-missile Aegis cruisers. In each case the benefits expected, intended, and delivered are some form of future safety (i.e., some form of protection from a future threat or downside). Those are definitely not the characteristics of a “fraudulent scheme”—whether the fraud is concocted by Charles Ponzi, Bernie Madoff, or the Music Man.

The big question about social security, of course, is about its future: will demographics, productivity, and economic growth be sufficient for the system to continue providing current and future benefits to its users—or not? And, if not, what would be the best way to correct the problem?

There are two different ways to correct such a problem: (1) some combination of benefit cuts and tax rate hikes, to reduce spending or increase revenue; or (2) growth in the workforce and in productivity, to increase the revenue side without increasing tax rates. In the past, the main reasons social security stayed in a self-funding mode have been growing productivity in a growing economy that kept a growing number of workers working within a churning macro-mix of jobs requiring an ever-growing level of skill.

If it's not clear by now, I strongly prefer grow-grow-grow. Steve Forbes put it well years ago: “You can’t cut your way to prosperity, you’ve got to grow the economy.” And the growth solution doesn't just apply to social security; it also applies to the affordability of things like weather satellites, interstate highways, and Aegis cruisers.

But, based on what I heard in the debate, I’m guessing Rick Perry prefers cut-cut-cut, chop-chop-chop. In my view, a bad omen for him. It's a six-buckle answer to a problem that is eight buckles deep.

Comments

[D]

Don't take this question to be adversarial, that's not my intent. You've said in the past that spending on infrastructure will help future growth. Is there a point where any additional spending on infrastructure won't bring any added benefit? If so, where is that point?

I have no problem with wanting to grow the economy, but I don't see why some of the federal budget can't be cut.

[D]

By the way, there are some Nobel Prize winning economists who have called Social Security a Ponzi scheme, not the least among them Paul Krugman.

I agree that it's not a "real" Ponzi scheme, but there are Ponzi-like elements: each generation gets more out of it than it paid in, the recipients get paid by the participants, and it depends on the number of participants growing relative to the number of recipients to stay solvent.

[Optimist123]

Social security is not going away. Let's call it what it is: a system whereby the government transfers money from some citizens to other citizens. Viewed that way, it's similar to just about everything the government spends. Calling it a Ponzi scheme is, in my judgment, not just inaccurate, it is a major political blunder that will push a decisive block of votes towards the candidate who does NOT call it a fraudulent scheme.

Seems to me the Republicans should want to win the 2012 election; if that's the case, they should strongly prefer to nominate someone who will NOT become the Democrats' dream opponent by calling SS a "Ponzi scheme."

[Dave Thomas]

Well I can delete this bookmark. Anyone that doesn't know what a Ponzi scheme is and doesn't understand that social security is one isn't worth my time. Have a good life.

[Optimist123]

Thanks for visiting, Dave.