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Social Security: Unconstitutional Ponzi Scheme Born In Fraud

22 September 2011 @ 19:06

Since Leftists, Mandate Mitt Romney, and the RINOS have been making a big who-ha-ha over Governor Rick Perry’s labeling of Social Security as a Ponzi Scheme, much pablum has been puked by those who either are determined to live in denial about the truth of this horrid government program and who knowingly want the massive fraud to continue because it suits their ideological ends.

Two issues, in particular I think, are the most important ones being discussed…

-Over the past two days, there has been a vigorous debate happening over at National Review Online’s The Corner, primarily between Nicole Gelinas, writer at City Journal, and Andrew McCarthy, former Federal Prosecutor.

Mz. Gelinas claims:

…In reality, the Ponzi money is commingled with others’ money to pay off previous victims.

It is fraud that bridges the difference between the perception and the reality. And it is the outright fraud that constitutes the Ponzi scheme.

Social Security does not attempt to perpetrate a similar fraud, or any fraud at all. Everyone knows — or should know — that his funds are commingled with others’ funds. Social Security is not a collection of private investments whose principal generates individual income streams for the future. Social Security overtly redistributes money, with today’s workers paying for today’s elderly benefits.

And everyone knows — or should know by now — that the problem has a long-run mismatch between revenues and expenses.

Therefore . . . Social Security is not a Ponzi scheme. The public cannot be outraged at a perpetrated fraud, when no fraud has been perpetrated.

Social Security is a government program, and a popular one, that needs reform if it is to achieve its goal. In a Ponzi scheme, the only goal is to perpetuate the fraud to enrich its designers.

Andrew McCarthy, who unlike Mzz. Gelinas, knows his Constitution, the law, and history makes mincemeat out of her argument.   It is a joy to read and may be found by clicking here.

Mr. McCarthy also provides a short history lesson on the real original intent of Social Security [tip of the fedora to Admiral Smitty]:

As a great admirer of your work, I’m very surprised by your claim that Social Security’s designers and perpetrators have not attempted to perpetrate a fraud. The program was hatched in fraud. As I pointed out yesterday, FDR pretended it was an insurance program in order to sell it to the public; once Congress enacted it, he then told the courts it was not an insurance program but a tax in order to get it upheld (by justices he had successfully intimidated with a court-packing plan). He later admitted that disingenuously portraying the tax as a contribution for earned insurance benefits was “politics all the way through.” The goal was never to make the economics work. As you correctly point out, they don’t work, and FDR was well aware of that fact. The goal was to make sure, as he put it, that “no damn politician can ever scrap my social security program.” Fostering a sense of public entitlement, he presciently reasoned, would induce politicians to position themselves as defenders of this entitlement — and never you mind the math.

Furthermore, the real objective of Social Security was not to set up a retirement insurance program. It was to lay the foundation for a full-blown entitlement state, complete with socialized healthcare. The original plan included a Medicare component, which was abandoned because FDR realized it would jeopardize passage of social security. (The push on Medicare, as I’ve recounted before, was renewed immediately after passage — although it took 30 years, due to deep opposition from the public and the medical profession.) As Gov. Perry points out in his book, while feigning to address a “crisis,” Social Security (like Obamacare) collected the taxes (“contributions”) for several years (from 1935 to 1942) before any benefits were paid out; and the eligibility age was pegged at 62 even though life expectancy was then 60. The goal was not to ensure a decent retirement for “beneficiaries”; it was to erect — in incremental stealth — an entitlement state that the public would never have supported if Progressives had been forthright about their ambitions. Social security was the foot in the door.

Indeed it was — a big one.  Ever since the events related by Mr. McCarthy, the Left had a much easier time making the cases for all of the entitlement programs that have followed and have further enslaved us to the state in serfdom.

Nicole Gelinas has chosen to live in denial that SSI was conceived in sin, as it were, and is a product of the devilish mind of a someone with ‘a first-class temperament’ who sought nothing less than to enslave the citizens of America to a state run by the chosen Elites.  She is a poster child for why one always has to be suspicious of the Neo-Cons, a good number of whom seem to have a problem shaking their lust for government intervention.

-As to the issue of whether or not the Social Security program is constitutional, let us turn to Andrew McCarthy again:

…Let’s just focus on the Supreme Court’s upholding of the law in Helvering v. Davis (1937). It was controversial, and the decision was driven more by FDR’s threat to pack the Court than by any concern for originalism.

The government argued that Congress’s constitutional authority came from the power to “lay and collect Taxes . . . to . . . provide for . . . the general Welfare of the United States” — found in the preamble of Article I, Section 8. This called for an interpretation of the General Welfare Clause.

James Madison, the principal author of the Constitution, had contended that the clause was not a grant to Congress of an open-ended power to confiscate and spend public money for any purpose that Congress decided would further the general welfare. Such a construction would undermine the Constitution’s federalist system, in which the states maintained sovereign power, the central government’s powers were strictly limited, and the individual was protected from federal intrusions.

Instead, Madison said the General Welfare Clause had to be understood as limited by the powers enumerated in Article I, Section 8 — i.e., Congress could tax and spend for those purposes and no others. That construction was also consistent with the Constitution’s overall framework. Were we to adopt Madison’s interpretation, Social Security would be unconstitutional: There is no enumerated power in Article I, Section 8, authorizing Congress to set up a national insurance system; and the Constitution, in the Tenth Amendment, explicitly reserves to the states and the people the powers not delegated to the national government.

The competing interpretation of the General Welfare Clause, credited to Alexander Hamilton, regarded the clause as a stand-alone grant of overarching power to Congress to tax and spend for any purpose that Congress, in its wisdom, decided would be beneficial for the American people. Under this interpretation, the federal government has overwhelming authority — Congress is not limited to its enumerated powers and the Tenth Amendment is virtually toothless.

Cowed by FDR’s threat to pack the Court if it continued to block the New Deal, the Supremes adopted the Hamiltonian position in United States v. Butler (1936), and then reaffirmed it in Helvering, the Social Security case. But the fact that this is where the justices came out does not mean they were right — as Governor Romney implicitly acknowledges when he condemns activist courts and argues that Roe was wrongly decided. In fact, the Helvering Court claimed that the General Welfare Clause, and the Constitution in general, are organic. In a passage that would seem anathema to an originalist, the majority asserted, “Nor is the concept of the general welfare static. Needs that were narrow or parochial a century ago may be interwoven in our day with the wellbeing of the Nation. What is critical or urgent changes with the times.” Sounds like The Living Constitution 101.

Oh…it is.  FDR bullied the SCOTUS, like the good dictator-wannabe he was, and they caved, in the process condemning us to over a half-century of creeping Fascism that has culminated in the openly Fascist actions of the Reid-Pelosi-Obama attempted [and successful so far] putsch.

Alexander Hamilton was a many of many talents and his tenure as Secretary Of The Treasury was in many ways magnificent, but he put very little stock in the idea that the states were sovereign in their own right, that they acted as an addition check on the power of the national government.  One can only judge by the views he took and argued for in these kinds of matters that he thought some part of The Constitution were to be accorded more legitimacy than others.  He and like thinkers were known as High Federalists and were opposed within the Federalist Party by men such as John Adams and John Marshall who held opinions and beliefs closer to James Madison’s interpretation of The Constitution. 

If Mr. Hamilton’s way of thinking had triumphed I have no doubt that we as a nation would have taken our turn on the Road To Serfdom and Tyranny a lot earlier than we did.  As it was, the High Federalists gained control over the Federalist Party and proceeded in short order to destroy it.  At this cost, Adams was vindicated, but The United States gained more years of freedom to grow before the Progressive onslaught.

One Comment


  1. The Libertarian: Social Security - a Ponzi Scheme ?

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