Q: How is Social Security different than a Ponzi scheme?
A: Ponzi schemes are voluntary.
A Ponzi scheme generally falls apart when there aren’t enough new investors suckers for inflows to cover outflows. But when you’re the government, that’s not really a problem: you just change the rules of the game, raising the contributions of the investors suckers taxpayers, raiding general revenue, etc. They can do this, of course, because as long as they have a modicum of public opinion on their side, this can easily be accomplished by coercion, or more plainly the threat that men with guns will come to your house and commit lawful violence against you if you don’t go along.
So, yes, the comparisons of Social Security to a Ponzi scheme are grossly unfair — to Ponzi schemes.
Comments
3 responses to “Q&A on SS”
A good point. I think it’s all just a game of semantics… I see SS as possessing Ponziness if the average total payouts to individuals is greater than the average total that they pay in (plus interest or however that works with magical Treasury IOUs), then it depends on an increasing number of forced “suckers” and is inherently unsustainable. Of course they can change the degrees of ins and outs to make it sustainable for a longer period of time, but that doesn’t mean it doesn’t have Ponziness, it just means they’re reducing the Ponziness that it does have to make it work longer…
For a good laugh, check out the SSA’s own take on this.
http://www.ssa.gov/history/ponzi.htm
But SS isn’t a ponzi scheme.
It’s an annuity that insures you against outliving your income, paid for by people who die early in case you die late.
An average person can save for an average retirement but not for the longest retirement. Hence the insurance need, just like people whose houses don’t burn down pay for people whose houses do burn down.
The only thing that needs to be fixed in SS is the retirement age. It needs to be set so that the number of retirees can be supported by the number of workers. It’s too low today.
If you want to retire sooner than the benefit age, bridge the gap on your own dime.
In effect, the SS promise talks about the last (say) 10 years of your life, not the years after 65, in order to balance.