|The welfare state is a
What kind of fraud is it? Thanks to Charles Ponzi,
we have a name for it, and a model by which to understand it. Mr. Ponzi
was a cut above the usual run of grifters, most of whom grab your money
and run, never to be heard of again.
Ponzi paid dividends. He promised huge returns, and
This was a stroke of criminal genius. It attracted
new suckers in droves and flocks, and when his scheme started to fall
apart his suckers rallied to support him,
muttering dark words about the “unscrupulous bankers” who were
blackening his reputation. This kept the scam alive far longer than
most others, and dramatically increased the loot.
At least $8 million of the $15 million he took in
was never accounted for. In other words he skinned Bostonians for at
least 8 million (1920!) dollars!
In a world where most crime is sordid and cheap,
Charles Ponzi is rightly legendary. He made it sordid and very, very
expensive! He can be one of the great teachers of mankind, if only we
will learn from him.
The root of his success was a longer-term view
than most criminals can muster: he applied sound business principles to
a criminal scheme. He had a regular place of business, kept his
promises and re-invested for growth.
These principles worked as well for Charles Ponzi
as for the most honest man in the world. He rapidly gained wealth and
reputation, and his “investors” profited along with him. Everybody was
happy. His early investors had fat returns, and his later investors
could see an impressive track record to justify their hopes of fat
What went wrong? Nothing “went wrong:” it
was all a fraud, from first to last. It was based on no
profitable enterprise; there was no wealth to back his promises. The
only source for the dividends Ponzi paid out was his ability to find new
A Ponzi scheme is pure re-distribution:
money comes from later suckers to earlier suckers with the operator
skimming as much as he can without queering the deal.
A Ponzi scheme is “an investment swindle in which
high profits are promised from fictitious sources and early investors
are paid off with funds raised from later ones.”1.
A welfare state is a political
swindle in which endless handouts are promised from fictitious sources,
and early taxpayers are paid off with funds raised from later
Fictitious sources? Sure. “Tax the rich” is a
fictitious source; the rich have nowhere near enough wealth to redeem
the welfare state’s promises. “The greater efficiency of state
enterprise” was a popular fictitious source for decades—now it is just
The ultimate fictitious source in the minds of
most of the welfare state’s suckers is “the government.” But the
government produces nothing; government is not a source of
wealth. Whatever it has it gets from private citizens. If
they stop paying taxes,2.
or go broke, the government is out of luck! Government is a fictitious
source of wealth.
This is why the collapse of the Soviet Union threw
welfare statists into shocked paralysis. Despite their fervent denials,
statists took Communism’s survival as proof that government could
provide wealth. The collapse of Communism—its economic
collapse—destroyed their secret hope that absolute power would make
government an inexhaustible source of wealth.
That the welfare state’s later taxpayers pay for
the handouts of earlier taxpayers is clear to all. It is notorious as
“mortgaging our children’s future.” Friends of the welfare state call
it a “contract between generations.” Recognize it as a defining
characteristic of a Ponzi scheme.
The welfare state is a Ponzi
Consider the Canada Pension Plan (or Social
Security in the US). It started cheaply; everyone paid, only a few
collected. Those who collected were pleased, and the rest paid for it,
hoping to collect also.
Now many are collecting, and many more hope to
collect. But without yet another generation of suckers to pay for it,
they’ll be left holding an empty bag!
“But,” they might sputter, “I’ve been paying into
this for years. It’s mine! Where’s my money?” Ask Mr. Ponzi!
The government spent it long ago—and
spent borrowed billions besides! There’s nothing to
back the promises but the hope that others are willing to be skinned in
their turn! In a galling theft of the language of financial
responsibility, this is called “pay as you go.” It’s pure Ponzi. The
trust funds for these schemes contain nothing but government
Investors hold other government IOUs. The
handout-hopers will stand in line behind investors.
To default on debts to investors is to invoke financial apocalypse,
instant and prolonged ruin.
Default shuts off government access to loans, and
throws all debts into doubt. Capital dries up, even for legitimate
businesses. Why invest in a country which is in crisis? Just wait till
they sort it out.
If push comes to shove, the government will let
old folks (and sick folks, and kids, and the unemployed) go hang! The
alternative would ruin everyone.
A Ponzi scheme needs a continuously growing
supply of suckers. If the supply stops growing,
or grows too slowly, the scheme’s promises are defaulted. Then it fails
because the supply of new suckers dries up.
A Ponzi state fails when taxpayers see
that its promises are worthless, that all it offers is high taxes with no
hope of big handouts. A Ponzi state, too, can run out of
Polls report that 4 of 5 young people have
abandoned all hope of collecting Canada Pension. They see that their
CPP “contribution” is no provision for their future: it is
just another damned tax!3.
Men are buying “income replacement insurance” to dodge the ban on
private medical insurance. They are buying “waiting list insurance” so
they can afford treatment in the US when Medicare threatens to ration
their lives away.
Ponzi state promises are
Taxpayers know it.
The Ponzi state is dead!
American Heritage Dictionary, Third
It’s happening! See
Quackgrass Press #13: Tax heroes
My father was perceptive enough to point this out to me decades ago,
before CPP became law.
needn’t despair at the delay in burying the Ponzi state—you
can become a Quackgrass activist! Copy this article! Keep the original
for future copies. Paper meetings with it! Paper your office! Leave a
stack on your business counter! If you expect hostility, use stealth
and cunning—it’ll drive your opponents wild! Be
ingenious! Have fun!