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A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation.

Social Security is a social insurance program that is primarily funded through dedicated payroll taxes called Federal Insurance Contributions Act tax (FICA). Tax deposits are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund.

[above are copy/pastes from Wikipedia]




Back when the demographics worked, Paul Samuelson said that Social Security was a ponzi scheme. Yup, Samuelson with a Nobel prize in Econ.

However, there are a couple of differences. Ponzi schemes are voluntary and you only lose the money you put in. Neither is true of SS.


Why do some people defend the system so vehemently? It's a funds-in, funds-out scheme. New 'investors' are required to pay out old 'investors'.

I agree that 'fraudulent' is inflammatory but to pretend SS is some type of insurance or pension fund is just gilding the lily.

I think everyone would be better off if everyone was just honest about what Social Security is, and what it will be if the contribution/payout ratios start to skew badly. It's belief in financial impossibilities that get people into problems.


> Why defend the system so vehemently He wasn't. He was stating specifically how it worked.

>I think everyone would be better off if everyone was just honest about what Social Security is Calling it a ponzi scheme doesn't accomplish this goal.


You're right - I'm fixing the wording on my comment. I was associating the wrong comment with my reply.


If you remove "fraudulent" from the definition of Ponzi scheme, it accurately describes Social Security. It's an unnecessarily inflammatory way to note that current beneficiaries are funded by new inductees, which is generally a problematic funding structure.


Please stop commenting on this topic until you have the slightest damn idea of what you're talking about.

http://www.economist.com/blogs/democracyinamerica/2011/09/so...


First of all, that article doesn't refute my point that Social Security is an "investment operation that pays returns to its investors from their own money or the money paid by subsequent investors."

Secondly, the points the article does try to make are wrong, and the very first comment on it explains most of it. The article also suggests that things are just fine since the government can just raise taxes or reduce benefits to eliminate the problem, but doing so fundamentally breaks the promises that have been made to enrollees. You can fix the finances of any government program by paying less or charging more taxes, so it's kind of a silly argument. Social Security will probably exist forever, but its financial structure requires promises to be broken when population growth rates change (that is, when the rate of new inductees into the scheme slows).

This is off topic; I'm done talking about it.


Shhh! When you say "Ponzi Scheme" people think you're saying "fraud" and get upset because they think you're taking way their free money!


The mechanics are similar, but the motivations are different - in a Ponzi Scheme, the numbers need to keep growing to keep paying out ever-increasing amounts, otherwise people will abandon the scheme. The payouts from Social Security will go down (or inflation will eat them, or some other equivalent) if less gets put in; but it won't kill the scheme. Young people will still put money in, because they have no choice.

Social Security isn't a magic pot of gold. Nobody believes it is. It's welfare that's designed to give more welfare to the people who contributed more when they are able, and less to the people who didn't contribute.




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