Monday, September 26, 2011

Rick Perry declares Social Security a Ponzi Scheme

Not too long ago, during his first Republican Presidential debate, Texas Governor Rick Perry ruffled more than a few feathers when he referred to Social Security as a “Ponzi scheme.” Because of the ensuing buzz I thought it would be good to explore his statement and the potential impact on his run for president of the United States.

In the age of political correctness Perry certainly went out on a limb with his Ponzi scheme reference. Later he said, “I think American citizens are just tired of this political correctness and politicians who are tiptoeing around important issues. They want a decisive leader. I’m comfortable that the rhetoric I have used was both descriptive and spot on.”

This post is not about a party, program or political positions; it’s about his statement and the psychology it evokes.

Social Security has been a part of the fabric of this country for more than 70 years and as such, it’s become something people have come to expect. We can rightly call it an entitlement program because after people pay into it their entire working lives they expect the government to give them something in return.

We hear all the time that Social Security is broken but very few people want to do away with it. After all, if we did then millions of people would get nothing. While they might feel like they get nothing when they pay other taxes, with this particular tax they were told they would get something and mentally it’s already theirs.

When Social Security is compared to a Ponzi scheme – which is illegal – people begin to wonder what a person like Rick Perry might do with the program. After all, the government is supposed to stop illegal activity. The element of an ever growing base of contributors needed to keep it going is what leads many people to view the program as a Ponzi scheme. However, it’s very different than BernieMadoff’s Ponzi scheme. As I wrote earlier, this post isn’t about debating the merits of Social Security because plenty of other blogs, news outlets and talk radio shows are already doing that. My goal is simply to look at how Perry’s statement might be taken by a large percentage of the population.

In the realm of psychology there’s a principle of influence known as scarcity. This principle tells us people value things more when they believe they’re rare or diminishing. Put another way, we are more motivated to action by what we fear we’ll lose as opposed to what we might gain.

How does scarcity apply to Perry’s Ponzi scheme reference? I think most Americans realize Social Security is not sustainable in its current form but they also don’t want to pay more taxes to support it. On the flip side, very few if any people will declare they’re doing well enough and are willing to forego what they’re rightly entitled to.

As I noted earlier, Ponzi schemes are illegal and if Americans think Governor Perry will do away with Social Security then I think he’s doomed. He might still win the Republican primary but he’s preaching to the choir there. I do believe in the general election the Democrats will play on his statement and get Americans to believe Rick Perry won’t reform the program; he’ll do away with it entirely. That will be his undoing because those critical independents and undecided voters usually swing elections. If they believe he might do away with something they’re counting on then scarcity kicks in and they’ll be very likely to vote against him.

I’m not a politician and generally prefer to stay away from political subjects but I felt this one was worth looking at from the perspective of influence. There’s still a long time before the primaries and the general election so that’s plenty of time for others to potentially make bigger blunders. However, should Perry square off with President Obama in November 2012 pay particular attention to how his opponents use this statement against him.

Brian, CMCT 
Helping You Learn to Hear “Yes”.


  1. It appears that social security may not even be around by the time I reach retirement age. Knowing this, its potential demise compels me to act aggressively toward other methods of financial security.

    Scarcity definitely plays a role in influencing my decisions about retirement. We should never put all of our eggs in one basket, but knowing those eggs won't even exist when I retire definitely lights a fire under me to be more proactive.

  2. I agree Paul. I've always looked at SS as extra money because my 401K and pension are what I'm counting on. SS will be a nice extra but hopefully not a necessary.

  3. As a follow up to this post, Governor Perry has done several other things in recent weeks to severely hurt his chances. This statement might end up being the least of his worries!