The Problem With Ponzis

By Benedictus

While Chapter One of the Bernie Madoff [rhymes with Made Off ... with your money] scandal wraps up, with what should be multiple life sentences, one cannot help but ponder a plethora of teachable moments.

On the one hand, we can explore the perverse psychology of an individual so cunning yet so morally bankrupt that he was able to literally bankrupt hundreds, if not thousands, of individuals … of whom many were his friends. And, while it is tempting to preach on the evils of greed in a country plagued by Wall Street fat cats, self-indulgent aristocrats and unapologetic CO2 emitters [insert sardonic tone here], I cannot help but feel that the market on this train of thought has already been cornered.

Not to say that I condone greed and fraud on a $65 billion dollar scale, yet I get tired of hearing pundits approach this five-month-old story repeatedly with the same angle. To put it bluntly, we get it: Madoff was a twisted crook who among other things deserves to spend the rest of what's left of his natural life in a cell illuminated with Al Gore’s twisted light bulbs, and may the Lord have mercy on his soul.

Yet, on the other hand, we can take a path far less traveled by (at least by those in the mainstream media) and consider the moral ramifications of Madoff’s actions, as opposed to the intentions behind them. Many have noted that, in the traditional liberal mindset, actions in and of themselves have no moral bearing; rather, the intentions behind them determine whether they are commendable or reprehensible. I would simplify this concept by using the terms right and wrong, yet most liberals would argue that such language is passé due to its implied objectivity. In the enlightened progressive mindset, morality is based on consensus rather than consistent value-based judgments.

At the risk of sounding sympathetic to Madoff, one could argue that he had high aspirations for his clientele and had little reason to believe that he was putting them in serious financial risk. Consider Madoff’s political history: as a high-profile Democrat who has spent large sums of money on congressional campaigns through several decades, one can reasonably conclude that he believes in traditional liberal economic philosophy (which, simply put, states that if something works for now, or at least appears to, don’t jinx it by thinking about the future).

If such is the case, then Madoff was merely a proud part of the coalition that has gambled, politically and economically, on the continual operation of Social Security. It is not a mental stretch to propose that Madoff had no reason to doubt the validity of his own modus operandi. After all, it is believed that Madoff had persisted in this activity for almost 50 years, which far exceeds any of his predecessors in crime, including Charles Ponzi himself.

However, in spite of his scheme’s complexity, it would seem that Madoff did not take the Ponzi hubris into consideration. Mainly, if the funds withdrawn at a given moment greatly exceed those deposited, there will not be enough money to satisfy investors’ demands.

While I am certainly not the first to note the parallels between Madoff’s Ponzi scheme and Social Security, it is mind-boggling to consider that the U.S. government perpetuates, through the legal coercion of force, an endeavor that is highly illegal for private citizens. The difference is that the government takes it from your paycheck before you ever see the money. Madoff's "investors" voluntarily signed up.

The untimely and inevitable collapse of Madoff’s system should serve as a lesson to us all, perhaps even a Divinely sent foreshadowing, or warning, of Ponzi collapses yet to come. But, as usual, the people in charge aren’t paying attention or even slightly interested in learning lessons. It saddens me to note that most Americans haven’t been able to connect the dots in the face of this glaring paradox: Social Security cannot succeed unless population continues to grow. If population slows, and the ratio between recipients and donors begins to invert itself, the program is doomed to collapse.

Conservative economist Walter Williams once noted that "Social Security is unsustainable because it is not meeting the first order condition of a Ponzi scheme, namely expanding the pool of suckers.” A few days ago, I had a discussion with a friend of mine who is an accountant and, incidentally, proudly displays his Obama ‘08 refrigerator magnet. He stated that Madoff “had to know” that the scheme would eventually fail, yet he was involved so deeply that it was impossible to stop the charade ahead of its collapse.

Perhaps we, too, are so committed to the ongoing fraud of Social Security that we cannot escape the oncoming collapse. Indeed, Social Security has made suckers of us all.

Once upon a time, using traditional population growth models, it was argued that the pool of donors would increase with each new generation of Americans. But to succeed, the scheme would require that the rate of births should always increase geometrically while the rate of deaths should only increase arithmetically. Of course, many advocates of social insurance refuse to acknowledge that the ratio between the younger and older population has inverted over the last several decades. Part of this is good, as improvements in technology and health care has increased the average lifespan. Much of this is tragic, as more than 50 million Americans have perished since the legalization of abortion in 1973. Fifty million is a daunting figure, considering that it exceeds the population of our largest state.

While there are other factors to consider regarding our reproductive slowdown, (now below replacement level without the impact of immigration), such as the ongoing decay of the nuclear family in American culture, it is extremely negligent to ignore that much of America’s greatest resource – its people – has been flushed down the drain. God's word tells us this is evil. His faithful have told us this is evil, and both contend there is a price for our selfishness and greed, in this world and the next.

For all this, I pray that God has mercy on all of our souls.

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[EDITOR'S NOTE: Benedictus is joining the Oklahomily staff as a regular contributor, and Anthony and I are glad to have him along. As they say, "Misery loves company." Seriously, Benedictus brings another voice of what we hope is reason, freedom and faith to our contributions to the civic discourse.]