Total investment in just renewable energy (a subsector of the green industry) was $211 billion in 2010 (see also, here at page 35). To give you a sense of size, the entire US pharmaceutical industry R&D budget for new medicines and vaccines in the same period was $67.4 billion.  For every $1 a US company spends trying to cure cancer, Parkinsons, Alzheimer’s, heart disease, and diabetes, the world spends $3.10 inventing, manufacturing and selling panda-shit burners, solar panels, corn-based gasoline and wind farms.

Not enough money is not the problem in the green industry.  For one thing, you cannot sell something for $3 when it costs $6 to make and expect to continue for long.  Talk about unsustainable.  Natural economic failure, the lack of a real threat, bad science and politicians trying to pick winners is the problem in the green industry.  Moreover, less than half of Americans believe that Global Warming™ is caused by man, if at all.

But this reflex response is not limited to the green industry.  Liberals have the same reaction when it comes to spending money on education. But there is no evidence that simply increasing the budget will improve results.  Even the uber liberal Center for American Progress, in their exhaustive, district by district review of educational spending, had to admit that “without clear controls on how additional school dollars are spent, more education spending will not automatically improve student outcomes.”  Not a ringing endorsement for more spending.

Indeed, increasing investment in a company, an industry or even a school can have unintended consequences.  When a budget is tightened, management has to make harder choices.  If you run a business and have an unlimited budget, you will never need to decide whether it’s better to send your account manager, Mark to Denver or your business development lead, Kim to San Diego.  You can send them both.

But when spending is limited, choices have to be made.  An effective manager (with accurate information) is one who can make the right choice and put every dollar spent to the most productive use.  If you think this is all theoretical, it’s not.  No well run company will invest in a start up until it is big enough to know what to do with the money.  In addition, a company with a tightened belt will comb its expenses reports, accounts payable and accounts receivable and ferret out fraud, waste and abuse.  All of these factors will increase the productivity of every dollar invested.  In other words, more money doesn’t buy better results.  Just ask the Philadelphia Eagles.

There seem to be two main objections to Perry’s comments: first, “but we like Social Security!” and second, it’s not a criminal enterprise.   The first point is a non sequitur.  Maddoff’s clients loved their returns too, until they scheme collapsed.  The second point is also unhelpful.   This is like saying it’s not fair to call a Russian mobster a mafioso because he’s not Italian.

So let’s have an honest look at the claim, and give it’s critics (Social Security’s defenders) the benefit of the doubt.  Let’s deconstruct the definition of a Ponzi Scheme:

1. It is a fraud–the “investors” are unaware of the truth.
2. Early investors are paid by the later ones.
3. To create the illusion of profitability.

Point 1: A Fraud.  To the first point, it is hard to say whether, today, Americans are unaware of the truth of Social Security.  When it was passed in1935, Congress made clear that current retirees would be paid from existing workers.  In fact, one of the main objections to Social Security was that it’s burden on current employees and employers would cause more hardship and unemployment.  It would be hard to argue that Americans are not (or should not be able to easily figure out) that current employees pay for current retirees.

But on another aspect, Governor Perry has a point.  If you are paying into Social Security today, you are not very likely to receive benefits in the future–certainly not at the level at which you are promised.  The latest government report estimates that the Social Security program will be unable to meet its obligations, starting in 2036–100 years after its inception .  So, under current law, those who were born in or after 1969 (i.e., who will turn 67 in 2036 or after) are being lied to.

Point 2: Existing Investors Paid from New Investors.  This is manifestly the case with Social Security.  The major difference is that investment is involuntary (in fact, compulsory), and the only way to avoid the scheme is to not work–not quite a viable option.  In addition, withdrawal from Social Security is not voluntary and only occurs at age .  Unlike a traditional Ponzi scheme, retirees cannot create a run on the manager–though the baby boomers are the closest thing to that.

It is worth noting that the reason most Ponzi schemes collapse is not that the fraud is uncovered, but that people begin to demand their money back in larger amounts than new investors invest.  The two events are, of course, connected, but if mass hallucination allowed people to ignore the inevitable, the scheme could last indefinitely–until withdrawals outpaced investments.  It could even last for 100 years.  Withdrawals outpacing deposits is an exact parallel with the baby boomer crisis: in 1950, there were 16 workers supporting each retiree.  Today, there are about 3.

Point 3: The Illusion of Profitability.  Here, again, the point should be conceded.  The government has spent the better part of a century siphoning off the excess funds collected as workers vastly outnumbered retirees.  In lieu of investment or even holding those funds in a static account, the government used it for its own purposes, and is now finding itself nearly empty handed when the largest bills are coming due.

So yes, Social Security is a Ponzi scheme, but it is also legal.  But it is only legal because the government runs it.  Ask yourself this: if your employer came out with a new pension plan that promised guaranteed benefits for every worker, and used today’s employee wages to pay for current retirees, how fast would the FBI and Department of Labor raid his offices?