Guess who else thinks Social Security is a Ponzi scheme?

The bruhaha over Rick Perry’s comments that Social Security is a Ponzi scheme have taken a backseat to the remembrance of 9/11 and the Redskins’ first win in about 90 years, but let’s fan the flames a bit. Thanks to the erudite Don Boudreaux over at Cafe Hayek, it has come to my attention that a highly visible economist at one of the nation’s largest papers agrees with Gov. Perry’s assertion:

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

And yes, you’ve probably guessed it: it’s Paul Krugman. And yes, you’ve probably guessed it, but the above emphasis is mine.

The essay was written in the December 1996/January 1997 edition of the Boston Review, as a response to Richard Freeman’s suggestions on fixing inequality. I profess to not having read Freeman’s work entirely, though mostly it was more of the same “we need to take the wealth from the top 20% and give it to the bottom 20%” nonsense.

I’ve noted to other people that Paul Krugman was quite a different person before, oh, say, 2006. He was actually a reasonable economist. In an interview with the Australian Broadcasting Corporation (an ABC more like the BBC) in 2004, Krugman blasted George W. Bush for having huge budget deficits:

TONY JONES [HOST]: Paul Krugman, history proved your predictions right over the Asian financial crisis.

You’re now warning essentially that the engine of the world economy, the United States itself, is heading for a South American style financial crisis.

What’s the evidence for that?

PROFESSOR PAUL KRUGMAN, PRINCETON ECONOMIST: Well, basically we have a world-class budget deficit not just as in absolute terms of course - it’s the biggest budget deficit in the history of the world - but it’s a budget deficit that as a share of GDP is right up there.

It’s comparable to the worst we’ve ever seen in this country.

It’s biggest than Argentina in 2001.

Which is not cyclical, there’s only a little bit that’s because the economy is depressed.

Mostly it’s because, fundamentally, the Government isn’t taking in enough money to pay for the programs and we have no strategy of dealing with it.

So, if you take a look, the only thing that sustains the US right now is the fact that people say, “Well America’s a mature, advanced country and mature, advanced countries always, you know, get their financial house in order,” but there’s not a hint that that’s on the political horizon, so I think we’re looking for a collapse of confidence some time in the not-too-distant future.

The budget deficit for 2004 was, according to this spreadsheet from the Office of Management and Budget, $412 billion. The budget deficit for 2011 (estimated)? $1.6 trillion. If Krugman thought that $412 billion was too big then, why is he arguing for more spending now when our deficit is three times that size? Even though the timing was a political jab, Paul Krugman did deserve his Nobel Prize for his previous work in macroeconomics, as even Bryan Caplan, of all people, noted. Not that change is a bad thing; in fact, I would say its a wonderful thing. It’s just too bad in this instance that he changed for the worse, not the better (though maybe his silly chanting about stimulus has turned people off from that, so I guess there’s a silver lining.)

So the next time you meet a left-wing progressive who gets red in the face when you calmly declare that Social Security is a Ponzi scheme, just stop and say, “Well, you know, I’m agreeing with Paul Krugman.”


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