Audit Notes: Social Security and Ponzi, Regulation, Hamster Wheel

The Wall Street Journal’s Laura Meckler has a nice rebuttal to Rick Perry’s false claim in last night’s Republican debate that Social Security is a “Ponzi scheme.”

Strictly speaking, the metaphor is misleading. A Ponzi scheme, named after Boston conman Charles Ponzi, is a fraudulent investment operation. In its essential design it’s a con. Investors don’t earn interest and instead are paid off by other dupes. Because these schemes require an ever-increasing number of new participants to pay off earlier investors, they inevitably collapse.

Social Security isn’t an individual investment plan. It’s a government insurance plan that offers seniors a predictable income. Retirees do indeed depend on future workers to pay their Social Security benefits, though unlike a Ponzi scheme, nobody pretends otherwise. The notion of this kind of inter-generational transfer is baked into the policy.

You just can’t keep a Ponzi scheme going for seventy-one years. The whole point of calling Social Security a fraud is to undermine political support for it by those who aren’t yet retirement age.

Meckler points out the math:

Ponzi’s scheme was unsustainable because the basic math of his system required ever increasing and unrealistic numbers of investors. (For more on the history, click here.) If a similar plan started with 1,000 investors, by the 20th round, the scheme would need more new investors than the entire U.S. population to pay off the earlier investors.

Social Security’s system is unsustainable, at least as presently written, because the U.S. has an increasing number of retirees and fewer workers to support them.

— Last week, McClatchy’s Kevin G. Hall fact-checked another right-wing talking point: That regulations and taxes are what are weighing down American businesses. He went out and talked to actual business owners to get their word for it.

McClatchy reached out to owners of small businesses, many of them mom-and-pop operations, to find out whether they indeed were being choked by regulation, whether uncertainty over taxes affected their hiring plans and whether the health care overhaul was helping or hurting their business.

Their response was surprising.

None of the business owners complained about regulation in their particular industries, and most seemed to welcome it. Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath.

— Jack Lessenberry of Detroit alt-weekly the Metro Times is on board with Audit CEO Dean Starkman’s criticism of journalism’s “Hamster Wheel.”

Lessenberry slams a memo by an editor at the Journal Register Company (“which is to journalism what a Soviet slave labor camp was to the union movement”), calling it “the single most stunning example I’ve ever seen of what is wrong with print journalism today.”

The memo asks if reporters covering a hypothetical city council meeting crowdsourced it beforehand, uploaded the agenda to Scribd, checked in on Foursquare, tweeted the meeting, took video of “local residents during the meeting protesting the decision, process it during the meeting, and post it on our website before the meeting ended”, wrote short versions of breaking news for the website and social media, and convened a live chat the next day.

Phew! Sure doesn’t leave time for a whole lot of reporting—much less thinking.

But let me suggest one digital-age practice Lessenberry ought to adopt, so long as it doesn’t push him into the wood shavings: Linking to sources. He doesn’t link to the memo. It’s here.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,