Updated: Aug 4, 2022
In 1935 the Social Security Act was signed into law by Democrat, President Franklin Delano Roosevelt (FDR).
Sold primarily as a government run "old age" insurance program designed to pay retired workers, aged 65 or older, a regular income following retirement, Social Security was supposedly a program which had the function of providing relief from the Great Depression.
However, by the time the first benefits were paid out in 1940, the depression had all but run it's course and was nearly over, due to the Supreme Court ruling that a large portion of FDR's other socialistic "New Deal" programs, which had prolonged the depression, were unconstitutional.
Nevertheless, what may have been the worst of the Roosevelt New Deal programs, Social Security was left intact and is still a lasting legacy of Roosevelt's economic (central planning) failures to burden future US generations, perpetually, until it is someday repealed.
Theoretically, under the Social Security program, the income earner has a portion of his/her income withdrawn by the government to be put aside in some kind of "savings account" and paid back, in portions, as a living income, to that same payor when he/she hits retirement age.
This sounds wonderful. Right?
Unfortunately, this utopian fantasy does not work that way, as it truly functions.
The way it really works is that, rather than the money taken from the income earner's paycheck be place into an investment account to earn interest, the current income earners have a portion of their incomes extracted by the government to be paid to those who have already retired. This is what is called, a Ponzi scheme.
"A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers."
-James Chen, Investopedia
Ask Bernie Madoff. Ponzi schemes are illegal. If Social Security had been set up and implemented by a private citizen, he would have been arrested and sent to prison, Yet, our government has created the largest investment scam in American history.
“Government-run social insurance programs seldom have enough assets to cover their liabilities, but rely instead on making current payments out of current receipts. These are called pay-as-you-go programs—and sometimes they are also called pyramid schemes.”
— Applied Economics: Thinking Beyond Stage One by Thomas Sowell
I will now try to explain how this works.
The first beneficiary of recurring Social Security payments, Ida Fuller of Ludlow, Vermont had paid a total of $24.75 into Social Security from 1937 to 1940, when she retired at age sixty-five. She received her first Social Security check on January 31,1940, in the amount of $22.54 which was nearly the entire amount she paid in during her three years in the system.
By the time she passed away at age 100, in 1975, she had been paid $ 22,888.92, which is about $ 1,000 for each dollar she paid in.
So far so good, eh?
Where do you think that $22, 864.17, over the amount Miss Fuller paid in, came from? It didn't come from interest earned or profits from a high yielding investment. It didn't come from taxing the rich, as most communists/socialists would claim that social benefits would come from, if the beneficent government provided them. It came from stealing wages earned by the current "working class" citizens. Thanks Roosevelt.
And it gets worse.
Ida Fuller may have gotten a 92,000% return on her investment by taking from future generations but those who are currently paying in will be lucky to get a 100% return. Many will be lucky to live so long.
Even though taxes have increased dozens of times, the returns have decreased, dramatically.
"By 2030, the payback period is estimated to be about 18 years. It has become increasingly clear that Social Security is a bad deal that is getting worse every year."
— FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression by Jim Powell
Furthermore, as economist, Milton Friedman observed, Social Security benefits the wealthy more than the poor.
“In addition to the transfer from young to old, Social Security also involves a transfer from the less well-off to the better-off. True, the benefit schedule is biased in favor of persons with lower wages, but this effect is much more than offset by another. Children from poor families tend to start work—and start paying employment taxes—at a relatively early age; children from higher income families at a much later age. At the other end of the life cycle, persons with lower incomes on the average have a shorter life span than persons with higher incomes. The net result is that the poor tend to pay taxes for more years and receive benefits for fewer years than the rich—all in the name of helping the poor!"
— Free To Choose: A Personal Statement by Milton Friedman, Rose Friedman
In other words, doctors, lawyers, and people who get masters degrees, for example, usually go to college right out of high school and tend to contribute to social security much later in life than the poor who start working right out of high school and the percentage of their income that is taken is much lower than the percentage taken from lower income earners.
Social Security is also Racist.
Whites and especially Asians, have a longer average life expectancy than do blacks. The result is that on average blacks receive less back of what they paid into Social Security than what other racial groups receive. I wonder if Democrat Roosevelt was aware of this. He did nominate a member of the KKK to the Supreme Court to make sure his new deal policies were upheld. It wouldn't surprise me.
Also, over a lifetime of contributing to the Social Security system, due to inflation, the dollars that were contributed during the early years of payment are worth a fraction of what it is when you retire. Minimum wage is five times what it was 40 years ago. Therefore, the money that was paid into Social Security 40 years earlier is worth five times less.
That money would have been better spent in a private investment account or converted to an asset that could earn money as passive income.
Even Roosevelt was aware that Social Security was flawed but the well-being to the American citizens was not his primary concern.
'When an accountant quizzed Roosevelt about the economic problems with social security, especially its tendency to create unemployment, he responded, “I guess you’re right on the economics, but those taxes were never a problem of economics. They are politics all the way through.” Roosevelt explained that “with those taxes in there, no damn politician can ever scrap my social security program.” That’s why, as Roosevelt admitted, it’s “politics all the way through.”"'
— New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America by Burton W. Folsom Jr.
Democrats view Roosevelt as the best president ever because he was a progressive/socialist and a quasi-dictator. In their eyes, all of the failed New Deal programs were the best thing since sliced bread. Despite it's failing, many politicians fight, to this day, to keep it intact. But why?
It seems Roosevelt wasn't the only politician to ever put self-interest ahead of public interest.
If a private enterprise is a failure, it closes down—unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find exceptions. The general rule is that government undertakes an activity that seems desirable at the time. Once the activity begins, whether it proves desirable or not, people in both the government and the private sector acquire a vested interest in it. If the initial reason for undertaking the activity disappears, they have a strong incentive to find another justification for its continued existence.”
— Why Government Is the Problem (Essays in Public Policy Book 39) by Milton Friedman
Politicians have known for decades that the Social Security program is in the state of decline and will collapse within the lifetime of many who are already paying into the system. Yet, all proposals to create a better program are voted down by Democrats who refuse to recognize that their utopian socialist model is not sustainable.
“By the end of the twentieth century, however, the day of reckoning began to loom on the horizon for these government pension programs, as it had for the original Ponzi scheme.”
— Applied Economics: Thinking Beyond Stage One by Thomas Sowell
I propose here that a big reason that Democrats look the other way as millions of illegal aliens cross the border unvetted is to get them working, especially with fake social security cards, so they can help pay into the broken system and keep their charade going.
Social Security is a Ponzi scheme.