The summer of 1920, Charles Ponzi of Boston was known as a financial wizard. Ponzi would invest investors’ money and promised a high rate of return. An estimated 40,000 people invested $15 million (about $140 million in U.S. money today). Ponzi’s program failed and he was convicted of mail fraud and sentenced to five years in prison. The Ponzi schemes and pyramid clubs sooner or later run out of investors and the vested lose their money.
Now comes the U.S. Social Security System. In 1935, when enacted, there were 20 workers (investors) to support each retiree. Today we have 21/2 workers to support each retiree. The scheme has landed on hard times over the years and required many adjustments. The greatest adjustment was to add the military in 1956 and later all new hires of the U.S. Civil Service. New investors, large infusion of tax money, new liabilities.
The system is in the throes of failing and will require stringent changes to extend this subterfuge. Its extension will not be the system as we know it today. Choices to delay the inevitable new taxes, raise the age limit, and let us not forget the new investors. There is a ready supply of new investors in the United States – our congressional, state, county and city employees -all short-term fixes. It has worked in the past, but time will cause a repeat of today’s situation.
All schemes that apply the principal of “rob Peter to pay Paul” fail. You may come up with the “fix of the day,” as in the past, but tomorrow will come again. All that will be left to adjust will be taxes and retirement age. What then? I am old but if I were young, I would fight for private accounts. The future holds no hope for the system as we know it today.