In the past several months as the debate over Social Security reform has taken center stage in the theater of the absurd that is modern American politics, the idea has been floated that the entire pay-as-you-go structure of this system closely resembles a Ponzi scheme, albeit one that is about to collapse.

In reality, few people likely have any idea what a Ponzi scheme is, nor how closely America’s largest retirement system follows its tenets.  As such, according to the Securities and Exchange Commission:

Sound eerily familiar?  Want another shock?  Well, much as in the original Ponzi scheme, Social Security also paid huge returns to its first investors that, whether intentional or not, led Americans to believe the plan worked marvelously, thereby engendering the support of an exceedingly grateful nation.

For instance, the first American to ever receive a check from this new national savings plan was Ernest Ackerman, a streetcar motorman from Cleveland, Ohio, who retired exactly one day after the program went into effect.  For the five cents that was deducted from Mr. Ackerman’s check the sole day he was a “participant,” he received a lump-sum payment of 17 cents.  This was a 240% return, which annualizes out to 87,600%.  Nice investing, Ernie.

Then, in 1939, a series of changes were made to this new retirement system that included moving up the start of monthly payments by two years.  As a result, the first monthly Social Security check went out on January 31, 1940 to Ida May Fuller, a retired legal secretary from Ludlow, Vermont. 

This maiden disbursement was $22.54, which, according to Social Security Online, after cost of living increases and 35 years of receipts until her death in 1975, totaled a startling $22,888.92 in payments from a system to which Mrs. Fuller contributed a remarkable $24.75.

Now, please bear in mind that Mr. Ponzi was only promising people a 40% return on their money in 90 days.  By contrast, the first Social Security recipients received yields approaching 100,000 percent. 

Unfortunately, few participants in a Ponzi scheme ever achieve such spectacular returns, and the whole scam invariably implodes when the REAL investors have the nerve to ask for their money back.  For instance, when regulators finally shut Mr. Ponzi’s operation down in 1920, they were only able to recover $1.59 million.  Sadly, this was a small pittance compared to the $15 million he owed his 40,000 investors, not including the interest he had promised them.

This makes it quite logical that 70 years after our government implemented a Ponzi scheme of its own -- remarkably just fifteen years after the first one imploded -- the real investors (nee, the baby boomers who have paid into this program since they received their first paychecks while absorbing numerous increases to the required contributions) are concerned that there won’t be enough money available to fund their own retirements. 

Naturally, irrespective of the protestations of those who seem able to attain high office in our nation without possessing even the most rudimentary arithmetic acumen, these fears are warranted.  Yet, now that the flaws in this equation have finally been exposed, the debate is unconscionably focused on the machinations of extending this scheme rather than if and how we should unwind it. 

After all, as the best returns from this plan have already been realized by folks like Mrs. Fuller and Mr. Ackerman -- as well as millions of seniors in the past seventy years who received yields on their contributions that can’t possibly be replicated -- shouldn’t the rest of us who CAN add one plus one without difficulty be entitled to opt out of this investment nightmare?

Such a question becomes even more appropriate considering the gags yet to be played in this inhumane comedy in the form of neatly disguised -- yet predictable -- Democratic solutions to avert the imminent crisis they maintain is neither imminent nor a crisis.  To date, these options comprise increasing the Social Security tax cap above its current $90,000 threshold, and eliminating the 2003 tax-cuts on the wealthiest wage earners.

As a result, no matter how you slice it, their “solution” is to ONCE AGAIN demand that people pay additional funds into this failing system above and beyond what was originally dictated by statute.  Isn’t this despicably akin to regulators asking the folks who were defrauded by Mr. Ponzi to contribute more to his scheme in the hopes that this would avert insolvency and increase the likelihood that they’d eventually get their money back?

Noel Sheppard is a business owner, economist, and writer residing in Northern California.

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