No system of monopolistic compulsory insurance has resisted [the] transformation into something quite different, an instrument for he compulsory redistribution of income. From F.A. Hayek's The Constitution of Liberty
, Chapter 19: "Social Security" Political cartoonists have had their fun with Bernie Madoff. In this video, Walter E. Williams uses one such cartoon to set up his thoughts on the Social Security system:
As Dr. Williams points out, Ponzi schemes work, but only for so long. In the case of Madoff's scheme, old (initial) "investors" eventually absorb too much of the funds from new (current) contributors. After the deviant administrator absorbs his share of the loot, the funds dry up and the current contributors are left holding the empty bag.
The Social Security system leverages the same scheme. The only difference between SS and Madoff is he used fraud to implement his Ponzi scheme; the SS Administration utilizes force through the coercive arm of the income-tax confiscating federal government.
Three other differences should be noted.
First, when a private citizen engages in this activity, it is illegal and, if caught, properly punishable under the law. When the government engages in a Ponzi scheme, such activity is by default exempt from the law that it enforces on its citizens.
Second is the sheer reach and scope of the damage that is done. When one citizen or a small cabal of manipulators set out to make a few million illegal dollars, the breadth of the damage done is restricted to the number of people they manage to swindle. In Madoff's case, the amount of dollars brought in through fraud is floated around $50 billion. When the government modifies countless times over decades a system that was originally sold to the public as an old age "insurance" program and transforms that system into a direct wealth transfer program obliging one generation to the moral obligation of providing for the prior generation without regard to need, the damage done in the form of "unfunded liabilities" racks up into trillions of dollars. Nearly everyone in the country is affected.
The third difference focuses on the administrator. In this privately-run Ponzi scheme run on fraud, the mastermind Madoff absorbed his share of the loot that helped create the fiscally unsustainable situation that contributed to the eventual collapse of the system. In the publicly-run Ponzi scheme we know as Social Security run on force, the administrator is the federal government that, through its endless stream of entitlement expansions and administrative malfeasance, has absorbed the trillions of dollars that is pushing the scheme closer to collapse.
Hayek points out that old-age pension programs were nothing new by the time FDR pushed Social Security into existence in 1935. Bismark initiated one in Germany as early as the late 1800s. And, by 1960 when he wrote The Constitution of Liberty, Hayek could soberly observe that every such system had degenerated into serving the old socialist aim of redistributing wealth in accordance with the nebulous idea "social justice": "The reason why it has come to be so much more widely accepted than the older socialism is that is was first regularly presented as though it were no more than an efficient method of providing for the specially needy."
The great difficulties we are left with are massive tax increases or massive cuts in benefits, or both. Long viewed as the "third rail of politics" in D.C., the only changes that have been made to the Social Security system have been changes that aggravate the problem, not address it.
And like all socialist manipulations of society, the program pits one group of individuals against other groups of individuals. In this case, the retired generation understandingly expect what they had confiscated out of their income for decades paid back to them, and the working generations who had nothing to do with past Congress' malfeasance understandingly question why they should be left with a burden they did not create. One side is handed a giant claim-it receipt while the other is handed a giant bill, and neither had anything to do with what the other is holding.
Add to this entitlement/it-ain't-my-fault mess the fact that Social Security is now deemed a form of retirement wherein many retirees go on to receive much more than they ever "contributed" into the system, and many recipients die well before they ever collect anything close to what they had confiscated out of their property.
Back to Hayek: "The difficulties which social insurance systems are facing everywhere and which have become the cause of recurrent discussion of the 'crisis of social security' are the consequence of the fact that an apparatus designed for the relief of poverty has been turned into an instrument for the redistribution of income, a redistribution supposedly based on some non-existing principle of social justice but in fact is determined by ad hoc decisions."
