A Ponzi scheme is only doomed if you can't continually find more new investors. As long as you can continually find people to put money in, you have no problem and can continue infinitely. They aren't inherently mathematically doomed.
For example, the Social Security system in the US is nothing more than a Ponzi scheme. We all pay for the previous generation(s). In fact, the original beneficiaries didn't have to pay in at all. It isn't a system where the government takes money we pay in at 25 and saves it in an interest bearing account for when we retire. No, they use our money at 25 to pay for the retirement of someone who is currently retired.
Of course, this has also shown cracks - as we moved past the baby boomer generation, there are fewer people paying in and more people taking out which has gotten us into our current mess. That's where a Ponzi scheme breaks. In fact, that's why the US government will have to do something (either charging young people more money or reducing benefits to old people) because the Ponzi nature of it doesn't work with the reduction of inflows and increase of outflows that we're seeing.
Likewise, a similar scheme was instituted by many of the auto manufacturers. They took on obligations with the assumption that future workers/sales could pay for it as their market share ever increased and they would have ever increasing profits. It works, unless the ever increasingness stops.
Heck, if you wanted to successfully run an investment scheme, make it a retirement scheme. The problem with a Ponzi scheme is that people can withdraw. Offer a retirement scheme to people 30 and under and you can just pocket the money for long enough to get away.
Heck, stick the money in a few index funds which average 10% per year and charge a 1-2% management fee each year on the total account value. Oh, wait. That's legal and widely done.
People keep calling social security a ponzi scheme, but it's not. For the simple reason that it's not trying to make a profit - it's trying to give back to people the same amount of money they put in.
It's more of a forced investment than anything else, with the variation of having the money skip a generation.
The difference is that if all you do is give people the exact same amount of money they put in, you can run forever. All you need is a buffer of some kind.
For the simple reason that it's not trying to make a profit - it's trying to give back to people the same amount of money they put in.
If Charles Ponzi wanted to live modestly, but donate huge sums to charity so everybody would love the big-shot Ponzi, it wouldn't have been a Ponzi scheme? If he'd wanted to buy votes, would it have been less of a Ponzi scheem?
It's more of a forced investment than anything else, with the variation of having the money skip a generation.
Well, no. It's forced redistribution. The money is not invested; it's spent.
The difference is that if all you do is give people the exact same amount of money they put in, you can run forever. All you need is a buffer of some kind.
But SS was designed with the assumption that either demographics wouldn't change, or that they'd change so slowly that nobody would suffer politically for having invented Social Security.
> People keep calling social security a ponzi scheme, but it's not. For the simple reason that it's not trying to make a profit - it's trying to give back to people the same amount of money they put in.
No, it's not. If it was, people who cap out for years would get roughly the same return on their "investment" as people who do the bare minimum. Instead, SS gives a much higher return (on investment) to folks in the latter group than it does to folks in the former. (It's almost a decent investment for the minimum folks, while it's a crappy "investment" for the cap-out folks.)
That ignores that the first beneficiaries never paid in. Also it has little to do with what you put in. That is why Gore proposed the lockbox. All the money We put in this year is already spent.
For example, the Social Security system in the US is nothing more than a Ponzi scheme. We all pay for the previous generation(s). In fact, the original beneficiaries didn't have to pay in at all. It isn't a system where the government takes money we pay in at 25 and saves it in an interest bearing account for when we retire. No, they use our money at 25 to pay for the retirement of someone who is currently retired.
Of course, this has also shown cracks - as we moved past the baby boomer generation, there are fewer people paying in and more people taking out which has gotten us into our current mess. That's where a Ponzi scheme breaks. In fact, that's why the US government will have to do something (either charging young people more money or reducing benefits to old people) because the Ponzi nature of it doesn't work with the reduction of inflows and increase of outflows that we're seeing.
Likewise, a similar scheme was instituted by many of the auto manufacturers. They took on obligations with the assumption that future workers/sales could pay for it as their market share ever increased and they would have ever increasing profits. It works, unless the ever increasingness stops.
Heck, if you wanted to successfully run an investment scheme, make it a retirement scheme. The problem with a Ponzi scheme is that people can withdraw. Offer a retirement scheme to people 30 and under and you can just pocket the money for long enough to get away.
Heck, stick the money in a few index funds which average 10% per year and charge a 1-2% management fee each year on the total account value. Oh, wait. That's legal and widely done.