Elon Musk, the world’s wealthiest individual, has been making waves in Washington’s political landscape. During a recent appearance on the Joe Rogan podcast, he remarked that “Social Security is the biggest Ponzi scheme of all time.”
This candid observation sparked considerable debate among proponents of big government. Rex Huppke, writing for USA Today, countered with the following:
“Social Security is one of the country’s most popular and successful federal programs, and its pay-as-you-go arrangement is not a deceptive scam – it’s how the system was built to work.”
While there is no denying the popularity of Social Security, the allure of a benefit without direct payment doesn’t shield it from being classified as a Ponzi scheme.
For context, Charles Ponzi gained fame in 1920 by promoting a lucrative investment scheme, guaranteeing a 50 percent return in 45 days and a 100 percent return in 90 days. Investors, lured by promises of easy wealth, later learned that payouts came from the contributions of new investors, not actual profits.
When the influx of new funds waned, the promised returns could no longer be met. Ponzi ultimately defrauded investors out of approximately $20 million.
Musk’s assertion about Social Security highlights the disturbing trend: the ratio of American workers to retirees is becoming less favorable, exacerbated by increasing lifespans since the program’s inception. With around seventy-five million baby boomers expected to retire by 2030, the current pay-as-you-go system will struggle to meet its commitments, signaling a grim future for Social Security.
Dependents of the State
This reality is understandably disconcerting for those who have contributed to the system throughout their careers and rely on it for a stable retirement income.
At the heart of Social Security’s promises lies the federal government, which ensures comfort in exchange for dependency. Citizens are guaranteed secure retirement and access to free medications while participating in a system that far exceeds Charles Ponzi’s most imaginative schemes.
Social Security presents an appealing notion: a portion of your earnings is withheld every paycheck, ultimately resulting in a subsidized retirement after decades of hard work. According to research fellow Rachel Greszler from the Heritage Foundation:
“[Social Security is] America’s favorite entitlement program, and part of the reason it’s so popular is it’s not solvent.”
People are drawn to programs that promise a higher return than their initial investment. This expectation fosters blind trust in government leaders to deliver outcomes that are mathematically unattainable. Regrettably, many individuals banking on Social Security may face disappointing realities.
From its inception, it was evident that Social Security would face financial troubles. A simple review would show a path to inevitable insolvency, characteristic of all Ponzi schemes.
In 1939, before the first payment was issued, John T. Flynn predicted that Social Security would be bankrupt by 1970 and entirely insolvent by 1980. Dismissed as a fringe thinker, Flynn turned out to be correct.
Differing Growth Curves
Had it not been for the Greenspan Commission and the Social Security Reform Act of 1983, Flynn’s timeline would have been off by merely three years. However, Greenspan’s reforms merely postponed the inevitable, binding new generations into a system of dependency. Once again, the Social Security Ponzi scheme is on the verge of failure.
Currently, we are on a disastrous trajectory. For instance, between 2014 and the end of 2024, real gross domestic product (GDP) rose from $18.5 trillion to $23.5 trillion, yet national debt surged from $18.2 trillion to an alarming $36.2 trillion.
This stark contrast between GDP growth and rising national debt highlights a troubling pattern. While real GDP grew by $5 trillion (27 percent), national debt soared by $18 trillion (99 percent).
Over time, this misalignment creates vastly different growth trajectories, with national debt now overshadowing real GDP by $12.7 trillion. Can the U.S. truly expect to grow its way out of this financial quandary?
Initially, the first participants in any Ponzi scheme benefit disproportionately. The first Social Security recipient, Ida May Fuller, cashed the inaugural check, No. 00-000-001, on January 31, 1940, for $22.54. She quickly nearly regained her total contributions of $24.75 after one payment.
Fuller continued to receive payments until her passing on January 27, 1975, ultimately receiving $22,888.92 — a staggering return on investment of 92,380 percent.
Social Insecurity and the Fate of All Ponzi Schemes
Each generation may unknowingly nurture the issues that will plague the next. Choices made in the past shape the present, just as today’s decisions will mold the future.
We are currently reaping the consequences of previous decisions, notably as aging safety net structures begin to fray precisely when millions of Baby Boomers require them the most.
According to official projections from the Social Security Administration, only 79 percent of promised benefits will be payable by 2033 due to the depletion of trust funds. Despite widespread knowledge of Social Security’s impending shortfall, many have taken no action to prepare. Instead, they remain blissfully ignorant, their heads metaphorically buried in the sand.
Astoundingly, nearly half of American households do not have any retirement savings, misled by the assurances of Social Security into a dangerous state of complacency.
Musk, similar to Greenspan before him, may propose solutions aimed at adjusting the terms of Social Security. These could involve raising the qualifying age or reducing benefits. However, such measures would not fix the inherent Ponzi structure. They would merely delay the inevitable.
Recently, Musk has initiated reforms including the termination of 7,000 Social Security Administration positions, drawing dire warnings from experts.
Former Commissioner of the Social Security Administration and Maryland Governor Martin O’Malley has issued alarming predictions. Recently, he told CNBC:
“Ultimately, you’re going to see the system collapse and an interruption of benefits. I believe you will see that within the next 30 to 90 days.”
Is O’Malley simply trying to incite fear?
Not quite. While his timing may be off, the eventual collapse remains a certainty.
This fate is inherent in all Ponzi schemes.
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Sincerely,
MN Gordon
for Economic Prism
Return from Social Insecurity and the Fate of All Ponzi Schemes to Economic Prism
