The Breakdown

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Mitch Daniels dangerously misrepresents Social Security

The "Social Security is a Ponzi scheme" argument just won't go away. You'll recall that Rick Perry got in trouble for rehashing this allegation, made in his book, during a GOP candidates debate at the Reagan Library. Republicans then pivoted slightly, moving away from Perry's extreme view, toward their more traditional position: that Social Security needs to be "reformed." 

The last time the GOP took a serious crack at reforming Social Security, George W. Bush was in the White House, and he put before Congress a proposal to privatize a portion of Social Security, insisting that investment returns were the best way for Americans to keep the system solvent.

Now Mitch Daniels has taken up the charge. Or I should say re-taken-up the charge, as the Indiana Governor, who's being touted as a possible vice-presidential pick, has been a critic of Social Security going back to the days when he was…George W. Bush's Director of the Office of Management and Budget.

Daniels has a new book out — "Keeping the Republic" — and while he certainly commands a great deal of respect in both national Democratic and Republican circles for running a tight ship in Indiana, he's seriously misrepresenting how Social Security works. I've already blogged about why Social Security isn't a Ponzi scheme. The Social Security Administration has also gone to great lengths to explain why this monument of the New Deal, which has kept millions of Americans out of poverty, isn't a Ponzi scheme

Daniels on the other hand seems determined to point out that everyone who puts their faith in Social Security is delusional and has been for decades. Why, even liberal economists like Paul Samuelson said it was a Ponzi scheme! See! Rick Perry and I aren't so nuts after all!

Daniels was interviewed on NPR's Morning Edition this morning. Here's what he had to say:

Daniels says neither he nor Perry is the first to see elements of a Ponzi scheme in the U.S. Social Security system.

"That comparison's been used for decades," Daniels tells NPR's Steve Inskeep. "Paul Samuelson, the liberal Democratic economist, was using it in the late '60s."

But the comparison is still a valid one, the governor says.

"I do think it's important in pointing out that Social Security is, and always was, a pay-as-you-go system," he says. "It never was, as many Americans were led to believe, an arrangement in which you invested in your own retirement. The money was always going right out the door to the retirees of the day."

And here's what Paul Samuelson actually wrote, in 1967:

Irony oozes off what Samuelson is saying about Ponzi schemes, as does a nonpartisan confidence in the American capitalist system that has since vanished from Washington. Daniels doesn't even distort Samuelson's argument correctly. Samuelson isn't arguing that Social Security is a Ponzi scheme — he's arguing that the entire United States of America is! And it redeems what's otherwise an investment scam doomed to failure by delivering two critical things: population growth and wage growth. 

Ponzi schemes don't do that. The Ponzi schemer is always waiting around for the day when the returns won't cover what he would have to pay out if every investor demanded all his money at once. At which point the Ponzi schemer either heads for hills or waits for the knock on the door and the click of the handcuffs. Eventually, there will no more suckers and no more money, and the clock is ticking from the moment the first brick is laid in the corrupt pyramid.

In 1967, Samuelson probably didn't envision an America in which wage growth would stagnate a few years after he wrote the words above — and stay that way. On the plus side, America's population is still growing (although the rate of growth is slowing as the nation ages). So we only have to address one aspect of the problem.

It's hard to tell how much of what Daniels says is ideologically driven and how much is based on actual analysis of the issues that are facing Social Security. He seems to think that current and impending retirees may have to make some sacrifices to ensure that the system is still in surplus well into the century. 

That makes sense, as many beneficiaries are now living far longer in retirement than previous generations.

As such, Daniel's views on Social Security are in keeping with the right-wing view that it's a flawed legacy of the Roosevelt era. But he's also taking a less threatening, more reasoned stance on why it's flawed, which should reassure older Republican voters and Inependents who might think that Perry is a maverick who's going to take away their retirement.

But this also suggests that Daniels is a wolf in sheep's clothing. The bottom line is that he and Perry are both wrong about Social Security. The difference is just a matter of tone.

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