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baltimoresun.com

Social Security is flawed, but it's no Ponzi scheme

10:00 AM EDT, September 25, 2011

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Peter Morici's characterization of Social Security as a Ponzi scheme in his recent opinion piece ("Yes, Social Security is a Ponzi scheme," Sept. 22) is an affront to all intelligent people. In the first place, a Ponzi scheme is a deliberate attempt by a "snake oil salesman" to convince gullible investors that they will profit tremendously in a short period of time. The good majority of those who participated in Social Security in 1935 were not destined to ever collect.

That's because people in those times did not live to the ripe old age of 65. Those who joined when they were in their 20s and on paid in but, in large part, never collected. Neither did their wives. While, as Mr. Morici states, those who joined at age 65 collected, only the few did and not for very long. That destroys the Ponzi theory.

As to Social Security being a valid program, much as changed since its inception. People with disabilities were not recipients in the early days. Additionally, contribution rates did not keep up with the rise in the standard of living which was accompanied by greater longevity and, therefore, greater disbursements. Admittedly, contribution rates were later increased but never seemed to keep up with people living longer and therefore collecting longer. The damage had been done.

Wives, who traditionally live longer than their husbands, started to collect their own Social Security benefits. After their husbands died, their benefits increased. Women who had been part-time workers before marrying often collected far in excess of that which they had paid in.

Those short periods of contributing were not sufficient to meet the burden to the system caused by women living many years beyond the age of 65 (though certainly not their fault). The fault was in Washington not seeing, or not wishing to see, that the system had to be revamped. Later changes never were enough to cut into the increasing deficit.

Lastly, although it may sound crass, the enormous loss of workers whose lives were cut very short by wars wreaked tremendous damage to the system. From a purely analytical view, many of those men and women would have paid into the system for 30 to 45 years before collecting. Many would never have collected and many others would have collected little before passing on. I'm not an actuary but I believe that would have made quite a difference in the state of Social Security today. Mr. Morici's solution — to raise the retirement age — hopefully, in stages so as not to disenfranchise those between 65 and 70, may help, but it isn't enough unless the entire system is reworked. But that is a job for an accredited economist such as Mr. Morici, perhaps.

John Haupt, Street