Bernie Madoff Was Only a Petty Crook Compared with Uncle Sam

Bernard Madoff was in the news again today. I quote here from a CNBC report, adding my own commentary to put the report into perspective.

Disgraced financier Bernard Madoff has arrived at federal prison in Butner, North Carolina, CNBC has learned, though it is still not clear if that will be his permanent home.

President Barack Obama and the sitting members of Congress have not been charged, much less convicted and sentenced, for crimes that make Bernie Madoff’s look like child’s play. Note well: I am referring here not to the assorted murders, assaults, and batteries for which these men and women are manifestly guilty—I say guilty because they not only admit these crimes, but proudly take public credit for them—but to certain of their strictly financial crimes.

Madoff, 71, was sentenced last month to 150 years in prison after pleading guilty in March to charges that his investment advisory business was a multibillion-dollar scheme that wiped out thousands of investors and ruined charities.

Madoff caused people to lose billions of dollars. The U.S. government has caused people to lose trillions of dollars, and it’s not finished yet. The public’s losses mount during every minute of every day. By its effects in discouraging work, saving, and investment, and thereby reducing capital accumulation, the U.S. Social Security system has caused the nation’s gross domestic product to fall significantly below the levels it would otherwise have reached. According to Professor Edgar K. Browning, a leading researcher in this field, “the available evidence suggests that Social Security has reduced [current] GDP by 5 to 10 percent.” Ten percent of GDP is now approximately $1.4 trillion—or about 28 times the maximum amount Madoff is believed to have cost his clients. Moreover, Madoff’s harm is a one-shot loss, whereas the U.S. government’s Social Security harm is an ongoing loss that grows annually. In the future, the annual loss will be even greater than the currently estimated $1.4 trillion or so.

 Authorities said Madoff had carried out the fraud for at least two decades before confessing to his sons in December that his investment business was a fraud and that he had lost as much as $50 billion.

The leaders of the U.S. government have carried out their Social Security fraud—essentially a Ponzi scheme, in substance exactly the same as Madoff’s scheme—since 1935, and they have yet to confess to their crimes, unless their family members have been told and have kept the confession to themselves.

Madoff, in contrast to the government, carried out his fraud in a civilized way: he merely misrepresented what he was doing, purporting to invest his clients’ money and to obtain a high rate of return on these investments. People dealt with him voluntarily. Those who suspected something was fishy did not do business with him, and some people went so far as to give substantial information to the SEC to show that Madoff’s business had to be fraudulent (which information the SEC ignored for years on end, of course).

The U.S. government, however, does not bother to claim any prowess in investing the money it forces people to surrender to its scheme. It admits that the “client’s” return is now close to zero (varying a bit according to the client’s age and other factors). Nor does it carry out its admitted Ponzi scheme in a civilized way. Not only is participation in the scheme involuntary, but the government threatens violence against anyone who fails to participate as it commands him. Thus, the government operates its Ponzi scheme in a markedly more thuggish manner than Bernie would ever have dreamed of. He might have been a crook, but he was not a thug.

Everyone (including Bernie himself) agrees that Bernie Madoff was a crook. What is the correct term for the U.S. government, or does the word government tell us everything we need to know about the honesty, humanity, and justice of its actions?

Robert Higgs is Retired Senior Fellow in Political Economy at the Independent Institute, author or editor of over fourteen Independent books, and Founding Editor of Independent’s quarterly journal The Independent Review.
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