Social Security a Ponzi Scheme? 'Do the Math,' Says Obama's 'Fiscal Responsibility' Co-Chair

September 13, 2011 - 1:18 PM

Former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles

Former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles, co-chairmen of the president's fiscal commission, at the National Press Clun in Washington, D.C. (AP photo)

(CNSNews.com) – Former Sen. Alan Simpson (R-Wyo.), when asked whether he agreed with GOP presidential candidate Rick Perry that Social Security is a Ponzi scheme, told CNSNews.com: “All you have to do is do the math, and you can make the judgment yourself.”

At a news conference at the National Press Club Monday, CNSNews.com asked Simpson: “According to some estimates, Social Security has $20 trillion in unfunded liabilities. On the same note, Gov. Rick Perry said that ‘it is a Ponzi scheme to tell’ twenty somethings they’re ‘paying into a program that’s going to be there.’ Do you agree with his statement and do you think that Social Security is run like a Ponzi scheme?”

“All you have to do is do math and you can make the judgment yourself,” Simpson told CNSNews.com. “All that you need to know is that by the year 2036, you’re going to waddle up to the window and get a check for 23 percent less. A year ago that was 2037, and 22 percent less. That’s just one year-and-a-half they’ve kicked that up. And that’s all you need to know. And if you can’t raise the retirement age to 68 by the year 2050, because people might be confused, we ain’t got a prayer anyway.”

Simpson has called Social Security a Ponzi scheme -- the name for an investment fraud in which current investors are paid dividends that come only from  future investors.

On May 6, 2011, at a meeting hosted by the Investment Company Institute, Simpson said Social Security was a “Ponzi” scheme, and “not a retirement program,” and argued that it was originally intended more as a welfare program.

"It was never intended as a retirement program. It was set up in '37 and '38 to take care of people who were in distress -- ditch diggers, wage earners -- it was to give them 43 percent of the replacement rate of their wages. The [life expectancy] was 63. That's why they set retirement age at 65” for Social Security, he said.

Simpson and former Clinton administration official Erskine Bowles were co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform in 2010.

They spoke at the National Press Club on Monday on behalf of the Committee for a Responsible Federal Budget, a bipartisan group committed to educating the public about issues that have significant fiscal policy impact -- such as Social Security and national defense spending.

CNSNews.com also queried Simpson and Bowles about GOP candidate Herman Cain's reform proposal for Social Security: “In that same debate, Herman Cain said that the U.S. should follow the Chilean model, which uses personal retirement accounts, to fix Social Security. Do you think that would be a good idea as well?”

The duo shot down Cain’s suggestion, citing the differences in demographics between the United States and Chile and the lateness of the suggestion. Had the suggestion come when the U.S. Social Security system ran a surplus, the suggestion would have been more credible and plausible, they said.

But under current conditions, the two said, switching to personal retirement accounts would be impossible. Bowles added that Social Security is annually running $45 billion "cash negative" — and that’s before the reduction in the payroll tax that is now being used for the stimulus.

Simpson said: “Well I can tell you it wouldn’t fit the economy, the demographics—it makes no sense. I’ve heard that one for 20 years—that if we did what Chile did we’d be okay. Forget it. That couldn’t possibly function.”

Committee for a Responsible Federal Budget President Maya MacGuineas said that the Social Security issue provides the perfect example why the earlier you make changes to a program, the more time you have to phase them in, and the more gradual the changes can be.

“Ten years ago or fifteen years ago when people were talking about private accounts for social security, there could have been a real discussion on it because there were surpluses in the program. There aren’t cash surpluses anymore,” MacGuineas said.

The committee’s Sept. 7 report “What We Hope to See from the Super Committee” suggested several deficit-reducing policies including raising the retirement age of Social Security beneficiaries and changing the benefit structure. The report does not mention privatization as an option.

The committee also sent a letter to the Super Committee on Tuesday urging them to “go big” and beyond the $1.5 trillion deficit reduction goal that the committee has been charged with. Instead, they recommend making $4 trillion cut in ten years.

Several signatories included former Comptroller General of the United States David M. Walker, the former chairwoman of Obama’s Council of Economic Advisers, Christina Romer and former Treasury Secretary Robert E. Rubin.