Letter to the Editor ¦ August 23, 1999
Privatization and Ponzi (Response to Milton Evrati)

By David Langer

Milton Evrati's Aug. 9 reply to my article, "Carl Ponzi Returns" (Pensions & Investments, June 14), states that, contrary to my contention that the privatization of Social Security has key aspects of a Ponzi scheme, it is Social Security itself that is the Ponzi scheme.

We therefore need to compare Social Security and privatization to see which comes closest.

The dictionary defines a Ponzi scheme as an "investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks." To swindle is to "obtain money or property by fraud or deceit."

The costs and benefits of Social Security are well known to workers and employers, and the program has not been associated with swindles (except that the privatizers would have it so).

While Mr. Ezrati suggests there is little genuine investment return to workers, the return can, in fact, be substantial: they are covered for substantial death and disability benefits, and the contributions are largely transferred to pay benefits to retirees, dependents and beneficiaries.

The value of the transfers can range from workers not having to directly support needy relatives with cash, or by having them move in, to not having to support other needy persons indirectly through higher taxes for welfare programs and charity. (Those who claim that workers purportedly receive low yields from Social Security fail to recognize these savings.)

Workers and spouses are also entitled, of course, to receive retirement benefits for life, and all benefits include cost of living increases.

On the other hand, the privatization groups have thoroughly tainted themselves with their deceptions. These have occurred in two phases: In order to undermine the solid public confidence in Social Security, they have campaigned long and hard to impugn its financial strength and denigrate its integrity with misleading arguments. Secondly, they have exaggerated the wealth workers would achieve with privatization, while failing to let the public know the extent of wealth and power to inure to the privatizers, the high costs of their scheme, and the vulnerability of workers and their families to financial sharks under privatization.

The privatizers have won the right to wear the Ponzi label hands down.

- David Langer, a consulting actuary and president of David Langer Co., Inc.
New York

Ponzi Rebuttal ¦ Letter by Milton Evrati, Pensions and Investments, August 9, 1999

Carl Ponzi Returns: The privatization of Social Security harkens back to an old scheme ¦ by David Langer, Pensions and Investments, June 14, 1999