Think Progress had a new installment on an old theme yesterday, "Tea Party Leader Dick Armey: Social Security Is A Corrupt 'Ponzi Scheme'". It started out like this:
This past weekend, conservative activists and Tea Party groups gathered in Chicago for the Right Nation 2010 convention. Among those who attended was former House Majority Leader Dick Armey, the chairman of one of the original Tea Party groups, FreedomWorks.
During the event, ThinkProgress sat down with Armey at a blogger's roundtable. No sooner than we took our seats did Armey come out guns-blazing against Social Security. He called it a "corrupt government practice" that steals people's money "under false pretenses." He went on to call Social Security a "Ponzi scheme": ARMEY: The government uses the concept of a trust fund to take your money under false pretenses. For years, I wrote about and talked about and taught about what I call 'corrupt government practices,' because they're always so quick to talk about corruption. One of the corrupt government practices is stealing your money under false pretenses. I'll give you a to wit: social security. When they had the Alan Greenspan commission, they knowingly raised payroll taxes more than what was necessary to meet the flow of output. Social Security is a pay-as-you-go Ponzi scheme. They knew very well that the extra $250 billion would be spent on their social schemes.
Of course a politician who's lived in corruption all his life would naturally accuse everyone else of corruption. It would only be shocking if he didn't.
Still, it's deeply ironic, to say the least, that conservatives like Armey have been slandering Social Security as a "Ponzi scheme" for 20 years or more, now, when they themselves have been the ones opening the floodgates for Ponzi schemes all along. Although Bernie Madoff & others like him were only the icing on the cake of the 2007 financial collapse, it was the very same deregulatory policies that caused the crash that also gave Madoff free reign.
Furthermore, there was a distinct similarity between outright Ponzi schemes and the basic logic driving the markets that took over as the housing bubble took off--what Hyman Minsky referred to as "Ponzi unit" investment in his financial instability hypothesis (discussed here) which cannot cover either principle or interest and ultimately relies on expected profits from asset inflation to pay for an investment. But even more than the Ponzi scheme, what characterizes conservative economic policy and politics is the conceptually similar but much, much cruder scheme involving money and deception known as Three Card Monte. Wikipedia explains:
Three-card Monte, also known as the Three-card marney, Three-card trick, Three-Way, Three-card shuffle, Menage-a-card, Triplets, Follow the lady, Les Trois Perdants, Find the lady, or Follow the Bee is a confidence game in which the victim, or mark, is tricked into betting a sum of money, on the assumption that they can find the money card among three face-down playing cards.
In its full form, Three-card Monte is an example of a classic short con in which a shill pretends to conspire with the mark to cheat the dealer, while in fact conspiring with the dealer to cheat the mark.
This confidence trick was already in use by the turn of the 15th century,[1] having a great deal in common with the shell game; they are the same except that cards are used instead of "shells"....
Rules
The three-card Monte game itself is very simple. To play, a dealer places three cards face down on a table, usually a cardboard box which provides the ability to set up and disappear quickly.[3] The dealer shows that one of the cards is the target card, e.g., the Queen of Hearts, and then rearranges the cards quickly to confuse the player about which card is which. The player is then given an opportunity to select one of the three cards. If the player correctly identifies the Queen of Hearts, the player wins an amount equal to the amount bet; otherwise, he loses his stake.
Drawing a player in
When the mark arrives at the three-card Monte game, it is likely that a number of other players will be seen winning and losing money at the game. The people engaged in playing the game are invariably shills, confederates of the dealer who pretend to play so as to give the illusion of a straight gambling game.
As the mark watches the game, they are likely to notice that they can follow the queen more easily than the shills seem to be able to, which sets them up to believe that they can beat the game.
Eventually, if the mark enters the game, they will be cheated through any number of methods.
The essence of all the methods is the same, however: to confuse and distract the mark from knowing where money card is.
So how does this apply to Armey and his ilk?
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Well, let's start at the end of his quote.
When they had the Alan Greenspan commission, they knowingly raised payroll taxes more than what was necessary to meet the flow of output. Social Security is a pay-as-you-go Ponzi scheme. They knew very well that the extra $250 billion would be spent on their social schemes.
There are so many different lies and deceptions going on here, it would make your head spin. That's exactly the sort of thing that goes on once a mark is drawn in to play Three Card Monte.
But it didn't start with Armey's presentation. Hell, no! That's the way it's been since the very beginning. And to keep things easy to follow, I'm going to number them:
(1) First off, Social Security has always been a form of social insurance. It works as all basic insurance systems do: people pay in on a regular basis, and the fund pays out to beneficiaries from its current income. Insurance is not like investment in a number of different ways. Most importantly, investments are subject to risk, which is fundamental in determing the level of the return. Insurance is just the opposite: It's a guarantee against risk. So one of the earliest arguments against Social Security was to lie about it, call it an investment, instead of insurance, and then complain about the low rate of return. This sleight-of-hand move to make a sound insurance system look like a bad investment system is the first example of Three Card Monte mental manipulation practiced by the enemies of Social Security.
(2) After several decades of the bogus "low rate of return" failing, a second bogus argument was launched, still based on the same fundamental lie of calling insurance "investment". As already mentioned, the fundamental operation of insurance is that people paying in currently pay for current payouts. This is another way that insurance differs from investment. So if you lie about insurance, and say it's an investment, then this perfectly normal state of affairs suddenly becomes a scandal. Because money invested is not paid out directly, instead it's put to work as some form of capital or other. Money invested is only paid out directly for immediate operating expenses, a small fraction of the whole investment, except in cases of fraud, such as the classic Ponzi scheme, where money invested is falsely represented as profits and thus used to lure people to invest in what looks to be a highly profitable investment, but is actually no investment at all.
Thus, Social Security's enemies found a second variation on their original sleight-of-hand move to make a sound insurance system look like a bad investment system, a second example of a Three Card Monte mental manipulation to make the soundest form of financial arrangement seem like a criminal enterprise.
(3) In 1981, Reagan came into office claiming that he would balance the budget by cutting taxes. This was the Laffer Curve con, which I've written about a couple of times before. Basically, the Laffer Curve simplistically illustrates a pretty obvious truth: If taxes were 100%, no one would pay them, and government would get nothing. So there's some level less than 100% that's optimal for getting the most government income.
Laffer, however, used this rather unremarkable fact to baldly assert with no evidence whatever that Americans were paying too much in taxes, and lowering tax rates would bring in more revernue asa result. This was absurd on the face of it, since European governments' tax rates were higher at the time, and they were taking in much larger shares of GDP.
Still, this con succeeded in getting tax rates slashed in 1981, and although Reagan reversed himself somewhat later on, they've never returned to anything like the 1980 levels, even though they very predictably caused our budget deficits to skyrocket. This was yet another example of a conservative Three Card Monte mental manipulation, this time intended to make soaring deficits seem like sound economic policy. It was directly about Social Security, but it was closely related, as well now see.
(4) On a second front, Reagan had been claiming that Social Security was bankrupt for decades. It was bullshit, of course, but facts never bothered Reagan none. In fact, Social Security had been modified a number of times, it was no big deal to make adjustments, not only to expand coverage, and remedy perceived injustices, but also to stengthen financial stability. And so when Reagan's dire prediction finally was close to coming true, people knew exactly what to do: Make a number of different changes that would fix a number of problems at once. And that's exactly what they did. The only difference was that this time they needed to anticipate the problem of the Baby Boom generation, which would overwhelm the system on its traditional pay-as-you go basis. And so they included an increase in Social Security taxes, to fund a trust fund that would build up a reserve of several trillion dollars to pay out in the future, when there wouldn't be enough money coming in.
This, too, has parallels in other insurance practices. Indeed, private insurers tend to make a great deal of their incomes from investmenting current premiums to pay for future payouts. There was nothing wrong with this in itself, but it did create to sorts of potential problems: First, for the lower income Americans, the Social Security tax increase was actually more than the 1981 tax cuts. So it helped to add to the deceptive nature of what those tax cuts had actually done. Second, it created an opportunity for future mischief, one that was virtually inevitable, given the deficits Reagan had ballooned with his Laffer Curve con.
(5) The future mischief I just warned of came to pass in 2001, after Clinton had finally eliminated the debt that Reagan and Bush created. In 2000, Clinton's VP, Al Gore, ran on the promise of protecting that Social Security trust fund. Bush won the election, 5-4, in the Supreme Court, which was a whole other example of a Three Card Monte operation, beyond the scope of this diary, and as a result--supported by virtually every Republican in Washington--he proceeded to pillage the trust fund. The selling of his tax cuts and his multi-trillion dollar wars were yet more examples of Three Card Monte games. People were confused about a great many things, and the whereabouts of the money card was only one of them.
So now let's go back to Dick Armey's quote:
When they had the Alan Greenspan commission, they knowingly raised payroll taxes more than what was necessary to meet the flow of output. Social Security is a pay-as-you-go Ponzi scheme. They knew very well that the extra $250 billion would be spent on their social schemes.
Now that we've reviewed the actual story of what transpired, how many Three Card Monte moves by Armey can you spot in that brief passage? |
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