On The Irrational Attachment To Ponzi Schemes

Every day as I read about Social Security and Medicare and the fiscal debates in Washington, I am reminded of an event that happened about 44 years ago when I was a freshman in college.  Today, my older daughter sent me a link to a Washington Post editorial that makes clear the relevance.

In 1968 when I was a freshman at Yale my three new friends in the room next door came over one day in a state of excitement.  They had received a chain letter.  Just send $20 to a name two levels up the chain, it said, and then send out 10 copies of the letter to people you know.  Wait for the letter to progress to a second level beyond you, and you will receive $2000, as if by magic.  At the time, $2000 was almost equal to the year’s tuition at Yale.  The sender of the letter assured that this had worked perfectly for everyone in the scheme to date.

Somehow at that early date I had already become aware that monetary chain letters were treated as criminal frauds by Federal prosecutors, and I believed I understood why.  Hey, I was a future math major, and my friends had to be rather bright to have been admitted to Yale.  So I set out to explain to them why this was really a fraud and why it couldn’t possibly work.  To me it was just some simple math.  Did they realize that to progress to a tenth level this scheme would have to enlist more people than existed on the earth?

To my complete surprise, they would have none of my arguments.  In the short time between when they got the chain letter and when they first talked to me about it, they had become excited about and emotionally invested in the project.  Not only were they going to do it, but they kept trying to get me to do it too.  I didn’t.  They did.  I think one of them got his $20 back.  The others did not.

Skip forward to yesterday’s editorial in the Washington Post.   Compared to other voices of the left, this one takes a relatively sane approach, conceding the essential fact that the main entitlements are on an unsustainable growth path:

But the underlying fiscal problem is that federal expenditures are slated to rise faster than economic growth because of rising health-care costs and an aging population. The long-term drivers are Medicare, Medicaid, Social Security and subsidies for the health-care exchanges established by the Affordable Care Act.

That’s not a partisan statement. It is reality.

I’ll let the commenters take it from there:

The editorial board of this once decent rag has been bought and paid for by the sadistic, genocidal monsters at the Fix the Debt commission. The few remaining reasonable writers on this rag have admitted that SS does NOT drive the deficit, and that seniors PAID FOR their benefits, but the editorial board will not be happy until millions of seniors are dying of starvation on the streets. And that is not hyperbole. For shame, you sadistic lying pieces of excrement.

Social Security Insurance is paid for and is not an entitlement. Medicare is paid for and not an entitlement.
Medicaid is necessary and not an entitlement. The word entitlement is used rather loosely in the beltway.

Think – Exercise your brain. What system do real 21st century countries use to address universal medical care? Can you think about that and get back to me?

Well, is this just a matter of emotion or can we please address the math and whether it can possibly work as currently constructed?  You can call people evil when they point out the impossibility of the existing structure, but that will not keep the whole thing from crashing down like Madoff when there aren’t enough new entrants to keep it going. There are just two ways of looking at the world.  I'm looking at it the other way.  I guess that’s why I’m the Manhattan Contrarian.