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“A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the schemes unravel.” – Investopedia
Is that a question?
The money I pay into social security will I see that when and if I turn 65?
Yes or no?
Only if it’s repealed. People spent decades paying in.
1. The government has never guaranteed that benefits or fees (payroll taxes) will never change. They have changed substantially over time (not surprising incomes have risen radically in the last 80 years, as had life expectancy). There are no legal impediments to the government reducing benefits, changing the formula, or raising payroll taxes. Indeed, if they changed the retirement age relative to life expectany back to what it was 80 years, the new retirement age would probably be close to 80 and the system would be overflowing with money.
2. The Federal government owns the “printing press” (ability to create new money without backing) meaning a debt guaranteed by the full faith and credit of the Federal government is secure in the amount of the debt, albeit no guarantee what the money will be worth.
3. Given the America is a democracy, and the percentage of people over 65 is steadily rising (due to longer life expectancy and the inability of the younger generation to reproduce successfully), politically the response to shortfalls in the social security “trust fund” is likely to be keeping it solvent.
NO,
The key word that sinks your comparison is investors.
Social Security is a tax plan, Participants are taxpayers, not investors.
Tax contributions are matched by private sector employers and supposedly the government.Participation in a Ponzi scheme is voluntary, participation in Social Security is mandatory,
Yes.
Isn’t the whole federal budget basically a Ponzi scheme?
CTL government is a sham
It wasn’t designed as one. Many assumptions made years ago were wrong (or in a common expression (DAVAR SHELO BAH L’OLAM). Always expecting a high birth rate to replace older workers.
Yes and it will run out in 2036 or 2037 .
Obviously, at some point in the future, there will be more paid out than paid in to the point that it will become insolvent. Prior to that point, Congress will have to act by some combination of reducing future payouts for younger employees, increasing contributions for all participants and means testing current recipients. All government programs are theoretically Ponzi scheme since they rely on the assurance of future government payouts.
That’s one of the benefits of legal immigration. Successful immigrants can and do add to the Social Security pot, although a society that doesn’t “fruitfully” reproduce is likely doomed in any case. And not just because of the Social Security set up. Lack of population growth equals the end to any prospering civilization. It may take more than one generation, but it’s an indisputable fact.
Social Security is not a Ponzi scheme, it’s just a poor tax.
CTL, Your description is a distinction without a difference. The key isn’t taxpayers or investors, it is the characteristic of both schemes, Ponzi or SS, is that, rather than paying out benefits to the contributors/investors from the profits supposedly accruing to the fund’s activities, they use the payments from later participants to fund the benefits paid to the earlier participants.
@Redleg
Had Congress not raised the Social Security reserve funds for decades, they would have been earning interest to pay benefits.
In a Ponzi scheme, the capital never is invested, it is immediately paid out to early investors and the originator skims the bulk of the money.
For decades Social Security was solvent, then Congress misappropriated the capital. Congress also did not make sure the matching governmental contribution was made for each employee, thus causing the problem.A Ponzi scheme is set up to defraud investors. Social Security was set up as mandatory retirement (and later disability) insurance. Congress defrauded the participants later on, but that was not the intent under the New Deal.
CTL, OK call it an unitended Ponzi scheme. In the original 1934 (?) version, SS was, indeed, intended to pay out from funds derived from interest on investments in obligations. The problem arose when the obligations in which the SS fund was invested was mostly T Bills which meant that the government was using SS contributions as general funds, I.E. borrowing from itself. Once SS started having to pay benefits from later contributions, it became a pyramid scheme. Like all such multi layer schemes, as long as the base of the pyramid keep s growing, everything is cool. The problem that SS is facing is that the number of younger contributors is shrinking while the number of folks receiving benefits is growing. If the SS fund was a real fund as it was sold as, that would be a lesser problem. The fact is, though, that the benefits being paid come directly from the contribution of those working and paying. That’s the very definition of a pyramid scheme, intentional or not.
What is fraudulent about Social Security is claiming it is an investment or insurance scheme, when in fact it is a government welfare/pension program paid out of current revenue. The bookkeeping was designed to get around the fact that the Constitution never authorized a payroll tax, and arguably doesn’t authorize a national welfare or pension scheme. If someone believes it is an investment program or an insurance scheme they are deluded. If you realize it is a government welfare program paid for by taxes (and “borrowing”, i.e. “Printing money”)l, you have nothing to worry about.
Obviously — we all understand what the reference is — but Ill spell it out. In a Ponzi, money is collected from Peter to pay Paul. Money is collect Joe to pay Peter. And on and on until it stops. One way of doing social security is taking money from each individual and setting it aside to pay that particular person later. However, social security is a tax that is redistributed (or distributed) and so in that sense it is not a real ponzi.
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