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.