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Thursday, April 6. 2017
An historian seeks to 'disprove' the 'myth' of Social Security being a Ponzi scheme. His assessment? The fact that is has worked for almost 80 years. Just because it's operated for 80 years doesn't mean it's not a Ponzi scheme. Ponzi didn't last that long because his scheme just didn't force everyone into it. In addition, while the math indeed proves SocSec will go broke (to me, proof of a Ponzi scheme is that the investment, under constant conditions, will go broke eventually), what makes it a non-Ponzi is that government just has to raise taxes!
Brilliant! And all Ponzi had to do was get more people to join and charge them more as he got closer to failure!
Sorry, any pay-as-you-go system which has regular payouts in perpetuity and no clear way to link dollars in to dollars out in the future, and without a clear method of investment and growth, is a Ponzi Scheme. Saying government bonds fulfills the method of investment is like saying investing in the next big bank heist is an investment. You're relying on coerced collections rather than actual organic progress and growth.
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The Democrats will tell you it can't be a Ponzi scheme because they can always print more money to pay you back.
It wouldn't be a Ponzi scheme if the money collected from the workers had been invested at normal compounding interest rather than being confiscated and spent by the Government. Further, it was for only those contributing workers who retire.
(to me, proof of a Ponzi scheme is that the investment, under constant conditions, will go broke eventually)
This statement could be true of any number of legitimate but ill-advised business plans. It's more accurate to identify a Ponzi scheme by the use of subsequent investment to repay previous investors, rather than funds generated by returns on the capital invested. It's not unheard of for a legitimate business to turn into a Ponzi scheme once early explosive growth stops and losses start to mount. Peregrine Financial Group from Cedar Falls, IA is an example, and I bet even Bernie Madoff didn't intend to cheat people from the start.
Since SS payroll taxes have always been used to pay current beneficiaries first, and the redemption of the bogus 'lock box' government bonds is simply a backdoor appropriation of funds from the same tax payers, SS meets this criteria regardless of how long the scam can keep running.
While I agree, and it's true, that legitimate business investments can become Ponzi schemes, no legitimate investment starts out as one and none eventually indicates that it will go broke over time. If it did, nobody would invest.
The problem with SocSec is, from the start, nobody did the accounting. Instead, the assumption was that the many could provide for the few (producers pay for retirees). This proved so lucrative, more payment recipients kept being added to the list, and payouts increased. The mismanagement has proven to be ripe for fraud (the number of dead people still receiving checks is pretty significant, my step father kept receiving his long after he died and we had to keep sending them back).
The original program had upwards of 41 workers paying for one recipient. This was a relatively stable structure, and could be maintained. It's possible that SocSec could even remain solvent if as few as 3 workers paid for one. But today it's about 2.7 workers per recipient.
Many factors have come into play to yield this result. I mentioned fraud, but that's small potatoes.
The growth of retirees is the main one - the Baby Boom really altered generational economics significantly. But even this wouldn't have been as big a problem if the ongoing expansion of recipients hadn't occurred.
The issue people point to is that the money is "stolen" by the government and used for other purposes. This is incorrect. All that happens is an accounting trick - moneys held in SocSec trust are said to have a value proposition of 'assets' and are balanced off against spending to hide the real size of the deficit. But no money is really shifted. All that money keeps going to SocSec.
It's as if I had $1,000,000 in a trust fund earning $100,000 a year that was deposited back into trust, and I had an income of $20,000 a year but spent $60,000 a year. I'd say I still have a 'surplus income' of $40,000 and go out and borrow $40,000 additional dollars each year.
Eventually, that arrangement would get me into a massive hole as loans and accumulated interest pile up.
If the original plan of SocSec had been adhered to, it wouldn't have been a Ponzi scheme. Like some formerly legitimate investments, changing circumstances have forced it into a difficult, and technically illegal, space.
As Bird Dog says, however, it's not illegal if the government does it.
Social Security was developed to increase the size of government and to help re-elect incumbents. The voters were bamboozled and politicians had a vast new pool of monies to borrow against in order to buy even more votes.
What is frightening about SS is that there are people that truly believe that it is not a Ponzi Scheme......
The government siphoned off about $4 trillion from the SS fund over the years with promises to put it back in when the fund needed it. So while it may well be a Ponzi scheme and it may not have been the best idea it is never the less a legal and enforceable contract. If the government chooses to they can make a different contract with the next generation. They cannot legally unilaterally break this contract with the current generations. Of course with a majority of the Supreme Court anything is possible.
Someone who I refuse to acknowledge has predicated his belief, which is misguided, that SocSec is not a Ponzi scheme because even after the trust fund is expended it will pay 79% back in perpetuity.
That, of course, is assuming all things being equal the rate of payout doesn't change, and the number of workers supporting those getting payments doesn't change.
But we know that won't be the case. So at its core, his premise is incorrect.
Even if it were correct, a Ponzi scheme could go on indefinitely if all its contributors were willing to take a haircut, as this comment provider seems to think is all they'd have to do. You just keep reducing the payout over time, and even a Ponzi scheme can go on in perpetuity.......until it eventually runs out of money (and even SocSec would reach that point).
This same comment provider also differentiates on the basis that a Ponzi Scheme is predicated on attracting new investors. Well, yes, that's true, unless you DON'T NEED to attract new investors because you've forced them all into the scheme. Then the scheme is predicated on increasing the amounts of their 'investment' over time (a critical and key point this comment provider is too vapid to pick up on).
Since this comment provider added nothing of use or value to the discussion I broke from my usual position of never deleting comments and decided that misinformation and disinformation are not good for society. I oppose censorship, but I know this comment provider has, on occasion shown his support for censorship of certain kinds, so I was inclined to show him what it feels like when groups like Facebook, Google and other news organizations start deciding what is newsworthy and what is not.
I happen to support the right of private organizations to engage in their own private censorship. I usually don't engage in it myself, but I made a special exception for this particular fool since his comments were utterly useless.
If you censor theirs, then you shouldn't comment on it, my opinion.
Leaves us with no context just your personal interpretation, which may be cogent or not, we don't know.
We all lose in that case.
I agree, which is why I normally don't do it. I'm just fed up with trolls who live in basements.
We discussed the difference between fast and slow Ponzi schemes, and the technical definitions, about six weeks ago. Readers might enjoy.
It was going along just fine until someone noticed the Baby Boom in their massive numbers were beginning to retire. Following behind was the baby bust. Who is going to pay for the Boomers? It's all a matter of demographics. Of course it was a Ponzi Scheme. They work until they don't.
The "baby boomers" are always blamed for the amount of resources society has to expend to keep promises made by the government. It was okay when we were all working to contribute to the system. Yes I am a boomer. But now in the waning years all I hear about is what a hardship we have become. At some point we will be the greatest population to die off and all will be right with the world. Except of course, the government will continue the Ponzi scheme upon each generation, and each generation will want what they feel is rightfully theirs, by virtue of what was taken from them by their government. The only Ponzi scheme to survive in perpetuity.
Healthcare will be the next big Ponzi scheme unless Trump can get it back in the hands of free markets. So far it doesn' t look as though it is going in that direction. We will have to wait and see.
Thanks Bulldog for your very sensible censorship of fools, I don't need to read what was written, have a pretty good idea what was said.
I think I may have mentioned this before, but if your name has anything to do with the Poconos in PA, that's where I grew up.
And, to be fair, I gave a good recap of what was posted, so while XRay is correct that if I do 'censor', I shouldn't comment without context.
Socialism, of every stripe, is a Ponzi scheme because it does not encourage growth and incentivize risk or opportunity. It is why I am, at heart, an AnCap Libertarian. Practically, I recognize the role of government, but I want it scaled back. Keep it out of our wallets, businesses, and bedrooms. The comment provider in question has long promoted extensive expansion of government into our lives without proper substantiation or justification of his position.
As a Boomer, if the government wants to cash me out by returning all the contributions I made to "my account" for the last 45 years, plus a reasonable return (say 6% compounded?) to approximate what I would have made in the market if I had been able to invest that money myself, I would be willing to waive my rights to Social Security.