Paging Mr. Ponzi

Social Security is obviously a Ponzi scheme. Here is Wikipedia’s definition:

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. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The only thing to quibble about here is whether Social Security “entices” new investors; enticed or not, you’ve got no choice. Some might also dispute whether it is “fraudulent”. It is: it makes promises it cannot deliver. (In fact, now we get that promise explicitly, in the form of an annual letter from the Social Security administration listing all the promised benefits we’ll never see.)

What is interesting is that Social Security’s own advocates have likened it to a Ponzi scheme:

Jonathan Last has already identified a 1967 Newsweek column by liberal economist and Nobel laureate Paul Samuelson as perhaps the earliest use of the Social Security/Ponzi-scheme comparison in public argument. Samuelson was actually drawing on the Ponzi analogy to defend Social Security. His claim was that the perpetual succession of human generations establishes the conditions for a sustainable Ponzi scheme. Regardless of whether Samuelson was the first commentator to use the Ponzi analogy, he has clearly been the most influential. Policy briefs and books churned out by conservative think tanks such as Heritage and Cato have cited Samuelson’s Ponzi column for years. . .

The unfortunate weakness of Samuelson’s model is its assumption that a growing economy will produce continual population increase. In an April 1978 follow-up in Newsweek to his original 1967 column, Samuelson acknowledged that demographic reality was disproving this assumption. Samuelson repeated his use of the Ponzi analogy and continued to defend his hopes for Social Security as best he could.

POSTSCRIPT: Of course, none of that will stop the fact-checkers opinion police from labeling the comparison false.

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