Gary North’s Reality Check (Nov. 2, 2012)
Carlo “Charles” Ponzi was a con man who was the Bernie Madoff of his era. For two years, 1918 to 1920, he sold an impossible dream: a scheme to earn investors 50% profit in 45 days. He paid off old investors with money generated from new investors. The scheme has been imitated every since.
Every Ponzi scheme involves five elements:
1. A promise of statistically impossible high returns
2. An investment story that makes no sense economically
3. Greedy investors who want something for nothing
4. A willing suspension of disbelief by investors
5. Investors’ angry rejection of exposures by investigators
Strangely, most Ponzi schemes involve a sixth element: the unwillingness of the con man to quit and flee when he still can. Bernie Madoff is the supreme example. But Ponzi himself established the tradition.
The scheme, once begun, moves toward its statistically inevitable end. From the day it is conceived, it is doomed. Yet even the con man who conceived it believes that he can make it work one more year, or month, or day. The scheme’s designer is trapped by his own rhetoric. He becomes addicted to his own lies. He does not take the money and run.
This leads me to a set of conclusions. Because all Ponzi schemes involve statistically impossible goals, widespread greed, suspension of disbelief, and resistance to public exposure,
All fractional reserve banking is a Ponzi scheme.
All central banking is a Ponzi scheme.
All government retirement programs are Ponzi schemes.
All government-funded medicine is a Ponzi scheme.
All empires are Ponzi schemes.
All Keynesian economics is a Ponzi scheme.
But there is a difference between a private Ponzi scheme and a government Ponzi scheme. The private scheme relies on deception and greed alone. A government Ponzi scheme relies on deception, greed, badges, and guns.
Political liberals in the mainstream media get very upset when somebody speaks of the sacred cow of Social Security as a Ponzi scheme. They go gunning for any political figure who uses the phrase “Ponzi scheme” in relation to Social Security. This is because they know that such a politician is a conservative, and they want to see him defeated at the next election.
It doesn’t matter whether politicians say the naughty words or not; the Social Security system is a Ponzi scheme, and it will go bust.
Medicare is a vastly larger Ponzi scheme, and it, too, will go bust. In fact, it will go bust with such an impact on the federal budget that it will pull down the Social Security system with it. In fact, if the promises are not broken to the oldsters who are dependent upon Medicare and Social Security, the deficits in the Medicare system will bring down the entire federal government. The government will default on all of its debts. Anybody who bought that debt will then wind up as helpless as the people who have become dependent upon Social Security and Medicare.
The people who are dependent upon Social Security don’t want to hear this. They want to tell us that they paid into the system, fair and square, and therefore we owe them the money. Well, I am in the system, and I paid into the system, and I’m going to cash my checks from the system, but I will be glad when the system goes belly up.
ETHICAL CAUSE AND EFFECT
Why should the thought of the bankruptcy of these Ponzi schemes cheer me up? Because I believe in ethics. I am horrified by the thought of a completely unethical system being successful over time. The longer the day of reckoning is delayed, the more people will be lured into it. I wish the system would go belly up sooner than later, because fewer people will become dependent on it if the system goes belly up sooner rather than later.
Sadly, the people who believe that it is ethical to stick a gun in the belly of one man and take his money, in order to support someone else, are in favor of the Social Security system. They want it to keep going forever. They want the moral corruption of coercion to continue.
The initial motivation for sticking the gun in a man’s belly was political rather than charitable. Chancellor Otto von Bismarck in the 1880s rammed the first old age retirement program down the throats of German politicians because he knew that this would undercut the liberals, which it did. The reasons were not based on charity. The reasons were political. They were justified by arguments favoring state-funded charity, but it was all a con job, as all Ponzi schemes are.
But Social Security is vastly more corrupt than a Ponzi scheme, because a Ponzi scheme involves no coercion and a lie, whereas Social Security involves massive coercion and a much bigger lie. I will shed no tears when the system goes down.
(On why it will go down, click the link.)