Another Approach to Immigration and Social Security

Ponzi Schemes,

Can’t live with them,
Can’t live without them

 In a lot of ways Charles Ponzi got a bad rap. In the first place he didn’t invent the Ponzi scheme, he only improved on it. Charles Dickens, albeit from book sales rather than venture sales was profiting from Ponzi schemes before they were even called Ponzi schemes.

What makes a Ponzi scheme criminal is one thing and one thing only—deceit.

Promising someone that they will realize a profit from an investment based on the investment’s value when in fact the profit was only coming from new money is where Ponzi and those who imitated him made their mistake. Telling them that their return will depend on getting more people to invest would have been the more honest approach.

That said, even today the stock market’s supposed reliance on real value rather than fabricated value is really dependent on more people putting more money into stocks they hope are worth it. When people pull their money out of the stock market it goes down; when they put money in it goes up. That my friend is all Charles Ponzi was ever selling the public. He just wasn’t telling them that.

Life is a Ponzi scheme in almost every instance. What makes everything all right is transparency. As long as people know what they’re getting into we tend to accept the consequences.


A list of Ponzi schemes on the internet will turn up one in the 1800’s, aside from Dickens’ novel use, Charles Ponzi’s in the 1920’s, another one in the 1930’s, a few in the 1980’s and a few more in the 1990’s and score after score after score of them in the 2000’s, a period otherwise known as the “Anything goes” period or the “Ain’t no mountain of cash high enough” years.

You’ll find no mention of Social Security on the list nor will you find mention of immigration but both are Ponzi schemes to a degree.

Social Security is an obvious Ponzi scheme in that beneficiaries depend on new money being put in for it to survive. As long as there are more workers putting money in than retirees taking money out the system will work. It is legal because the government says its legal, which they can get away with because everyone knows up front how it works—or mostly knows how it works.

We didn’t always know that Social Security money was being taken out of the fund to pay off other government bills and that would have been nice to know and people living longer seems to have caught everyone off guard but for the most part we always knew that new workers were needed to keep pace with retired workers if Social Security was going to work.

But because we live longer today and the workforce is shrinking Social Security is facing a problem similar to problems faced by all Ponzi schemes—not enough money coming in to offset the money going out.

This problem can be easily resolved because of the government’s unique ability to control how much money it collects. Charles Ponzi would have killed for that kind of power. The question is how does the government exercise this control in a fair and unbiased manner.

There are adjustments that can be made—lower the amounts of the annuities paid out, raise the amount of money collected from workers, or increase the eligibility age where one may collect benefits are the most common suggestions.

The problem with the first two is that in today’s economy both retirees and workers need more money to live on, not less. Small adjustments can be made in these areas but not enough to make a real difference. However, I don’t think the third option is so problematic if done in a sensible, transparent manner—the way all Ponzi schemes should be managed.

In 1940 the ration of worker to beneficiary was 159:1, in 1950 it was 17:1 and by 1960 it had fallen to 5:1. For the last 40 years it has hovered a little above 3:1 until dropping in 2010 to a little below 3:1. The problem, as we all know, is people are living longer and fewer people are working.

A retired couple collecting social security today can pretty much look out their window at the neighbors on both sides of their house and know who is paying for their retirement, assuming those neighbor are working.

My plan is to go back to a time when funding Social Security didn’t appear to be that big of a problem and declare this to be a workable ratio that we can live with. Maybe it was the war in Vietnam or the civil rights movement getting all the attention but I don’t remember people losing a whole lot of sleep over Social Security in 1965 when the ratio was 4:1.

Instead of setting the age we can collect Social Security in stone why don’t we declare the ration of 4:1 to be a constant. That ratio must be maintained in determining what age someone can retire.

Obviously this plan would have to be phased in to allow people enough time to prepare alternative savings plans but alternative savings plans were and should always be part of the bigger picture—as they were back in 1965. The idea of personal savings must be revived because the best Ponzi scheme of all is to keep putting new money into your own savings account—do that and it will grow and you don’t have to take Ponzi’s word for it.

I think 20 and 30-year olds will have no problem surviving under this plan. Most of them have probably given up on receiving any Social Security. People in their 40’s will have to adjust their lifestyle a bit and obviously people in their 50’s will have to remain in the current program but I think in the long run setting a workable ratio in stone is a very viable solution.

Now lets look at immigration as a Ponzi scheme both in its own right and as an important factor in the Ponzi scheme known as Social Security.

Just as money schemes fall apart when there is no new money coming in, Immigration falls apart when there is no new blood coming in. The reward for an immigrant coming to this country, as well as everyone else is that he will move up the ladder and become a dues paying citizen because of his tax-paying job.

An immigrant not moving up the ladder, as is the case with many illegal immigrants today, is essentially asked to be content being the loser—the last man in with no one following behind, which is the point where Ponzi schemes generally fall apart as investors start realizing they’re not going to be rewarded.

Say what you want about Ponzi schemes but once they are started they have to be maintained. The good thing about government Ponzi schemes is that governments have the ability to maintain them.

The quicker immigrants—whether they arrived here legally or illegally—are allowed to move up the ladder of success the better our economy will be because their investment—both of labor and in taxes paid—will keep the scheme alive. And 10 million new workers paying into social security will keep that ratio up and get everyone to Social Security heaven quicker.