No, Elon Musk, Social Security Isn’t a “Ponzi Scheme”
Right-wing billionaires have long wanted to shred the safety net. Under Trump, they’re using lies and fears over the deficit to debilitate Social Security.
Max B. Sawicky
In Fiscal Year 2024, which ended last October, the U.S. government spent $6.75 trillion. People tend to be impressed by big numbers when it comes to federal spending, but this larger context is important. For instance, the provision of foreign aid, including by the reviled U.S. Agency for International Development (USAID), would cost more than $58 billion this year, which is a lot of money for any individual, even for Elon Musk, but small potatoes in the grand scheme of the federal budget.
In contrast, Social Security spending was $1.5 trillion in 2024. It follows that for those hell-bent on reducing the non-defense public budget, this is a place where there is big money to be cut. Hence, we get crackpot claims like that of Musk, who has been tasked by President Trump with reducing government spending, who recently said on Joe Rogan’s podcast that Social Security is “the biggest Ponzi scheme of all time.” This is nothing new—opponents of social safety net programs have spent decades trying to defame and defund Social Security in order to eventually make it collapse altogether.
In comparison to the social welfare budgets of European social democracies, the United States has a skinny public sector, further handicapped by the drain of resources for defense spending, a.k.a. the bloated military budget. Insisting on context again, U.S. defense spending, narrowly defined, was more than $840 billion in 2024.
But while the social insurance provided in the U.S. falls short of that in Europe, we have had such a system in place since it was enshrined in the New Deal during the 1930s. The rubric of social insurance was thought back then to render a program like Social Security more politically robust. Workers who were obliged to pay into the system would feel entitled to the benefits that were promised. The benefits provided insurance against a family breadwinner being unable to work, either due to retirement, disability or death. It sounded like good business, but it was a service the private sector did not provide.
The “social” angle rested on the effort being mildly redistributive. It is literally redistributive because of the benefit formula which transfers money from people who earned more during their working years to those who earned less. And the very existence of this kind of insurance — not available in the private sector on comparable terms — broadly speaking, benefits the working class. The social dimension is invoked by the Right to deny the insurance character of the program, in an effort to undermine it politically.
A special, one could say devious, feature of the program is that it operates on a “pay as you go” basis. Today’s payments into the program are used to pay benefits to today’s beneficiaries . It’s devious in the sense that if you mess with the monetary inputs used to fund the program, you endanger the benefits that have already been promised to workers and their dependents. Naturally, proposing to cut the benefits already being provided provokes a wave of public outrage.
The pay as you go character of the program has been likened to a Ponzi scheme going all the way back to free market fundamentalist Milton Friedman who sought “to end Social Security as we know it.”
What is a “Ponzi scheme,” or more accurately, who was Charles Ponzi? In 1920s Boston, Ponzi persuaded people to invest with him on the promise of extraordinary returns. He turned around and immediately used the proceeds to pay out such returns to previous clients, along with a rake-off for himself. Word spread like wildfire and investment surged. The grift works as long as you have an adequate inflow of new investors, but eventually every such scheme runs out of suckers. Then it blows up, and Ponzi goes to prison. Bernie Madoff was a more contemporary case in point.
Friedman and others have pointed out that projected program benefits exceed projected revenues, a shortfall that is much more dramatic, and therefore qualitatively different, in actual Ponzi schemes. The reality with Social Security is that any shortfalls could be reduced or eliminated with revenue increases, as were implemented in a 1983 reform to the program agreed to by a Democratic Congress and Republican President Ronald Reagan. A similar reform could be instituted today, say by lifting the cap on earnings that are taxable by Social Security (currently $176,100). This approach wouldn’t just ensure the longevity of the program, it could also be used to expand benefits, as has been proposed by Sen. Bernie Sanders (I-Vt.) and other progressives in Congress.
More generally, as long as the workforce, wages, labor productivity and the economy grow — which always happens in the United States — there will be money to maintain or even increase benefits. If such growth doesn’t continue, Social Security will be the least of our problems. We never see any worries about, say, defense spending being “unfunded,” even though there is absolutely zero federal revenue dedicated to defense, unlike Social Security’s payroll taxes.
The key to Ponzi is the relative rates of growth in costs vs. revenues. As long as the ratio is manageable, there is no financial problem. The great economist Hyman Minsky proposed an intrinsic Ponzi phase in capitalist finance, as increasing appetites for risk in an environment of dwindling investment opportunities would lead to financial instability. In the wake of the Great Financial Crisis of 2008, Minsky’s reputation has blossomed.
The irony is that Ponzi is more a feature of capitalist finance than of social insurance. Not for nothing is Elon Musk reminded of Ponzi schemes, in light of his own financial shenanigans in crypto and other unstable digital currencies. Even when people understand the scam, they still participate, hoping to get their own money out before the greater fools suffer the crash.
The principal social insurance programs in the U.S. — Social Security and Medicare — were once thought to be politically untouchable, a “third rail” of politics. Well, they’re being touched now. Budget rules binding the Congress make overt benefit cuts difficult to enact, merely as a matter of procedure. The way that Trump’s allies are attempting to get around this appears to be by forcing reductions in administrative personnel that do not enjoy the same protections, potentially to the tune of a 50 percent cut in staff of the Social Security Administration (SSA).
Musk and his pals at the Department of Government Efficiency (DOGE) are reprising fears over the national debt to justify their spending cuts, but that’s economic nonsense. As Dean Baker and Mark Weisbrot explain in Social Security: the Phony Crisis, “The simple truth is that our economy is generating more than enough income to provide a rising standard of living for future generations while meeting our commitments to Social Security.”
Trump wants to free up money without jumping up the deficit to help pay for his tax cuts for the wealthy and corporations, as well as his attacks on immigrants. The latter already entails deportation to isolated camps in nations led by dictators who are bending the knee to the United States.
Similar reductions are in prospect for the Internal Revenue Service (IRS). The upshot of what Trump has in store is that if you have any reason to ask a question about your benefits or taxes, any kind of non-standard issue, say by calling up the IRS or SSA, or by visiting a field office, you will encounter more serious obstacles than in the past, which were bad enough. Anyone visiting an SSA field office knows you have to get up early, bring a book and be ready to sit for hours before you can speak to someone. Get ready for an even worse experience.
The efforts to slash the federal workforce are a prelude to what the Right actually wants to accomplish: crippling the social insurance system. Federal employee compensation is a small share of the federal budget. In 2022, for example, compensation of federal employees was well under $300 billion.
The idea underlying DOGE’s workforce cuts is not to save money or fix the deficit. It is to render the big benefit programs unable to function. Then the resulting public frustration could facilitate the Trump administration implementing literal, direct and large benefit cuts. That’s the real scheme we’re facing.
Max B. Sawicky is an economist and writer in Virginia, formerly with the Government Accountability Office and the Economic Policy Institute. He is a Senior Research Fellow at the Center for Economic and Policy Research and runs the MaxSpeak, You Listen! blog at sawicky.substack.com.
