I’m sure by now pretty much everyone has heard of Madoff’s 50 billion dollar pyramid scheme. I’d hate to divulge deeper into this scandal as I’m sure the news has covered it quite extensively already. However, I’d like to cast light on another Ponzi/Pyramid scheme that has been in the making for over 70 years now; the one and only Social Security Act of 1935.

The idea behind Pyramid schemes are that the first people into the system are paid off money from the newer participants who are promised the same payoff in the future. The problem with this is they become unsustainable because they become larger and larger, so called “bottom heavy”

How does Social Security fit into this scheme? Quite nicely (See below).

Not a whole lot of explanation is needed except for that in this Social Security scheme the problem is even exacerbated by the fact that the next “rung” of the pyramid is mis-shaped with the baby boomers which has helped to hide the problem and imminent failure of social security. This is because this enlarged rung of the pyramid has been over-adequate the past few years and masked the future inability of this program to sustain itself. But, the problem will be magnified because of this as the so called baby boomer generation retires leaving the next rung to the burden of somehow supporting this oversized generation.

The scary thing is that today, we are farther away from the real solution to the Social Security system which is a privatized system. Why are we farther from this idea then we were 5 years ago when President Bush stated in his State of the Unions it was a priority? Because of the idea that somehow Americans are unable to decide their own future. The argument was always that if given the investment choices and ability to control their social security funds, Americans would be hurt because they would invest it and lose it. Well, today that scenario seems more likely than it did a few years ago. It is a sad state we live in where the Government not only attempts to use, but successfully uses a free individuals potential for poor investment as a justification for why they should not be able to determine their own financial future. Just fathom that for one second. We may lose our money if we invest it. Therefore, we should not have the authority to decide where our money goes. If you break it down even further, that is some flat out dangerous logic, and an even worse precedent.

The Social Security system, established in 1935 as a “temporary” solution, has hardly been temporary, and even worse hasn’t been a solution, but a ticking time bomb. We may lose our money if we invest it ourselves, but we will certainly lose it if it stays in the 74 year old ponzi scheme. Just ask some of Madoff’s clients.