Tuesday, January 15, 2013

A different kind of Madoff v. Social Security comparison

The usual comparison, of course, is from the perpetration perspective. They're both "Ponzi schemes" -- that is, they are both fraudulent schemes in which earlier victims are paid off with the take from later victims rather than from real, legitimately generated profits.

From the perpetration side, there are two main differences between Madoff's scam and the Social Security con:
  1. Madoff's victims were "investors" (they thought they were buying pieces of legitimate enterprises and getting a cut of profits from the production of real goods and services), while Social Security's victims are "insured clients" (they think they are buying "Old-Age, Survivors, and Disability Insurance" and being paid out an actuarially sound amount in claims from a "trust fund").
  2. Madoff's victims were free to invest or not invest in his scheme, while Social Security's victims are compelled by law to "pay insurance premiums."
They're ever so slightly different confidence schemes, but they're both confidence schemes in which the perpetrator creates an illusion of honest dealing while actually paying off earlier victims with money cheated from later victims so as to keep the scam looking legitimate and viable.

Garry Reed's been paying a lot of attention to libertarian rhetoric on Social Security and taking issue with much of that rhetoric (particularly from Reason magazine, but this time from the Future of Freedom Foundation). In this latest piece, he considers the status of the frauds' victims:

Nobody blames Madoff's earliest investors for stealing from his more recent investors; everyone rightly blames Bernie Madoff.

Yet many, including some libertarians, blame seniors for "stealing" from recent workers instead of blaming government.

I have to take issue with Garry on this. Libertarians do blame government for perpetrating the Social Security fraud. What they don't do is blame the state proper -- the scam's administrative apparatus -- to the exclusion of other knowing, informed and active participants.

Suppose that Madoff's early investors, at some point, had become aware of the nature of his con. And suppose that instead of pulling out of the thing and attempting to shut it down and procure such restitution as might be possible for all of the victims, many of them just said "hey, we're getting ours." And suppose that they even formed organizations to pressure Madoff to keep the gravy train rolling, no matter the consequences and regardless of the costs to future victims.

That this did not (so far as I know) happen is the big difference between the early victims of Madoff's Ponzi Scheme and the current and near-future beneficiaries of Social Security.

False political advertising about the "trust fund" notwithstanding, everyone has known (or should have known, since the information has been readily and publicly availalable) for decades that Social Security is a Ponzi scheme which only remains solvent by defrauding new victims to pay off the old ones.

Might there have been a point in time when that knowledge was not readily and publicly available -- or to put it a different way, a point in time when the scam was still at least facially convincing?

Sure. But most or all of the early victims who might plausibly claim to have been completely defrauded, and in no way complicit in the fraud, are long dead.

Today, here and now, it just doesn't pass the laugh test to suggest that most of those agitating for the continuation of Social Security don't know what they're demanding: To be paid off by new victims of a scam that they know damn well is a scam.

Oh, I suppose there might be a handful of individuals with just enough gray matter to cobble together an "I want a check, dammit!!!" letter to their congresscritters or local newspapers without really having any meaningful understanding of where the money to back that check comes from.

But let's be realistic here:  The American Association of Retired Persons (to trot out the most obvious and prominent example) isn't run by such individuals. It probably collects annual dues from them, but it is run by intelligent people who have spent a lot of time studying Social Security and can't plausibly claim to not know that -- for example -- this piece is a steaming pile of Big Lie.

So when Garry Reed asks "why does government get a pass while Madoff gets blamed, and why do Madoff's earliest investors get a pass while the government's earliest victims, today's seniors, get blamed?" my response is "government doesn't get a pass, and today's seniors -- many of them at least, anyway -- are, as voters and citizen-lobbyists, not just victims ... they are also knowing, active, informed participants in the scam."

If I get mugged, I'm a victim. If, after getting mugged, I support the mugger's gang and encourage him shake down other passersby and pay me back out of their wallets, I'm not a victim any more. I'm a perpetrator. Or at least an accomplice.
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