Ponzi Party : Immigration and an old con - Republican Party supports immigration increase

National Review, August 30, 1999 by John O'Sullivan

Charles Ponzi almost never turns up on the Wall Street Journal's list of distinguished immigrants, but in his way he was a financial genius and he continues to influence political economy. In 1920 he collected $9.5 million from about 10,000 optimistic investors by selling promissory notes paying 50 percent profit in 45 days. Ponzi was an Italian immigrant with a criminal record in both Canada and the U.S., but any disquiet this may have caused was quickly quenched when he paid early investors the promised amount. Sadly, these payments were made not from the vastly profitable investments of which Ponzi boasted, but from the contributions of later investors. Ponzi saw that as long as new suckers came forward in sufficient numbers to finance the generous dividends to earlier investors, the scheme named after him could hum along very nicely. Eventually, of course, it ran out of investors-and Ponzi was eventually nabbed. But that took some time, and meanwhile, "Waiter, more champagne."

In the past Ponzi was not generally regarded as an attractive role model by Republicans or conservatives. They were devotees of the depressing "root canal" school of economics and raised such pessimistic points as, "What's the bottom line?" But a new optimistic economics has gripped the Right in recent years, and as a result Charles Ponzi and his economic theory are back in fashion.

His principal insight is usually applied to entitlement programs, in particular Social Security, for the very good reason that Social Security is a Ponzi scheme. Benefits are financed not from the invested contributions of current recipients-they have already been handed on to past recipients-but from the contributions of current workers. Sadly, however, as the baby boomers head for retirement age, the number of workers is declining in relation to the number of recipients. In other words, the Ponzi scheme is running out of people.

That strikes some conservatives as a one-time opportunity to reform Social Security in line with a more conventional investment strategy. Others, however, prefer what would be Ponzi's own solution-namely, to recruit more contributors. Thus a 1996 Wall Street Journal editorial proposed the following:

"Widening the number of young immigrants paying into the Social Security system may be the only way to diminish the demographic crisis expected when the Baby Boomers retire."

The Journal's editors failed to cite Mr. Ponzi as the godfather of this proposal, but the columnist Ben Wattenberg, writing in the New York Times, gave credit where credit was due. Was the idea of saving Social Security by bringing in more immigrants, he asked, a Ponzi scheme? Yes indeed, and what of it? "Life is a Ponzi scheme. Parents pay for their children. When they reach old age, they are most likely supported by those children, either directly or indirectly through Government benefits. And so it goes, through the generations." And since we are not having enough children of our own, the children of foreigners will have to bail us out.

Or, to paraphrase-"Waiter, more champagne." This Ponzi rescue of Social Security fails even on its own terms, for the additional contributors become additional recipients in short order. As Peter Brimelow points out in Alien Nation, the median age of new immigrants is 30, and they become eligible for benefits within 20 years. So, still more immigrants must then be brought in to finance the payments to the previous ones. A few years ago, the National Center for Policy Analysis calculated that if existing Social Security contributions and benefits were to be kept steady, then the U.S. workforce would have to double through immigration over the next three decades. A quick back-of-the-envelope calculation suggests further that America would need to import the entire world population (about 6 billion people) over the next 160 years in order to keep saving Social Security. This Ponzi-scheme-to-end-all-Ponzi-schemes would then definitively run out of people-human beings, anyway-and require extra-terrestrial immigrants to stay in business.

This Pyramid of Babel, however, is a model of logical prudence in comparison with the perverse Ponzi scheme that is the GOP's current electoral strategy on immigration. Because minorities-and in particular Hispanics-are thought to favor immigration, bilingualism, affirmative action, etc., Republicans have determined to downplay or even reverse their policies on all of these. Among these reversals, the GOP now favors raising levels-and expanding categories-of legal immigration on the calculation that the party will thereby gain a larger share of a growing electoral constituency.

Such a calculation is open to attack on innumerable grounds-notably on the grounds that, according to the evidence of polls, the Hispanic minority that actually votes Republican today favors less immigration, official English, and individual rights. Here, however, let me confine myself to mathematical objections to its logic.

1. National figures show that support for the GOP fluctuates between one quarter and one third of the total Hispanic vote-rising or falling in line with the electorate as a whole. Regional, state, and national variations there are, of course. Broadly speaking, Cuban-Americans are more Republican, Mexican-Americans and Puerto Ricans more Democratic. But no statistics show that a majority of Hispanic voters either supports or identifies with the Republicans. Cuban-Americans are shrinking as a proportion of the Hispanic total. And even Republicans who make a special pitch for the Hispanic vote rarely rise above 50 percent. Despite all the hoopla, for instance, George W. Bush gained just over 40 percent of Hispanics in his second Texas gubernatorial election. That's a landslide-but in reverse.