On June 26, 2015, the U.S. Supreme Court
affirmed same-sex marriage to be the law of the land. Two weeks later Douglas Walker, a Deputy
Commissioner of the Social Security Administration, announced that same-sex
couples will be eligible for benefits under Supplemental Security Income (SSI) rules.
Is the Social Security system sound enough to
absorb these newly created entitlements?
The following excerpts from the 2014 Annual Report of the Social
Security and Medicare Boards of Trustees, verifies that, as is so often the
case in well-meaning rulings, the result follows The Law of Unintended Consequences.
“Neither Medicare nor Social Security can
sustain projected long-run program costs in full under currently scheduled
financing . . . The Fund does not meet the short-range test of financial
adequacy . . . the Funds’ operations will contribute increasing amounts to
Federal budget deficits.”
Before I comment further, I’ll relate a
biographical tale. It involves an
Italian citizen born in 1882, who
immigrated as a young man to Boston, Massachusetts, by way of Canada. His occupations during his life included
grocery salesman, sewing machine repairman, cafe waiter, and hot dog stand
operator. After several prison terms and
eventual deportation, he ended his days in Brazil, dying penniless in a Rio de
Janeiro charity ward in 1949. However,
for one short period from December 1919 to August 1920 he personified
success. His name: Charles Ponzi. His claim to immortality: the Ponzi Scheme. On the pretext of earning huge returns from
postal reply coupons, he sold short-term notes to the public, paying off
earlier note purchasers with receipts from later customers. Not unexpectedly, when the investors
ultimately began to doubt his ability to honor the note commitments, his
financial collapse promptly followed, with imprisonment not long afterward.
If you detect any connection between the
Social Security system and the revelations of this tale, perhaps it’s that
money is collected today to pay sums to those who decades ago paid
significantly lesser amounts. Only time
will tell whether Social Security eventually goes the way of Charles Ponzi.
I’ll conclude with a
final thought. There are those who
accuse the government of running Social Security as a Ponzi scheme. This is an insult to the memory of Charles
Ponzi. He never forced anyone to
subscribe to his scam.
Al Jacobs, a
professional investor for nearly a half-
century, issues a
monthly newsletter in which he
shares his financial
knowledge and experience.
