Objectivism & Libertarians
The Philosophy of Freedom & Its Practitioners
Who is John Galt?

Social Security is an economic scheme contrived by FDR during the Great Depression to provide a supplemental retirement fund for American Citizens.

This sounds benevolent in its presentation but as with anything a politician offers, one is well advised to look below the surface to see the truth of what is openly offered.

The first problem with Social Security is that it is unconstitutional. The Federal government has absolutely NO legitimate authority to involve itself in the finances of any American citizen or business. If you question my assertion here, read the Constitution of the United States of America, Article 1 Section 8 where the specific powers of Congress are enumerated. Also, if necessary, you can read further and assure yourself that Congress has no powers (authorities) not explicitly enumerated in the Constitution.

And because of the expanding beneficiary recipients, over the past years, the rate of taxation for the Social Security fraud has increased. This is the first signs that the pyramid is approaching the point of collapse, i. e., there are not enough recruits available to provide the ever increasing demands for payouts. Thus each payer must pay higher amounts to keep up with the increasing demands of payments to the increasing number of collecting beneficiaries.

Another fix bandied about occasionally for the Social Security fraud is raising the retirement age. When this scheme was created, the retirement age of 65 was a good choice because the life expectancy was very near the age of 65. But, the inevitable law of unintended consequences has caught up with the perpetrators of the fraud. As life expectancy has increased so that many people are living into their 70's, it has already placed the inescapable strain the system that is the ultimate result because of the payout demands. The politicians' plan to fix this problem, though, is not an honest one which would be to eliminate this fraud totally, but rather to raise the retirement age so that fewer beneficiaries may reap the rewards of their investment.

This succinctly illustrates why this system of collectivist fraud should never have been allowed to begin with and why it should be stopped immediately and the creators and practitioners jailed for their fraudulent criminal pursuits.

The other aspects relate to the poor financial benefit of this system if its fraudulent nature is ignored. The following illustration is based on an actual Social Security Administration statement of account. The information here is showing only half of the supposed contribution which is the deduction from the employee’s paychecks. This statement does not reflect the employer’s contribution.

The reality is, this money is stolen from you because you have no means to legitimately access it until and unless the government permits. For example, if you die before the age of 62 or 65, you may not collect any payments from it whatsoever. Your estate sees none of the money to pass along to your heirs. The money is simply gone. It has become the property of some government bureaucrat’s budget to be squandered on whatever is the present government lunacy.

The first three columns are self-explanatory. The remaining columns show a cumulative total of contributions adjusted for inflation and invested in a vehicle returning growth rates of 3%, 5% and 8% respectively. The results presented here are very conservative projections because the investment and inflation adjustments are calculated based on the year end investment growth and inflation figures. It is worth noting that it required an investment return of 5% to have a greater end value (see blue above) when the depreciation due to inflation (see red above) was applied.

NOTE: In the calculations for the second table, I did not have growth figures for the NYSE before 1970. For that period of time, I calculated the growth at unity (no growth, no loss) using the conservative, probably ridiculous, assumption that the market did not grow for that period of eight years. In fact, there was growth but I do not have the figures, thus my computations err to the very conservative side in the figures shown in this table.

The second table shows the growth potential for the same funds invested in a vehicle that grows with the NYSE indexes. Had the investment been placed with the poorest performer of the NYSE indexes, he would have only a half–million dollars for retirement. Had the best vehicle been chosen, the investor would have almost nine-hundred thousand dollars ($881,783) for retirement or had the composite index been chosen, the investor would still have a $675 thousand nest egg for retirement. In any case, the result would be a comfortable nest egg for the average Joe and would even provide the option to pass along something to his heirs, unlike government Social Security.

And recall, this does NOT include the so-called employer contribution which would double all these figures meaning the investor would have at least a $1,000,000.00 nest egg for retirement and the balance would be his to pass along to heirs or charity or other option as he saw fit.

And again, the figures shown here are very conservative with compounding calculated annually at the end of the year in which the given amount would be invested.

What is a Ponzi Scheme? A Ponzi Scheme is the historical name for the Pyramid Scheme named for it's earliest recognized operator, Charles Ponzi (1882?-1949). This is a fraudulent confidence (Con) game in which people are recruited with promises of incredible economic gains.

How does it work? The perpetrator recruits a group (say ten people) and shows them that he is going to return to them a several fold increase in their investment. Each of these people gives him $100. Each of these ten recruits ten people below them and collects the $100 investment from each of them. Each of these $100 investments is forwarded to the top man in this scheme.

In payment for each recruited member in the second level, the top man returns a finder’s fee of a nominal value, e. g., $15, to each recruiter in the second tier. If they successfully recruit ten people, they receive $150 and have already realized a 50% gain on their initial investment.

Those people in the third tier also are asked to recruit ten members each. For each person recruited at the third tier, the top man pays each recruiter a nominal fee once again. Since there are both second and third tier members now, the payments are distributed to both levels. For example, the same $15 dollar payment can be split into a $12 payment to the Tier 3 and $3 to the Tier 2 recruiters.

If he wishes to be particularly magnanimous, the top man could make the second payment, say, $20 dividing it $15 to the Tier 3 recruiters and $5 to the Tier 2 recruiters. And this lucrative payback can be a nice inducement to stimulate further recruiting efforts.

Using the second payments and assuming 100% satisfaction of recruiting quotas, the Tier 3 people receive their $150 payment and incentive to recruit more people. Likewise, the Tier 2 recruiters receive a payment total of $500 from the Tier 4 recruits' investments.

Looking at the table below, it should become apparent where the term pyramid scheme originates. The table below gives the numbers for a four-tier Ponzi Scheme presuming 100% recruitment at Tiers 1-4. If  Tier 5 achieved its recruitment goals, that would include another 100,000 people in the fraud (Tier 6 recruits).

In my example, I presume all investment capital is passed up to the Tier 1 member and he disburses payments to applicable recipients in the appropriate amounts. This means is used merely to simplify my calculations and the overall presentation of the concept involved in this deceptive scam.

In the first table, the columns provide the following information. Tier is the level of the pyramid on which each investor enters the scam. Members shows the number of recruits required to complete the pyramid. Source tier shows the tier whose investment provides the capital. Pay outs shows the funds paid out from the collected revenue. Receives payments shows what is paid to each tier member. Referring to the Source tier column shows the origin of the funds paid. Net receipts shows the amounts received by each member in that tier. Take shows the total received by each member of the associated tier. Tier take shows the total payouts to all members of each tier.

The totals at the bottom are provided to illustrate that the sum of funds collected is equal to the sum of funds disbursed. There is no economic growth, no net gain anywhere in total funds. It is merely a redistribution of the funds taken from various people to a significantly smaller group of those same people. In that redistribution process, the Tier 1 member receives 77.36% of the total proceeds, Tier 2 members 3.29%, Tier 3 members 5.85% and Tier 4 members 13.5% and the Tier 5 members lose their entire investment.

As can be seen from the above illustration, the top tier reaps lucrative benefits and those farther down the tiers receive less and less until those at the bottom contribute their $100 investment but receive nothing in return.

And because of the exponential expansion of each level, the scheme soon runs out of potential investors (victims,).

Note that payments to each tier are made from the proceeds collected from each succeeding lower tier of recruitment. There is no investment, business or other revenue generating mechanism to provide the capital payouts to the tiers. This is the fundamental reason this Ponzi Scheme is a criminal enterprise, because it is a scheme whereby distribution of revenue is a product of the collection of revenue from an ever expanding investor (victim) base.

“So what’s your point?” you ask. Precisely this: if you or I, the average Joe American citizen engages in this enterprise, we are considered a criminal and prosecuted for fraud. But if you are a politician and engage in the same practice, you are a noble, considerate, benevolent public servant. Can you spell hypocrisy?