Nick Baumann has a handy chart explaining patiently to Rick Perry et alia why Social Security is not a ponzi scheme:
As Jonathan Bernstein notes:
Very simple: anyone who says that Social Security is a Ponzi scheme either misunderstands Social Security, misunderstands Ponzi schemes, is deliberately lying, or some combination of those… After all, a Ponzi scheme is a deliberate fraud. Saying that Social Security is financed like a Ponzi scheme is factually wrong, but saying that Social Security is a Ponzi scheme or is like a Ponzi scheme is basically a false accusation of fraud against the US government and the politicians who have supported Social Security over the years.
I’m not sure, honestly, why Social Security gets so much attention. A bit of tinkering with the payroll cap, and voila! The problem is basically fixed.
The real problem facing our long-term fiscal stability is healthcare spending. For more on that you should read this ten-post series by Aaron Carroll. Unfortunately, unlike Social Security, healthcare spending will be really hard to fix, because the factors driving it are complex, and because the combination of private and public spending makes it complicated and difficult to untangle.
You can’t call this a Ponzi scheme because they didn’t screw it up on purpose.
And plus which the government can pass a law that makes it illegal for Social Security to be insolvent.
So there you are. Not a Ponzi scheme.
Well this is a great diagram but the “ponzi scheme” meme has the advantage of being simple and sounding good. The fact its rock stupid is irrelevant. SS gets attention because there is a substantial portion of the R leadership that truly does want to send us back to 1929 when men were men and blah blah blah.
From Scott Adams today:
“Consider Rick Perry. He called Social Security a “Ponzi scheme.” As analogies go, that’s a good one. I believe I have used it myself. It’s a colorful way of saying the math doesn’t work well when the population of retired people greatly increases and the number of workers funding Social Security does not. Literally no one on Earth disagrees with the central point of Perry’s analogy. But I keep seeing Perry’s Ponzi scheme quote reported as if it were some sort of idiot misunderstanding or conspiracy theory or foreshadowing of evil. WTF?”
Adams is wrong, real clueless wrong. Plenty of people argue with the Perry’s basic contention. The math of SS works fine and only needs minor kinds of adjustments to be set for good. SS does need some changes, that does not mean the program is broken or can’t work.
Perry and the people who use the term ponzi scheme are suggesting that not only is SS not a workable proposition, which is untrue, but that the essence of SS is a scam to defraud people. Pushing that view relies on several misunderstanding which the above chart shows. Adams can’t even fairly state the opposing view he is criticizing. PS is a “colorful metaphor” which is factually untrue but is also aimed at sling shit at proponents of SS . Frankly i find it hard to believe people who use the PS term don’t’ understand exactly the connotation involved so it seems more then a bit disingenuous to suggest its some neutral little metaphor. If SS isn’t in any factual sense a PS then its a shitty metaphor unless you are desperate to attach some simplistic evil label to SS with the hope of tearing it down.
So you dispute this?
“…the math doesn’t work well when the population of retired people greatly increases and the number of workers funding Social Security does not. “
For the proportions that we’re talking about, simply removing the payroll tax cap would almost completely fill the gap.
If you were talking about 10 retired workers drawing SS for every employed worker contributing, then we might have a problem. But we’re not, so that’s irrelevant.
And as life expectancy increases?
So does the retirement age.
Now ask a hard one.
So you’re saying that Social Security isn’t a Ponzi scheme because the government can always pass a law saying that more money has to be put into it…
For the proportions that we’re talking about, simply removing the payroll tax cap would almost completely fill the gap.
Because, you know, a 20% reduction in marginal take-home pay for high-earning individuals is nothing.
There is a big difference between something that is inherently unstable and doomed to fail like a PS and something that needs some relatively minor adjustments to be good for as far out as projections go ( 75 years). SS can be adjusted so the math works just ducky. Its a fixable problem, not a program doomed to fail by the number of retirees.
If it’s that easy to fix – why hasn’t it happened?
ummm….so you are new to politics in the US.
But c’mon Greg – this is an easy fix. Surely Congress could knock it out in an afternoon.
Because Congress doesn’t deal with anything unless it’s:
A: A crisis
B: A sop to their constituency.
Since Social Security is ~30 years away from being in a situation where it can’t afford to pay full benefits, why would a super-majority of Members of Congress choose to put themselves on the line for higher taxes or cutting someone’s Social Security payments?
Seriously. I love how it says right there in the image that Social Security “is run by the government which can print money and tax people”. Like that’s a good thing, something we should all be happy about.
I mean, is this some kind of a joke? Some kind of very subtle satire?
Yes, I am happy I live in a society that has decided to use the full power of the government to make sure the elderly have a basic standard of living.
So you support means-testing for Social Security?
In a perfect world, yes. But, in reality, making SS non-universal would turn it into a program to be attacked in 20 years by the Rick Perry of 2032.
But hey, just like liberals get told. If you’re rich, but truly believe Social Security should be available for those who can’t afford it, you can always send your Social Security check uncashed back to the government anytime you want.
The truth is, most of the people who talk about means-testing Social Security on the right like it as a first step to dismantling the program.
So you support means-testing but for good reasons, not like those icky Republicans who support means-testing for bad reasons.
Yup. Sorry, sometimes one side is right and one side is wrong.
The distinction between Social Security and a classical Ponzi scheme is largely one of scale and degree.
As in a classical Ponzi scheme, sustaining Social Security has thus far required an ever-increasing buy-in from the investors. Part of this has come from a severalfold increase in the tax rate, and part has come from the increase in the number of investors due to the Baby Boomers first entering the labor force, and later reaching their peak earning years.
As in a classical Ponzi scheme, Social Security promises greater returns than can feasibly be funded under the system’s current implementation.
As in a classical Ponzi scheme, the contributions are not invested productively, but simply paid through to earlier investors and/or siphoned off to the organizers, namely Congress. Though members of Congress don’t personally pocket the money, they do derive personal and/or political benefits from having more funds to allocate.
Even if you don’t agree that Social Security is a Ponzi scheme, you at least have to acknowledge that it was flat-out dishonest to put nothing but “Rick Perry calls them Ponzi schemes” in the intersecting portion of the Venn Diagram. There are very real and significant similarities.
Unfortunately, unlike Social Security, healthcare spending will be really hard to fix, because the factors driving it are complex, and because the combination of private and public spending makes it complicated and difficult to untangle.
Economically, it’s extremely easy to fix. All you have to do is decide how much you’re going to spend, and then figure out where to spend it to get the best value for your money. The difficulty is purely political: Voters like getting stuff for free and hate it when grown-ups tell them they can’t.
I should add, also, that whether Social Security is a Ponzi scheme depends on how broadly “Ponzi scheme” is defined. There are reasonable definitions broad enough that Social Security qualifies, and also reasonable definitions narrow enough that it doesn’t.
You can make anything fit any definition if you want if you are willing to use broad definitions. Any government program become socialism any mention of race is racism, any nationalist hawkish party appealing to white christians is fascist. For a definition to have any use it has to have some specificity.
That’s why I like to think of Social Security as a mischievous badger!
I said reasonable. “Something Rick Perry doesn’t like” is not a reasonable definition of a Ponzi scheme. But I think that “A system under which current contributors are promised payouts which are intended to be funded by future contributors, at a rate of return not feasible without a continuous increase in either the number of current contributors or the amount paid in by current contributors” is a perfectly reasonable definition of a Ponzi scheme.
Even if i accept that PS’s involve deception to bring new people in to the scheme to keep paying off the original peeps. SS is completely open and we can make the choices about how to run it. There is no deception involved to con people to join in. That seems to be pretty darn major difference.
Greginak,
There’s always a certain number of people in the PS that know they are in a PS. The point is to get yours before the pyramid collapses. Starting to sound more like SS?
No, not really. Since Social Security could be solvent for the next 75 years with a simple fix. But I realize that conservatives have a vested interest in the delegitimization of Social Security and obscuring the facts around it.
Going by the definition by some in this thread, most things governments do is a ponzi scheme.
Jessie, the simple fix is the infusion of cash from higher taxes – correct?
Yup. Now, if needing more income to make something solvent makes something a Ponzi scheme, then every business in the universe is a Ponzi scheme.
The infusion of capital into a business is voluntary.
So, are property taxes a ponzi scheme as well? After all, I may be paying for improvements to schools or other services I may never see the benefits.
No – and here’s why: The government decides whether or not to build a road based on the tax revenue they are going to receive. Not enough revenue, no new road.
With SS the road is going to get built no matter what. The government then raise taxes until they can make budget.
Completely different dynamic.
So state and local government infrastructure bonds don’t exist where you live? Your local municipality doesn’t revise their mill rates to align to their budget?
I assure you, if it doesn’t happen where you live, it happens plenty of places.
Correct me if I am wrong but the issuing of bonds does not require mandatory purchase. This is simply the government raising investment capital – much like a business would. Again, different dynamic from SS that is kept solvent through tax hikes.
“I may be paying for improvements to schools or other services I may never see the benefits.”
So Social Security is not a Ponzi scheme because there are other things that aren’t Social Security.
I thought the difference was that business investment is voluntary? You’re changing the story now, because the taxes to pay those bonds is certainly not voluntary in any different manner than payroll taxes.
The government decides to do something it’s current funds don’t cover, so it borrows the money and promises future taxes will be used to repay the bond. The pelenders know that raising revenues via tax increases in the future is on the table for the borrowing entity to cover the payment of the bonds if in the future the current tax structure/base aren’t sufficient, thus default risk is low and muni-bonds have fairly low interest rates.
Social Security is not building roads, but just like road maintenance, it’s an expense that comes along every year and tax revenues will have to cover the expenses.
If someone does a projection and shows that future road maintenance costs will be higher than they’ve got allocated for them in the funding structure – does that make it a Ponzi scheme, too?
None of these things are Ponzi schemes because they don’t involve taking the payouts from current contributors and passing them straight through to former contributors. That’s one of the defining characteristics of a Ponzi scheme.
That’s not the defining feature of a Ponzi scheme, it’s a common attribute. The defining feature of the Ponzi Scheme is that the perpetrator makes fraudulent promises to investors and pays some of those that attempt to make withdrawals before the scheme ends to delay discovery of said scheme.
You all are busy trying to make it so Social Security is the definition of the PS and then reasoning back to other schemers so you can yell that it’s all the same. Your wanting it to be so does not make it true.
The chart is lame, like pretty much every example of those silly Venn diagram memes, but it’s lameness does not magically redefine Social Security.
Plinko – It sounds like what you are saying is that they key difference is the intent of the person setting up the structure of the system. If it’s shady = Ponzi. If it’s noble = SS.
And this maybe makes the most correct point int he whole debate. When SS was set up it was indeed a noble idea and no one was trying to ‘scheme’ anyone. I think that’s why liberals bristle at he Ponzi Scheme label because it implies deception and bad intent. Conservative critics could choose their words more wisely…but, it’s still a plan based on a pyramid structure that now looks more like a rectangle.
Well, it’s kind of like saying that murder kinda sorta requires someone to die, or theft requires something to be taken. Ponzi scheme describes a particular type of investment fraud.
Social Security could be plausibly described as a pyramid scheme, but while many/most Ponzi schemes are pyramid schemes, not all pyramid schemes are Ponzi schemes.
Why bother with fraud when you can use force?
Maybe I should elaborate on that. Force and fraud are substitutes. They work differently, but they accomplish more or less the same thing: Getting someone to do something he doesn’t want to do. That Ponzi used fraud and Roosevelt used force is not an entirely insignificant distinction, but it doesn’t have much bearing on the question of whether Social Security is a Ponzi scheme.
dude. what are you talking about. social security is not a ponzi scheme and anyone who says so is a moron. its proven by the venn diagram at the top of the page. what is your deal. seriously.
I heard someone say that you can voluntarily leave a ponzi scheme but not SS.
This is some pretty weak tea. (or I suppose, anti-tea)
First of all, citing Bernie Madoff is fair enough, but then saying “Promises massive returns over just a few years” is not at all what Madoff did – the red flag everyone missed was the too good to be true incredibly normal returns year in and year out.
Most Ponzi schemes do in fact tell people where there returns come from – the people that buy in are generally counting on the greater fool.
“Is invested in US Treasury Bonds” is *not* a counterpoint to “Is usually not invested in anything” because US Treasury bonds are the House (in the Vegas sense)
Several good investments are run by people that make a shinola load of money (e.g. Warren Buffet). Several bad ones are run by people that earn a base salary of less than 200K (e.g. the guys who ran the Iraq War)
Switching at will between Bernie’s long con (of anywhere between 15 and 35 years) and Chuck’s short one (200 days) does not help the case that something that’s been going on for 70+ years is not in the same class.
That said, I’m not too concerned about Social Security insolvency – it’s Medicare that’s the real intractable problem.
But this is incredibly weak hackery.
So Social Security isn’t a Ponzi scheme because it’s been going on longer and hasn’t maxed out yet. Got it.
I could construct another Venn diagram which would be equally effective in proving the contrarian view. How? The diagram constructor gets to choose both the pro/con points and then simplistically word and arrange those same points for the foolish to swallow.
“The Grandest Virtual Ferris Wheels on Planet Earth” (Small Excerpt)
Social Security is not a conventional or classic Ponzi scheme. But please don’t misunderstand the following distinction. Social Security is the largest Ponzi operation on Planet Earth. Moreover, the business end (bore) of Social Security is fully capable of causing all the same catastrophic effects of a behemoth Ponzi operation or scheme, of complete national size/ scale.
The failure of perpetual motion can be considered to be a fundamental law of the Universe. Consequently, one can consider both the SS-Ponzi and MC-Ponzi perpetual money machines to be additional inviolate proofs that all dream works of fools fail ‘perpetually’.
Read More;
http://www.americanfairhoperetirement.com/ponzi-dreams.html