Madoff, Ponzi Schemes and Social Security

Bernard Madoff confessed he bilked investors out of as much as $50 billion, creating the largest private Ponzi scheme in world history that may have lasted as long as three decades. Madoff’s victims include charities, university endowments, banks, foreign firms, and wealthy Americans. Ironically, the investors who were defrauded by Mr. Madoff’s Ponzi scheme, I suspect, are passionate supporters of the federal government’s Ponzi scheme known as Social Security.

A Ponzi scheme is in effect a chain letter named after the notorious swindler Charles Ponzi. Initial investors are promised substantial returns, which are achieved by getting more and more individuals in on the scheme whose investments are used to pay off early investors. Eventually, when there are not enough investors to keep the investment pyramid afloat, or when the whistle is blown on the scheme and investors try to reclaim their money, the Ponzi scheme collapses. Last week’s confession by Madoff to his two sons unraveled his Ponzi scheme.

The lesson of the Madoff Ponzi scheme is quite simple. A civilized society is based to a large degree on trust. Madoff violated the trust of tens of thousands of individuals and should be held accountable for his fraudulent acts. Prison is too good a punishment. The proper sentence would be to use Madoff for medical experimentation so he could help save lives. God knows how many lives Madoff has destroyed by his actions. If punishment is to fit the crime, then using Madoff to conduct medical experiments would be the proper sentence that should be imposed on him.

While Madoff’s fall from the pinnacle of respectability is now complete, why is the federal government’s Ponzi scheme not called into question by the media and others? Quite simply, FDR’s 1935 creation is off limits to serious scrutiny, because it is at the heart of America’s welfare state. And since the mainstream media (MSM), academics, and the political and financial establishments defend Social Security ad nauseum, critics of America’s intergenerational chain letter are dismissed as Neanderthals, evil, or just downright mean.

The critics of Social Security include attorney Abraham Ellis’s The Social Security Fraud, first published in 1971 and republished by the Foundation for Economic Education in 1996, which lays out the philosophical and economic reasons Social Security should be phased out as quickly as possible. Other critiques include John Attarain's comprehensive essay, The Roots of the Social Security Myth.

Over the years the critics of Social Security have received the silent treatment by the MSM, but now that the notorious swindler Bernard Madoff has confessed to conducting the greatest private Ponzi scheme in history, maybe the few honest journalists on cable television in America will scrutinize the federal government’s multi-trillion dollar Ponzi scheme, Social Security. I wouldn’t hold my breath.

As Ludwig von Mises wrote decades ago, “It is no accident that Germany, the country that inaugurated the social security system, was the cradle of both varieties of modern disparagement of democracy, the Marxian as well as the non-Marxian. In the final analysis, Social Security is incompatible with liberty, individual rights, free enterprise and prosperity. Social Security is compatible with authoritarianism and totalitarianism.

Madoff, Ponzi Schemes and Social Security