Rick Perry has gotten a lot of heat for describing the Social Security system as "a Ponzi scheme," and he deserves it. The Texas governor owes a big apology to Charles Ponzi.
Sure, Ponzi fleeced investors, but they at least had a choice about participating. Social Security operates on a compulsory basis.
In other respects, though, Perry has a point. In a Ponzi scheme, new investors have to be continually recruited in order to provide fat returns to earlier investors. It works fine until you have so many investors to pay off that you can't find enough new ones to cover the cost.
Social Security is like that. It used to be a comfortable arrangement for all, because there were so many workers paying in and so few retirees getting checks. In 1950, there were 16 workers for every beneficiary. But today, there are about three workers. In 20 years, the ratio will be 2 to 1. A sweet deal has gone sour.
Social Security can be changed to make it more affordable, and it undoubtedly will be -- by raising the retirement age, changing the cost-of-living formula, lowering the initial level of benefits, means-testing and the like. With this approach, the program could get by in something close to its current form.
But that option has a big downside. Any change that reduces outlays makes the program a worse deal for those who have paid in. As Perry noted (accurately), "By 2037, retirees will only get roughly 76 cents back for every dollar that is put into Social Security unless reforms are implemented."
Younger workers could expect a bigger return if they were allowed to take their contributions and put them into a 401(k) or something similar.
That option may be politically implausible as well as logistically daunting. But Perry is onto something vital, and he shouldn't back down just because pundits say he's risking self-destruction.