Number 18, November 15, 1996.

Defrauding the Elderly or Robbing the Young?

By Jim Davidson

Special to The Libertarian Enterprise

         On Saturday 2 November 1996, I had the opportunity to hear the Libertarian Party's candidate for president, Harry Browne, speak at a fundraiser in Houston. I was pleased to hear that he intended as president to obstruct Congress with vetos, to promote the sale of federal assets, and to advocate the repeal of the income tax. In all, I found his comments to suggest that he would be a preferable choice to the other candidates from the other parties. Given the varieties of socialism and fascism offered by the other parties, Harry Browne's preferability is not exactly an endorsement.
         Mr. Browne said something very disturbing. Part of his plan for the sale of federal assets, such as the eighteen-hole golf course adorned Presidio in San Francisco, was the purchase of private annuities for those dependent upon Social Security. I was pleased to hear him correctly identify Social Security as a Ponzi scheme, but I was surprised that he felt the need to distribute so much largesse to its "victims."
         Much is made of the argument that libertarian and anarchist opposition to taxation must be tempered with mercy towards those unfortunate to depend upon Social Security. We are asked to forebear a little bit so as not to violate the promise made to these poverty-stricken indigents in the twilight of their lives.
         Yes, we are told, they were sold a bill of goods. Indeed, any system of asset redistribution which pays out to early investors the funds invested by current investors is properly called a Ponzi scheme, after the first notorious practitioner of this fraud. Obviously, any such scheme which involves a large number of people is destined to failure. Already, the number of people paying in for each person receiving benefits is dwindling. As that number dwindles, an ever greater percentage of the current investors' resources will be required to float the system.
         But, we are reminded constantly by politicians of every stripe, Social Security is a "sacred trust" between the younger generation and the elderly. The term "sacred trust" suggests that Social Security was handed down by the gods themselves. Are we then to be branded both cruel, heartless, and heretical? Evidently.
         Nevertheless, we must take stock of reality and base our actions upon it. Who are the real victims of Social Security? The average recipient of Social Security has an income of $65,000 per year. Clearly, the vast majority of these people provided for their own retirements in spite of the promises of Social Security. On the other hand, those paying into Social Security have an average income of $35,000 per year.
         Suddenly, Social Security ceases to appear to be a means of guaranteeing the survival of the indigent elderly and becomes what it has always intended to be, a massive transfer of wealth from the poor and middle class into the hands of the wealthiest members of society. For people of my generation, those between 22 and 34 years of age, that wealth transfer over the course of our lives will total approximately $250,000. In other words, after paying into the Social Security system and receiving benefits therefrom, I will at the end of my life be $250,000 worse off than if I had never started paying in. Curiously, those of my parents generation presently between 68 and 82 years of age, will receive a net positive return of approximately $70,000.
         Tracing the roots of Social Security, we find that it was initially promoted as a mechanism for encouraging the elderly to quit the workforce, purportedly to "make room" for younger people who were out of work during the Great Depression. Obviously, the oldest workers rarely occupy positions that would be made available to the very young, so the alleged benefits of this approach to employment redistribution hardly made sense at the time. Moreover, it was not the presence of the elderly in the workforce that initiated the Great Depression, or any other panic or recession known to economists.
         Rather, it was the direct intervention of the federal government in the economy which caused the Great Depression. The anticipation of a major tariff increase was one of the reasons the stock market crashed. The response of the Federal Reserve to that crash was to immediately tighten credit by raising interest rates, greatly magnifying the effect of the crash. That was followed by the long-feared passage of the Smoot-Hawley Tariff Act, which raised tariffs on imported goods and caused other nations around the world to raise their tariffs. It was the raising of interest rates combined with the raising of barriers to American exports which caused the Great Depression and threw almost a quarter of the population out of work.
         Having completed these two acts of insane economic intervention, the federal government looked around for ways to alleviate the terrible difficulties they had caused. Social Security was proposed as a temporary measure, and like so many temporary measures it became permanent. It might be noted that at the time the Social Security legislation was passed, the fear of a national identification number was sufficient to cause the legislators to forbid the use of the Social Security number as a means of identification for any purpose other than the payment of taxes or the receiving of benefits. Quite naturally, this promise, like so many others relating to this horrible scheme, has been entirely subverted.
         The question then becomes, who are the victims of Social Security? Those who receive benefits from the system and have become dependent upon them are certainly to be considered subjects of sympathy. However, the number of these individuals, while easily the subject of the majority of anecdotes on the issue, is really quite small. At the most a very few tens of thousands are thus dependent, while tens of millions are the eager beneficiaries of Social Security.
         Would we be more sympathetic toward the plights of those paying into the system, and being denied the opportunity to work because of the very high cost of payroll expenses, if we cast them in their actual role as slaves? Compare their plight to that of the black slaves of the Old South. Certainly, the whips and chains of their oppressors are disguised by the trappings of governmental authority. But enslaved they are, nevertheless.
         And what of the Southern ladies and gentlemen who are so dependent upon the slaves? Little modern sympathy is lost on these unfortunates, who played the role that the contemporary dependent upon Social Security plays. That Southern ladies and Southern gentlemen would be forced to find their own ways, labor in their own fields, and make their fortunes from the fruit of their own labor is not considered unjust, but is matter-of-factly presented as common sense.
         Yet somehow, those who were promised an easy living with Social Security off the backs of younger generations, those who benefit from one of the most despicable inter-generational wealth transfers of all time, these King Toads are made out to be the subjects for great sympathy. Somehow, freeing those enslaved to their benefit would represent the breaking of a "sacred trust."
         When government bureacrats come across a Ponzi scheme being promoted in the private sector, they break it up. The enforcers of our securities laws, and those concerned with fraud crimes are very vigorous in their determination to stop such schemes quickly so that no more investors may come to harm. The victims are left to their own devices, and while they may often sue those who perpetrated the scheme, they are unlikely to recover an amount even remotely approaching their total investment. In general, society takes the view that such hard lessons are to be learned by the victims, and while the punishment of the perpetrators is often swift, their victims often still suffer from their loss.
         But in the case of the government's Ponzi scheme, no such callous attitude may be permitted. Obviously, the only appropriate course of action is to cease the operations of this scheme and punish the perpetrators who have continued to promote it for generations. Perhaps the victims who have paid in may properly seek compensation from the politicians who defrauded them, but there clearly aren't sufficient funds to return their entire investment to each victim.
         Certainly we should sympathize with the victims of this Ponzi scheme. After all, their government is supposed to protect them from such fraud, and here it is perpetrating an enormous fraud upon them. However, I do not believe I have any obligation toward these people. If one or more of them makes a successful appeal upon my private charity, that does not burden me with any requirement to support any of the others.
         So, I am quite shocked at Harry Browne's suggestion that federal assets should be sold off to buy these victims private annuities. Having done some research on the supposed value of federal assets, I've learned that many of these resources are not even federally owned, but provided for defense use by state or local governments. However, even if the assets in question were equal to the task of buying out the victims of Social Security, I question whether that is an appropriate first use of such assets. Perhaps the economic impact of defaulting on the Federal debt should be given some consideration. Or perhaps all federal assets should be sold at auction and the proceeds divided equally among all the population of the United States.
         After all, why give preference to those whose average annual income is $65,000 over those whose average annual income is $35,000 when they happen to be of greater age? Perhaps there should be equal consideration to the chronologically challenged. After all, the taxes of the young also helped pay for acquisition and maintenance of these federal assets.
         The fact that the end of any Ponzi scheme creates hardship for the victims does not excuse untoward actions on behalf of those benefitting from Social Security. Fraud takes its toll on all of us, as does any form of theft. Allowing the fraud to continue cannot help anyone. Preferentially re-distributing federal assets, although a one-time event, is no less deceitful. If the ownership of federal assets is commonly held by all the people, then redistributing them only to those who are benefitting from Social Security would amount to stealing them from the rest.
         Eliminating Social Security poses a hardship for some, just as eliminating slavery posed a hardship for some. Are we to seek that hardship all at once, or are we to bit the bullet and have it over with? Equally, continuing the Social Security system poses a hardship for many, just as the continuation of slavery posed a hardship for many. Are we to delay the end of Social Security for the benefit of those who have become dependent upon it, and thereby continue to enslave the majority? Our best course is obvious: we must end this Ponzi scheme immediately in order to limit the number of victims harmed.
         As we contemplate the end of Social Security, we should consider the merit of eliminating all forms of taxation. A constitution for a properly established country would not permit theft in any form, be it payroll tax, income tax, excise tax, or tariff. Such a constitution has been written, and is available from the author ( The benefits of society and other forms of voluntary association are not improved by making them compulsory. Rather, it is only through voluntary means that we may hope to form a just civilization.

Jim Davidson has always been a liberty minded individualist, but got very serious about it after the state shut down his space tourism company, Space Travel Services, in 1991. Jim has a bachelor's in history from Columbia (1985), an MBA in marketing from Rice (1987), has worked in aerospace, software, banking, real estate, and is currently Chief Operating Officer of a $3 million revenues medical company. Among his other interests, Jim has been president of the Houston Space Society and scubas whenever he can.

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