Have a look at this exchange between Rick Santelli and Tom Friedman on CNBC. Santelli is very focused on the fact that social security is a pyramid scheme requiring constantly increasing numbers of participants over time in order to support those who got in the system, the scheme, ahead of them. Such schemes were apparently originated by Charles Ponzi beginning in the early 1900’s. Friedman is focused on the “out of order idea” that a “popular” government program could be associated with a situation otherwise characterized as criminal conduct. The two of them, Friedman and Santelli, then proceed to cross talk for a couple of minutes instead of carefully delineating what they agreed about and what they did not agree about. Have a look. It looks for a moment that Friedman will begin to reach across and agree with Santelli about the pyramid scheme when Rick removes the criminal connotation from contention but that moment passes and they get back in their corners and fight it out.
This is so very instructive as to what happens in America in the 2010’s. These two men, both very smart, are so invested in their own worldviews that they do not seek points of practical and factual agreement, they seek only points of disagreement.
Who was right? A Ponzi scheme, according to the SEC’s government website, has the following characteristics.
What is a Ponzi scheme?
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.Why do Ponzi schemes collapse?
With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.
Santelli and Friedman could have agreed on the fact that Social Security requires an ever-growing pool of funds from newer workers over time to pay the mandated benefits of retired workers. This certainly meets at least one of the criteria specified in this government website description. Likewise, as with the Ponzi scheme there is no investment activity which goes on with social security, the money is used to pay people who joined the system earlier. Any money not so used is placed into government IOU’s with very low interest rates which, when they are redeemed, will have to be paid out of other government tax monies. They could have agreed that the available funds must meet the mandated benefits over time and that this can only be achieved, in the context of Social Security, by: 1. Cutting mandated benefits; 2. Quickly increasing the numbers of those paying into the system; or 3. Increasing by some means the per person amount that the newer folks, those still working, are required to pay in. The latter solution was tried and is the one alluded to by Friedman which occurred during the Reagan administration in 1984, the last time social security came close to running out of money to pay mandated benefits. Santelli’s implied criticism of this “solution” is that the 2.4 Trillion dollars in taxes which exceeded the benefits actually paid out between 1984 and 2009 was gobbled up by federal government which spent the money as if it were ordinary tax money and the government left a bunch of IOU’s in the till. In terms of the description of the Ponzi scheme, these funds may legitimately be viewed as having been used for the personal expenses of the scheme promoters, in this case the U.S. government. This fact, Santelli’s argument implies, made the government the equivalent of Charles Ponzi, the criminal, who raked off some of the proceeds from the new “investors” for his own use rather than to pay the early investors. It appears to me that just the label, Ponzi scheme, angered Friedman greatly. No real attempt at rational discussion was made after this charge was leveled by Santelli. Pehaps had Santelli chosen the less judgmental term “pyramid scheme” it would have seemed less offensive to Friedman?
What purpose did this exchange serve other than entertainment for CNBC viewers? Who comes off well? Until we get to the point where we can stop calling each other liars or “idiots” because the other’s worldview is different than our own, we’re not going to get very far in bridging the differences between us. We will remain at drawn daggers over every issue. And that is not good since the existence of a country, this country, which is a multicultural country, must necessarily be based upon reaching some type of a broad based agreement across the generations and the classes and the races and the cultures as to what this country’s government should be about.
They could have agreed on all of the facts. But they chose instead to fight out a war of terminology which predicably degenerated into calling the other a belittling name. The different assumptions which each makes underly this argument. The distinction is whether the government is viewed as a benevolent father figure seeking only the good of its citizens or as a self-interested participant whose actions benefit some of its citizens at the expense of others. There you have it, a concrete example of the clash of worldviews.
Short and Sweet Blog 