Social Security: A Questionable Future

 

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

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