Is Social Security a Ponzi Scheme? Response to Comments

Posted by: Michael Mandel on December 30

I’ve read through all the comments on my previous post, and I wanted to see if I could respond to some of them. In particular, a lot of people objected to me calling Social Security a Ponzi scheme. Other people thought that Social Security would be unsustainable, even with technological progress.

So let me explain why I think that Social Security has most of the characteristics of a Ponzi scheme—let’s call it a “Ponzi-like” scheme. Nevertheless, the system of intergenerational transfers—the young supporting the old—is sustainable as long as productivity is rising.

A “Ponzi-like” scheme has three characteristics—transfers, obscurity, and unsustainability.

1) Transfer: Early participants are paid off by the investments of later participants

2) Obscurity: The true nature of the scheme is obscured. so that it looks like early participants are receiving a return on their investments, rather than payments from later participants

3) Unsustainability: The scheme is guaranteed to eventually break down, once the number of participatns rises high enough.

Social Security clearly fits the first characteristic, because it is a transfer payment from younger generations to older generations. No one would argue with this.

Social Security also fits the second characteristic, obscurity. The true nature of Social Security as a transfer payment is obscured by the Social Security Trust Fund. The Trust Fund seems to be imply that current taxes are being invested for the future. In addition, individuals are sent a record of how much Social Security taxes they have paid, with the implication that your future benefits are linked to how much you have paid in taxes. In other words, Social Security has the formal structure of an investment.

In fact, the Trust Fund is completely irrelevant for the long-term functioning of Social Security. Supposedly, the Trust Fund contains government bonds. But when the government has to dip into the Trust Fund to pay off benefits, where does that money come from? Well, the Trust Fund redeems the bonds with the Treasury, which then gets the money from taxes on worker earnings and other national income. In other words, the Trust Fund is just an accounting device, indicating an obligation on the income of the younger generation (not just wages, but capital income as well).

And in fact there is no connection at all between what you pay into the system in terms of taxes, and what you receive as benefits. The benefit formulas are written in terms of your average wages during your lifetime, adjusted by wage inflation. No one cares about your tax “contributions.”

What about unsustainability, the third characteristic? That’s where Social Security diverges from a Ponzi-like scheme. In fact, Social Security is sustainable indefinitely, as long as there is technological progress and real wages are rising over time. That’s because with rising real wages, the younger generations are better off than the older ones. The exact size of the benefits depends on the rate of growth of productivity. But as long as each generation is better off than the next, it’s possible to tweak the rules to make Social Security work.

I worked out the arithmetic for a simple example. Suppose that we have a society with no population growth. People work for forty years, and then are retired for twenty years. In other words, there are two workers for every retiree.

Suppose now that there is no real wage growth over time, and we want to replace 40% of the (working income) of a retired worker (In other words, retiree benefits equal 40% of their average real lifetime wages) Then how much do we tax the younger generation? We would need a tax rate of 20% (both employee and employer contributions) to finance Social Security. That’s obviously too much. (By comparison the current Social Security tax rate is 12.4%).

(Say, workers earn $100,000 a year, and retirees get $40,000 a year. Then each worker would have to pay $20,000).

But the arithmetic changes if real wages are rising. Suppose that real wages are rising by 2% a year, and your Social Security benefits depend on your average real wages during your lifetime (see caveat below). Then the necessary tax rate drops to 16%, because younger workers earn quite a bit more than their parents did.

Let’s summarize. Assuming a 40% replacement rate and two workers for every retiree, here’s how it works.

A Simple Social Security Example
(assuming 40% replacement)
If real wage growth is: 0% 1% 2%
Social Security tax needed is:* 20% 18% 16%
*combined employer and employee

The main way that the real wage rises over the long term is through technological progress. The more technological progress, the better off the young generations are, and the more they can afford to support the older generations.

Caveat: Currently Social Security benefits are based not on the real wages you earned in your lifetime, as assumed here, but on your real wages, adjusted for the change in overall wages over time. In other words, you benefit from rising real wages in the younger generation, up to the point you retire. A slight tweak in this formula would go a long way to fixing Social Security’s finances.


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Reader Comments

spencer

December 30, 2008 02:20 PM

The contribution or tax and the benefit payout are both functions of the same variable, the wages you earned over your working life. Yes, there are complications that make both sides of the equation a little more complex but the do not change the basic equation.

You can not have it both ways in saying
that the benefits are related to your wages and the taxes are not related to your wages.

Just asking for a little intellectual honesty.

Lord

December 30, 2008 03:32 PM

'That's obviously too much.'

Is it? Everyone saving for themselves for the same retirement would face the same problem. In a non-growing economy there is no benefit from investment. Everyone would have to save that amount. Now, they may prefer to spend more, save less, work longer, and retire later, or not, but this is up to them to decide. That does not make it unsustainable in itself. SS as written is perfectly sustainable because benefits are automatically cut to revenue and this may be the preferred choice, but there is nothing obviously too much.

mthomas

December 30, 2008 05:47 PM

The USA Dollar is the real Ponzi scheme. The FED is the real Ponzi scheme.
The USA economy is the real Ponzi scheme. The only reason social security is a Ponzi scheme is because the dollar on which it is based is a Ponzi scheme constantly made less valuable by the FED. The fed is not protecting the value of the dollar at all. Ponzi scheme is the dollar itself. So all industries related are thus Ponzi schemes. Look the fed will not tell anyone where the money from TARP is going so that is Obscurity.

Andrew Biggs

December 30, 2008 05:50 PM

"Caveat: Currently Social Security benefits are based not on the real wages you earned in your lifetime, as assumed here, but on your real wages, adjusted for the change in overall wages over time."

Which is exactly why real Social Security doesn't benefit from wage growth in the same way are your simplified model. A (reasonably) close approximation to real Social Security would be if retirees were promised a benefit equal to, say, 20% of the average wage at the time. In that case, benefits would increase 1-for-1 with wage growth, making technology/economic growth a non-factor.

As it is, initial retirement benefits are indexed for wages, but not benefits post-retirement (these rise only with inflation). So you get some benefit from wage growth, but less than in your example.

Most of the rest of your post is right, but I wanted to touch on the wage point.

Joe B

December 30, 2008 05:51 PM

A lecture from decades ago has always stuck with me. The presenter asked a simple question and asked for a show of hands:

"How many of you want your mother-in-law to live with you when she can no longer work?"

His point was that we will find the will and the way to make social security "sustainable" and that the major issues are social, not financial.

Mike

December 30, 2008 06:00 PM

Social Security is without a doubt the largest ponzi scheme going.

binh

December 30, 2008 06:13 PM

Calling social security a fraud? That is a bit rich. For your information, there are various kinds of social security system in other countries but they are not as bankcrupt as the US. What is wrong with giving the elderly some monies to live just above the poverty line? Even if young people and rich people like you have to contribute more. These elderly people are probably the one who had been working forminimum wages for 40 hours a week just to scrap a living. How much money would you save if you get the same wages? Would you support the increase of minimum wages or that is too expensive and makes your own taxes higher too?

If you want to save money, there are many ways to do it. First of all, the US should reduce the annual aids to Israel. Why would the american tax payers have to pay 10 bilion a year to support another country? Secondly, can you afford to have a huge military as before? We spent 3 trillions in the Iraq war and countless trillions to keep a powerful army so other countries like Japan, Australia, Saudi do not need to spend a lot on their army. Why it is prestigious to have a big army but it is something we can not afford considered our increasing foreign debt.

LAO

December 30, 2008 08:45 PM

So Social Security is viable, with some caveats about assumptions, which is what I though all along. Actually, it sounds like a pretty good idea, and I tend to side with those who think it is a proper function of government.

Why not expand it? The benefit to the economy would be that the awareness of this solid safety net would encourage everyone to take a little more risk in their lives, i.e. be a little more innovative (thus creating the very technological progress that you seek).

Further, this financial meltdown has taught us that no financial company is trustworthy. Ok, maybe some are and some aren't, but there is no absolute way to tell the difference with certainty. The advisers who recommend annuities invite us to bet on one company surviving long enough to give us our payout, but that company is subject to the same economic weakness that could sink Social Security -- unless that company is deemed "too big to fail", you could just be out of luck.

Further, in spite of the exhorbitant spending of war-mongers and others who suffer the delusion that economic strength is limitless and certain, the fact remains that Social Security does not bleed off exhorbitant profits from contributed monies in the way that the private sector does. I wouldn't mind buying government insurance for all my insurance.

Joe B -- Good point.

Curt Doolittle

December 30, 2008 08:53 PM

"...as long as productivity increases..."

(Apologies for long post)

Now that is a very western way of looking at the world, and it may in fact, it be a very Anglo way of looking at the world, which makes it an exceptional, as in RARE viewpoint. There isn't a lot of history of productivity increasing along those lines in a 'sustainable' fashion.

The US's extraordinary productivity post the 1860's was due to cheap manufacturing exported to europe the way the chinese are exporting to the US today. Immigration and land expansion was the next phase of growth. The extraordinary productivity of the 20th century was because of the impoverished nations who were either under communism, or socialism, or those who were recovering from the world war.

What on earth would make you think this trend, this fantastic opportunity, would continue? Like it did for whom else in history? Who on earth attributed it to
democracy rather than circumstance?

The Ponzi scheme other people on this blog topic refer to, operates worldwide on many levels, internationally with super-tribal cultural and philosophical differences as well as institutional, technological, and demographic differences, it operates nationally, with the fed's dollar, laws and social services, and individually with traditions and values, and especially with consumerism and destruction of the saving behavior.

Do you mean you want to place the blame on some one part here? The dollar? The fed. The Government? The culture? Just one?

The west has used it's technical advantage, and has been expanding capital for a long time. At least since the defeat of Napoleon. Financing wars with it. Financing global expansion with it. Financing the empire with it. Why should we think that there is any monetary policy we are engaged in that is will produce any result that is different from what any other empire in history has done?

Our self-appreciative analysis not withstanding, one promise holds true - money and prices are a knowledge system, and you can only fool the system long enough for people to adapt to it.

They have adapted. They don't trust the information system. And the Keynesians and Monetarists methods, which are designed to make them spend it because otherwise it will be destroyed, is only an incentive when they trust the system in the first place.

You can fool a few people now and then. But you cant create a system of foolery for long.

This same set of ideas can be expressed purely quantitatively using less romantic language, but this form of argument tends to be more memorable, partly because it is more entertaining.

This is too abstract for this forum, but property cannot be divorced from the knowledge of it's holder, or it ceases to be property because economic calculation is impossible.

Numbers are insufficent, as we currently know how to use them, to express intergenerational commitments. There is some evidence that human comprehension of the use of property cannot extend beyond perhaps fifteen years, maybe twice that at the margin.

That is our problem. In a nutshell. That is the problem.

We are unable to create debt instruments that allow infinite expansion of credit. Maybe someday, but right now it is beyond us. we do not understand our numbers and our own cooperative system well enough yet. What failed is our belief, expressed above as "...increases in productivity..." is precisely this problem.

If you want to regulate something, then do that. We've done it with CEO's and the public company. It isn't a problem of incentives. It's a problem of knowledge. It's only an incentive if you think people are greedy and want to stop them, rather than that they simply don't know any better and few of them have any depth of understanding of the monetary system and it's uses, so they can't know better.

And that's the problem. I would call it a vanity. A more romantic continental philosopher would call it a sin.

Cheers

Curt Doolittle

December 30, 2008 08:58 PM

"...as long as productivity increases..."

(Apologies for long post)

Now that is a very western way of looking at the world, and it may in fact, it be a very Anglo way of looking at the world, which makes it an exceptional, as in RARE viewpoint. There isn't a lot of history of productivity increasing along those lines in a 'sustainable' fashion.

The US's extraordinary productivity post the 1860's was due to cheap manufacturing exported to europe the way the chinese are exporting to the US today. Immigration and land expansion was the next phase of growth. The extraordinary productivity of the 20th century was because of the impoverished nations who were either under communism, or socialism, or those who were recovering from the world war.

What on earth would make you think this trend, this fantastic opportunity, would continue? Like it did for whom else in history? Who on earth attributed it to
democracy rather than circumstance?

The Ponzi scheme other people on this blog topic refer to, operates worldwide on many levels, internationally with super-tribal cultural and philosophical differences as well as institutional, technological, and demographic differences, it operates nationally, with the fed's dollar, laws and social services, and individually with traditions and values, and especially with consumerism and destruction of the saving behavior.

Do you mean you want to place the blame on some one part here? The dollar? The fed? The Government? The culture? Just one?

The west has used it's technical advantage, and has been expanding capital for a long time. At least since the defeat of Napoleon. Financing wars with it. Financing global expansion with it. Financing the empire with it. Why should we think that there is any monetary policy we are engaged in that is will produce any result that is different from what any other empire in history has done?

Our self-appreciative analysis not withstanding, one promise holds true - money and prices are a knowledge system, and you can only fool the system long enough for people to adapt to it.

They have adapted. They don't trust the information system. And the Keynesians and Monetarists methods, which are designed to make them spend it because otherwise it will be destroyed, is only an incentive when they trust the system in the first place.

You can fool a few people now and then. But you cant create a system of foolery for long.

This same set of ideas can be expressed purely quantitatively using less romantic language, but this form of argument tends to be more memorable, partly because it is more entertaining.

This is too abstract for this forum, but property cannot be divorced from the knowledge of it's holder, or it ceases to be property because economic calculation is impossible.

Numbers are insufficent, as we currently know how to use them, to express intergenerational commitments. There is some evidence that human comprehension of the use of property cannot extend beyond perhaps fifteen years, maybe twice that at the margin.

That is our problem. In a nutshell. That is the problem.

We are unable to create debt instruments that allow infinite expansion of credit. Maybe someday, but right now it is beyond us. we do not understand our numbers and our own cooperative system well enough yet. What failed is our belief, expressed above as "... increases in productivity..." is precisely this problem.

If you want to regulate something, then do that. We've done it with CEO's and the public company. It isn't a problem of incentives. It's a problem of knowledge. It's only an incentive if you think people are greedy and want to stop them, rather than that they simply don't know any better and few of them have any depth of understanding of the monetary system and it's uses, so they can't know better.

And that's the problem. I would call it a vanity. A more romantic continental philosopher would call it a sin.

Social services can be provided without relying on future productivity, and by preserving property and calculation. Making it a moral argument is simply a political distraction, so that governments can spend and class warfare can be justified on supposedly moral grounds, while an economically destructive immoral act can be prosecuted out of view of the average person. You can have as much redistribution as you want, as long as you preserve economic calculation. But if you don't you're just destroying the ability of the people to calculate more slowly than a central planner, and in the process socializing losses and privatizing gains.

And we have been privatizing gains at least since Waterloo, but at an accelerating rate.

Cheers

Joe Cushing

December 30, 2008 09:18 PM

Your formula ignores the point that I made--people keep living longer and longer on average. Of course the simple solution to this problem is to continuously increase retirement age. Is this politically possible?

Randy

December 30, 2008 09:36 PM

To be fair I made an assumption that real wage growth would remain stagnant much as it has over the last 30 years. Who knows for sure? But economics as we all know is about incentives. Where is the incentive for employers to tie wage increases to productivity gains? They have none. There also is no law to force them to. The only group I can think of off hand that benefited from the productivity increase are CEOs.

"The chief executive officers of large U.S. companies averaged $10.8 million in total compensation in 2006, more than 364 times the pay of the average U.S. worker, according to the latest survey by the United for a Fair Economy."

For simplicity I will quote the article I referenced before.

"According to the U.S. Labor Department, real wages averaged $19.05 an hour in 1978. This year, the average real wage -- again, adjusted for inflation -- is $18.23 an hour. That means workers today are making less than their fathers.

Over the same period, productivity has risen nearly 150%, while consumer prices have more than tripled."

"Mishel at the Economic Policy Institute said long-term prosperity would remain elusive as long as pay and productivity remained disconnected.

"There's an expectation that when you produce more goods and services, everyone moves ahead," he said. "But that no longer happens."

It would be nice to think employers who have benefited so enormously from advances in technology would treat workers fairly by once again linking pay to productivity.

But that hasn't been the case for more than three decades, so it's naive to think businesses will do this of their own accord."

Also SS is only one entitlement program. What about the burden of paying for medicare which is slated to go bankrupt much sooner than SS (2020 vs 2040)?

It is more than reasonable to think that productivity and technological gains we need to survive as a society won't always be there. This was convincingly argued in Joseph Tainter's book The Collapse of Complex Societies.

The basic premise is that in the past societies that have collapsed suffered from decreasing marginal returns on investment of resources to survive at their then current level of complexity. They then devolved to a more simple and sustainable level of complexity.

The last thing I would say is that people place to much faith in their govt to address this issue in a timely manner. Why should they? Politicians that have tried were not politicians much longer after that. They will kick the can down the road like they always do focusing on business as usual (getting relected) as that is the only thing they are good at. If there is any doubt that our govt is totally inept in a crisis just remember 9-11, the GWOT, Iraq's reconstruction, Katrina and the credit meltdown in '08. Why would this coming crisis be any different?

Beau Martin

December 30, 2008 09:43 PM

I disagree that unsustainability and imminent failure are required for a scheme to be considered a Ponzi scheme. Many Ponzi schemes are started by accident in a search for funding for what was thought a good idea, much like social security.

To this point there was nothing in the Madoff scheme that required it to fail. It was the downturn in the market and the subsequent withdrawal of funds by investors that seems to have caused to its collapse. A downturn in the number of workers or in real wages paid could cause a similar collapse if the Social Security program were it privately funded, rather than funded at the long arm of the law.

If unsustainability is not required for a scheme to be a Ponzi-scheme then there is no doubt that Social Security is Ponzi scheme, not as you claim a “Ponzi-like” scheme.

Currently $2.2 trillion per year is expended by our government on those over the age of 65, both in direct payments and in indirect payments, like Medicare and Part D coverage. This is three times more than we spend on defense, including the wars in Iraq and Afghanistan.

The wage earning generations as a result are now saddled with huge taxes costing each American more than food, clothing and housing combined.

This is something of a reverse Robin Hood scheme, where the relatively poor pay a large portion of their income to the relatively well off (most millionaires for instance are older) so they can leave live a more luxurious retirement.

At a nearly flat 15.3% rate, FICA and SECA taxes that purportedly pay for Social Security and Medicare are among the highest and most hidden taxes Americans pay. The rate is now more than five times higher than the rate paid when the currently retired generation started work.

Parents of child-rearing age are no longer able to save for their own children's educations, those desiring to buy a home are now unable to save for down payments, potential business owners are unable to save to capitalize a business to fuel growth for themselves and America tomorrow. The idea of a rainy-day fund has been cleaned out for even your average American.

The Social Security generations preceding today’s have undermined this country, to the point of ruin. With sound mind and the grace and strength of God current workers will be able to persuade the government to close social Ponzi programs down, turning a cold shoulder towards retirees.

While undoubtedly the sound of this is harsh, retirees and near retirees have known Social Security is a Ponzi scam, a ‘get something for nothing program,’ for years, and that it was going to impose a massive cost on working generations. They left the obligation of Social Security unfunded. They also left a huge national debt. These are their problems, not ours.

Social Security is not an anti-poverty program. Poverty is dealt with in our society in other ways. Social security is purely an intergenerational wealth transfer program.

Jorge

December 30, 2008 10:01 PM

Calling Social Security a Ponzi scheme is the most stupid and dumb statement that I have heard in a long time.

Fanatical capitalists hate Social Security because IT WORKS, and it is a Socialist program of people helping people, and it clashes strongly with the capitalist scheme of 'people screwing people' to get at their money.

JAZ

December 30, 2008 10:04 PM

Apparently, you consider all insurance and annuity programs Ponzi schemes. Social Security is paid for just like an insurance company issued annuity only with their own legal printing press as back up. The scare tactics and name calling are a not too subtle way to psych people in to giving up the basic income security that SS provides and to foment inter-generational and class warfare.

Vince

December 30, 2008 10:07 PM

All of it is a scheme. To even argue about it is silly. None of it based on anything real. Its a printing press and a computer. People on social security will get checks always, what's it cost to print a check? Not much. Someday people might not accept dollars tho.

phil

December 30, 2008 10:09 PM

Its a poorly run ponzi scheme.Immigrants get to bring older parents here who work for 5 or ten years and then collect social security for longer than they work.I on the other hand will have worked for60 years before I collect if there is anything left.At the same time they get government training at our expense while they live in section 8 housing at our expense.Its all a ponzi scheme.

Eric

December 30, 2008 10:11 PM

The average american wage has declined during the Bush administration. The more free trade we have, the lower the wages will go. That worries me. I hope it lasts until I retire.

John Q. Pub

December 30, 2008 10:12 PM

Here is the real test.

If Social Security works why does the Congressional arm of the U.S. have their money elsewhere.

Force them to retire the same way as the rest of us and then Social Security will work.

Mikek Wiesenberg

December 30, 2008 10:13 PM

Dear Michael,
The only way you're able to excuse Social Security is by defining a Ponzi scheme as only Ponzi-like if unsustainable. In truth though, Madoff's, or any others' Ponzi schemes could also go on indefinitely if people kept on putting in. The only distinction you've made is that Social Security is a Ponzi scheme that may keep on finding contributors - which is in my opinion, a distinction without a difference.

Sincerely,
Mike Wiesenberg

David

December 30, 2008 10:19 PM

A better solution would be to wean off this farce of a system and allow workers to invest their 15.3% in 401K's, IRA's or real estate. At least you can be responsible for losing your money and not the government.

Hal

December 30, 2008 10:20 PM

According to this definition, almost all taxes and certainly all deficit spending is a ponzi scheme.

1) Transfer - paying, for example, workers in a state building some piece of millitary doodad. Paid for by future children who haven't even been born yet.

2) Obscurity - the workers making good wages building the doodad think they're doing great. The children who haven't been born yet which will pay the bill will never know them.

3) Unsustainability - self evident.

You can repeat this exercise for pretty much any program you want.

Randy Monsen

December 30, 2008 10:21 PM

Of course social security is a Ponzi scheme! It's a promise to pay the current recipient by taking from the next sucker (born every minute). the only possible argument against the idea of it being a true (grandiose!) Ponzi scheme is that it is backed by the "full faith and credit of the United States of America". Well, surpirse, folks, in a couple of years we're going to wake up to the realization that the "full faith and credit" promise is the greatest Ponzi scheme ever in the history of Humanity.

Will Hyres

December 30, 2008 10:23 PM

The US National Debt is one giant ponzi scheme. The government borrows to pay all the vendors around the world that sell us weapons systems, and we use them. Little do we all know that it will all come falling down like Madoff, down the road. Can we really shoulder 10 Trillion in national Debt,(Thanks in large part directly to Republican spending on military and prison complexes - (don't even try to "blame the socialists" the data is clear)

The answer is a resounding NO. The debt is going to bounce on our shoulders like Madoff and the Mortgage industries just did on our economy.

Thanks to all you free market believers... we all used to think the Earth is flat, so don't feel so bad. Hindsight will show how free market supply side trickle down was nothing more than a get rich quick for the few, greed driven, "ponzi scheme."

Good luck fixing that mess Barack.

Lets see his list of to do items:

Health Care - no problem right?
Deficit spending - oh well lets do more.
Military in Iraq while we are broken at home- lets stay the course.
War on Terror - has not happened again since 9/11 (it was rigged by the way) but yea lets keep on fighting it
War on Drugs: why not? we need more people in our prisons to make sure all the prison workers keep collecting their fat check after two years at a junior college.

Global Warming:Right wing argument: It's not man made right? (Chuckle) The real argument is, "It's so expensive to modernize and make our products environmentally sound, lets pretend we did not cause the problem. Let's do like the auto industry and bury our heads in the sand and invest in HUMMERS. We might get invaded and need those bad boys. I mean at this rate, "Red Dawn," is a hell of a lot more possible than it was ten or twenty years ago.

Good Luck with that...

The truth is that when you do something right and morally to begin with, you don't have to clean up such a large mess. The problem is that a good part of our population thinks that is moral to eschew the conservative right wing religious and political viewpoint, and the truth is that this has caused the downfall of our nation. DON'T blame the socialists and the communists, they got locked up and blackballed in the 50's and 60's. Good ol' American know how, lack of it, has gotten us into a fine mess that most likely will take our children their entire lifetime to clean up.

When your children, and the generations that follow them, have to clean up your mess, that sucks.

Ignorance is not an excuse.

Moe Mahendran

December 30, 2008 10:30 PM

In the essence it is a legitimate Ponzi scheme carried out by the Government ( by the elected representatives of the people).

Rick Friedl

December 30, 2008 10:31 PM

Why are people here attacking one of the few governmental programs that benefit so many Americans of more modest means? Idealism or mean-spiritedness?

Ponzi

December 30, 2008 10:36 PM

Ah, but there's a fourth element of a "Ponzi-like scheme". The intention of the executor of the scheme to benefit financially. The difference lies in the will of the executor to address grievances as problems arise. Madoff and the Trust Fund board will try very different remedies when faced with problems.
I do not see this element existing with the social security system. Thus, this article, I find, is rather silly.
Another simple reminder:
who benefited from Madoff?
Who benefited from social security?

This whole argument about SS=Ponzi scheme is specious at best.

s0mebody

December 30, 2008 10:37 PM

Social Security is a ponzi scheme IMO, but regardless, it will collapse. The explanation for number 3 doesn't explain anything. If the SS trust fund holds gov't debt, and the same generation that expects SS at retirement simultaneously runs a huge current account deficit generating large gov't debt, the system can't continue. The gov't debt being held by the SSTF to pay out claims exists because the gov't already couldn't pay its current operational expenses. To pay out any kind of claims, the young generation at the time of the systems near collapse would become slaves to the older generation, and that is socially untenable.

bill

December 30, 2008 10:41 PM

social security is welfare. that is to say, those of us who work pay a SS tax, which is used to pay for those who don't work (including folks who have retired). if that sounds wrong, consider that:

1)upon your death, all of your lifetime benefits (whether you have retired to a very ripe old age or have never seen a day of retirement) revert to the government. that's right, the money you paid in over your lifetime of work goes in someone elses pocket.

2)the benefits (as correctly described above) are not connected in any way to your lifetime contributions. this is an annuity, which is indexed to your income as previously stated.

lottery's run in much the same fashion. they count on not paying out what they take in to everyone who participates.

anyone who is counting on social security as their sole means of survival in retirement will be very rudely awakened, as the rate of contribution by the working population is greatly dependent on the value of skilled labor.

as the skills of the labor pool decrease over time so does its ability to support the non-working poplation (including those who have retired). this is the primary reason why china and india have seen increases in real wages and the standard of living for their populations in the last 20 years and conversely why the US is in trouble now.

MarkG

December 30, 2008 10:54 PM

Why do you get two turns to comment on this. I have never seen this before in a column. Can't take it huh! Social Security is a godsend for millions of people, and it has actually worked. Don't try to fix something that isn't really broke. The only reason that Social Security would be a ponzi scheme is because the whole system is a ponzi scheme. Why do prices go up 10 times in 30 years? Because the whole thing is a Ponzi scheme. It is a little like the greyhound dogs, where the rabbit is kept just a little ahead of the pack. When the advantaged in this game skin all of the small players then they have to start the game out again since the rules aren't fair, so they take all their marbles and start again. Don't ask me why? I guess that some people like to start with many zeros in their bank account and they like to see an extra zero every 10 years or so. It isn't functional anyway.

ponzi

December 30, 2008 11:05 PM

To other commenters who consider SS as a Ponzi scheme, let me ask you this: who paid for the schools, roads, police, freedoms, etc. that you enjoy today? Here's a hint: it wasn't you. We, as a society, work to provide for the whole overall. That's how it works. Kennedy said it best: Ask not what your country can do for you, but what you can do for your country.
That way we all benefit. SS has helped millions make ends meet. To me, that's all that matters. This whole talk of "my money going into someone else's pocket" well I just have to say, if our founding fathers had such selfish attitudes, we'd all be a lot worse off.

Papau

December 30, 2008 11:27 PM

A Businessweek fact free/mis-applied facts article with comments that are silly is just what the world needs now. Apparently you cannot afford the time to learn how insurance difers from "Ponzi" - indeed your research budget did not allow you to contact a few actuaries, like myself, that actually understand the topic, or to contact either the Society or the Academny of Actuaries to have your article reviewed fot mis-use/mis-interpretation of the data provided by the Social Security Trustee's Report's Report of the Chief Actuary of the Social Security System.

There is no problem with rhe funding of SS - The Bush administration lowered the already conservative assumptions so as to destroy SS and replace it with individual accounts. The third projection in the Trustee's report shows no funding poblem - ever - even under the new more conservative assumption (the 3rd project is a bit less conservative than the 2nd projection which is the source of the 2040 date as the point when SS benefits drop to a level higher thn the current level but a bit more than 20% less than paid the prior year - not exactly "bankrupt" even under the Bush scare you assumptions.

The fellow that noted mortality improvements required a later "full unreduced for early retirement benefit" age is of course corret and just as Reagan increased the SS "full benefit" retirement age from 65 to 67, we will start increasing the age for new motality improvements beginning around 2030 - political poblems to get this passed are expected to be minimal.

The "must have productivity" nonsense is a new CATO mis-direction not supported by any analysis. Wage increases and therefore benefit increases are nicely tied together so productivity effects should not be - relative to coressponding inflation - that much of a problem (except as noted by a fellow that caught the fact that under Bush only the rich obtained a benefit from the productivity gains).

Medicare/health care financing is the real problem and can not be solved under those health insurance company workers are under administrative duties on;y contracts between their health insurance company employers and the Federal Gpvernment - an arrangeent that has worked well for Medicare Part B for decades. Payment for helth insurance company "risk taking" must end as the gov. must assume the risk (a political risk of defining what is basic care paid by the system and what is care that you save for or buy insurance for like breast enlargement.

When will Businessweek discuss the real changes needed rather than be a mouthpiece for your corporate advertisers?


Krogoth

December 30, 2008 11:51 PM

Regardless of Ponzi scheme or not, the coming massive devaluation of the dollar will kill SS as well as many other worthless programs, and a lot of people as well. Paulsons money is in China I think. Happy Tarping!

sarah

December 31, 2008 01:34 AM

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Sarah
http://www.thetreadmillguide.com

Chuck Gaffney

December 31, 2008 03:42 AM

Well, lets put SS in this perspective; simply look at the generations. The Baby Boomers are the ones who have and will benefit the most from Social Security. If you look at all the next generations of people; Gen X,Y,Z and Millenials, every generation is smaller than the previous one. This is caused by changes in society since the average family is working harder and can't afford or have time for many children as in the past since the cost of living has risen.

If I'm not mistaken Social Security started with the ratio of those paying in to those pulling out of the fund to be 14:1 at the program's start. Last I heard, the ratio is more like 2:1 or no more than 5:1.

The Baby Boomer retirement will mean the eventual depletion of the fund since there won't be enough paying in. The ratio will soon reverse and stay that way as all the current generations age. Take a look at Japan for example. They have a generational gap that make the Baby Boomer-to-Current Generations look like nothing. There are only about 45 Million kids 15 y/o and younger since the current working population is working themselves to death (sounds a bit familiar, huh?).

I'm not sure of their retirement plans but I know me as a Gen Y will be lucky to see $800 (in 2070 dollars) a month. The money taken out of my pay right now might as well be sent into a fire since I won't see most or all of it; making SS a Ponzi Scheme for me at least.

PacificGatePost

December 31, 2008 03:47 AM

HEDGE FUND UNDERBELLIES WILL SURFACE AT MADOFF & Co. TRIALS

From New York to Geneva, corruption is rampant and complex on Wall Street, including the process of accumulation of this much cash..
-
http://pacificgatepost.blogspot.com/2008/12/is-madoff-really-anomaly.html
-
MADOFF AND HIS METHODS are not so unique.

Richard Carpenter

December 31, 2008 06:37 AM

While it pains me to do so, I must add my two cents in defense of Social Security. Rather than a Ponzi scheme, Social Security is a welfare program disguised as a retirement plan. Franklin D. Roosevelt’s rational for requiring “contributions” was to give the appearance of it being a pension plan. This was more politics than actuarial science. In 1941, FDR famously told Luther C. Gulick, a member of his committee on government organization, “I guess you’re right on the economics, but those [payroll] taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”

The Language of Social Security taxes being called contributions had singular purpose; they created an ownership mentality with no real aspects of ownership. Congress clearly had this in mind when crafting the law. Section 1104 of the 1935 Act, entitled “RESERVATION OF POWER,” specifically said: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” In Flemming v. Nestor, the Supreme Court ruled that Social Security is not a protected program. Congress can cut or eliminate Social Security benefits at any time. Social Security is not a pension fund, it’s not a form of insurance, you do not own the benefits; and any connection between what you get and what you paid in as taxes is arbitrary. Your contributions are not contributions they are taxes. Social Security is a tax like any other tax and Congress can spend your “contribution” as it desires without regard to promises made in the 1930s.
In the 1937 U.S. Supreme Court ruling, Helvering vs. Davis, the court ruled: “The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.” There is no trust fund, there never has been a trust fund and there never will be a trust fund. Not having a trust fund is actually a good thing. Can you imagine a scenario where federal bureaucrats, lockbox or not, controlled trillions of dollars of real money?
Payroll taxes, like all other federal taxes, go into the general treasury. Social Security checks, like all other federal expenditures, are drawn on the US Treasury. If at some point in time there is not sufficient revenue to pay benefits (despite what is often reported this is by no means a certainty), politicians will be faced with the dilemma of raising taxes or cutting benefits. My guess is that the soak the rich mentality that pervades the Democratic Party will prevail. Increase the taxes on the rich and reduce or eliminate their benefits is a solution that appeals to the masses.
Rather that try to reform Social Security with silly ideas like personal accounts, conservatives should communicate the undeniable facts about the program. I can assure you that this is no easy task. The myth “I’ve paid in” to Social Security has been inculcated to even the brightest of our citizens. The path of the conservative is not an easy one; the candy man on the left is promoting ideas to the gullible that are more attractive than hard work and thrift. The message decrying the concept that about 15% of everything you earn is being given to those who chose not to save for retirement appeals only to those dedicated to individual responsibility. Unfortunately, this seems to be a minority of our population.

Sunny

December 31, 2008 10:29 AM

Where are some of you getting your information from?Off of a box of crackerjacks perhaps.First off IF and when you die your ss is paid to your spouse[if currently married]your ex spouse[if married at least 10 years prior to divorce]or your children[if under 18 or 24 if in college].The only time it reverts to the govt straight off
is if you are single and have no underage children.
SS was never meant as a total retirement
plan only as a supplement.The original generation to fund and spend from this knew this.Unfortunately subsequent generations either didnt know this or wouldnt act on it.
One of the major reasons ss is failing
is truly simple.Every social program around is funded through ss.Actually funded really isnt the right word siphoned off by crooks is a better and more accurate description.Want to improve and fix ss lock box it.The only monies to come out of it are for retirement medicare.
Ive got news for you, govt workers do have a seperate system, its called civil service.They fund this system through after tax dollars.They pay more of their own money in than most ss workers.
They not only have to file this with their taxes.If they are past a certain threshold they also have to pay taxes on it.
Saving for retirement [or for that matter anything else]requires discipline
and perseverence.Unfortunately a dropping wage scale really does hamper
alot of peoples ability to save at all
[younger people especially those with children]It also means that less money is available to save[even in older workers]It still doesnt discount the fact that you should at least try to.
I will agree 100% with the fact that companies seeing record profits dont send any of these profits down the line
[well past the ceos and top management]
Years ago this wouldnt be seen,Why?
The owners knew that without the bottom line workers they didnt have a company.
They also still had morals.Neither is the case today.They dont have the brain cells of retarded amoebas and absolutely no morals whatsoever.
Personally, I hate to say this .but when it comes to this factor, we may have to pass a law ,requiring them to send some of the money down the line.In the form of raises bonuses.Point blank
Capitolism practiced with common sense and morals works.Capitolism without the following spells economic collapse.

Tim

December 31, 2008 11:42 AM

If there are not enough future workers to support SS benefits, then who will buy the stock you hold when you try to cash out your 401K? Isn't the stock market subject to the exact same demographic pressures as SS? If there is only 1 worker and 10 retirees, it doesn't matter how much gold or land or whatever you have "saved". There is still only 1 pair of hands to change the bedpans.

That being said, if you check out the projected benefits at the CBO, you will see there is absolutely nothing to worry about. If SS remains unchanged, every future retiree will still see greater SS benefits, in real dollars, than someone retiring today. The only way SS will fail to keep it's original promise is that benefits will not keep up with expected improvements in real wages. So, you will take a bigger step down when you retiree, but still end up with a better living standard than today's retirees.

The only real "crisis" is that the Federal government will soon no longer be able to tap the regressive payroll tax as a source of operating revenue. Taxes on the wealthy will need to be raised. This problem could have been averted if the Republicans had succeeded in privatizing SS. Then, we would have seen 40% of the SS obligation erased with the recent market collapse.

Cavallo

December 31, 2008 12:08 PM

It's worse than a Ponzi Scheme, in as much as the government uses the money for pet projects while the retired pray that the work force can keep being fleeced to support the program and the huge bureaucracy that has grown up around it.

While the bureaucracy does whatever they can to limit the benefits to the retired, cover their mistakes and pass benefits on to illegal aliens and new arrivals from China etc., who have never put a dime into the program. Ponzi is a kind word for it.

Kpod

December 31, 2008 12:30 PM

What we need is a way to unravel the SS Ponzi scheme. Our extended life expectancies and the baby boomer bubble that is approaching is placing too much of a burden on the SS system. There have to be compromises somewhere. Those who are still contributing are going to have to give more and/or those receiving benefits will have to draw less. What we need is some accountable politicians to balance the books. Its not rocket science...the actuarial tables exist, we know the compound growth equations, we can project population growth....the last piece needed is some resolve.

smokehouse

December 31, 2008 12:47 PM

binh
December 30, 2008 06:13 PM

The above poster is the true mindless feel good liberal. See what he says, than drop over with laughter.

Dan Schwartz

December 31, 2008 12:56 PM

You are forgetting inflation: Social Security benefits are tied to COLA, which acts as a positive feedback vector on inflation.

The fewer workers per retiree, the greater the magnitude of the positive feedback vector.

And Yes, Social Security became a Ponzi Scheme the minute Congress diverted ("borrowed") the first dollar of the Trust Fund for pork barrel spending.

TexGEOas

December 31, 2008 01:10 PM

If a private citizen (like Madoff) or a large company (like New York Life) operated Social Security in exactly the same way it is currently being run by the government... they would be headed straight for jail. Social Security is the largest Ponzi scheme on the planet. The only reason people aren't in jail is because... well... they make the laws.

BTW, there never was a Social Security "trust fund". It is simply a basket of I.O.U.'s left after the government raided the SS money and put it in the general fund... and spent it! The money is gone. It is not there.

JAKiii

December 31, 2008 01:19 PM

Demographics make Social Security unsustainable. The ratio of retirees to workers is growing as lifespans increase and Baby-Boomers retire. Current workers will be forced to pay more into the system while retirement age increases and retirement benefits decrease. Gen-X and Gen-Y will not see a penny of their contributions because this system as designed cannot survive another 20 years.

We watched recently as lawmakers chastised the Automakers for unsound business practice. Meanwhile the government under their charge is filled with doomed programs and bankrupt ideas, the fate of which can be seen 20 years out. And still we do nothing.

ian

December 31, 2008 01:24 PM

My problem with SS is that the money it takes in is used to reduce the deficit. I realize that you can't put that volume of money in a savings account, but this is still fundamentally dishonest. Why not target it better and invest it in the future? Technology, infrastructure, schools, etc...

Jim

December 31, 2008 01:42 PM


I suggest that you get over it. Social Security is here to stay, regardless of what hypothesis you conjure up. We as a society are not going to return to the 1850s or even the 1950s. I find it interesting that the same people that pursue the roll back of Social Security are the first to pursue adventurism throughout the world in spending our hard earned tax dollars. This is not to say that we should become isolationist,but why in the world is it more important to spend these tax dollars on others protection and and development, than take care of the people who worked to build this nation! We as a people are asked to defend the principles that this nation was established upon with military participation,working hard,paying our taxes and supporting the less fortunate, but when we reach the age or the point in life where we can no longer produce and maintain a decent life style,we become a burden on society and expendable.Social Security is not a perfect system, but it is the best we have,and harping about it being ponzi scheme is not a positive way of developing improvements. For years people have been saying that the system is failing and telling the young that they will never collect a dime, and to date the system continues function and it will continue to function in the future with or with out the support of those who dislike the system. We are Americans and although we are a people from different backgrounds and different nationalites, we can and will resolve the problems of Social Security without destroying the system.So as I originally stated get over it,spend your time thinking about how we can make positive improvements in a system that is not perfect, but it is the best we have !
Jim

John Dickey

December 31, 2008 02:40 PM

Galveston County Texas opted out of Social Security and some of their retirees are getting more than they got when they were working. When SS was created municipalities were allowed to opt out if they wanted. Galveston County TX did. They put the money in each employee's private account. It is THEIR MONEY!!!

If SS would have been done this way from the beginning, and if other countries would have done it that way too, the governments wouldn't be in the business of supplying retirement money. Every person would have taken care of their own retirement.

Since the politicians didn't want the SS money in a separate account, that tells me it was just another way for them to get MY money. They have spent the billions of SS dollars that should be in their now. Now they want to give MY money to the illegals. Since they are on a separate retirement plan, they can give away all the SS money they want and still have a very nice retirement.

John

December 31, 2008 02:58 PM

Social Security is not sustainable if the birth rate and the death rate decline. Fewer workers and more retirees living ever longer lives will put an end to any fixed system of transfer payments from workers to geezers. Interestingly, those declines are happening.

Of course, if one just has to preserve Social Security, one solution is a government monopoly on health care. They can make sure the geezers die off quickly and in sufficient numbers to preserve the system. As Joe Biden might put it, it will be patriotic to not live too long. Or we could just put those SS funds in private accounts for each worker and they'll get richer the longer they live.

Terry Saulsbury

December 31, 2008 04:11 PM

I must really be getting old. I have always called it a pyramid scheme. I recall a movie where one of the characters was accused of running a pyramid scheme and he replied "No, no, I prefer to call it a trapezoid". Whatever you call it, it sucks.

Lord

December 31, 2008 10:18 PM

It is irritating to hear so many who do not know what they are talking about.

As noted, the Trust Fund is not SS and SS is not the Trust Fund. Under midcost projections, SS will be able to pay out 78% of benefits forever. Forever. SS is never, ever, going away. No one is going to end up with nothing. This percentage has been rising, not falling. All we are talking about is small increases or cuts that the models cannot even project accurately enough to know what will happen 30 years from now. Bruce Web, http://bruceweb.blogspot.com/, has written extensively on SS and is well worth reading.

binh

January 1, 2009 05:47 AM

The whole country is a big Ponzi scheme. The millionaire senators/reps who hardly ever loose elections in a Duo-monopoly system vote to enrich themselves with tax cuts. The middle class people vote for free trade and refuse to support any increase in minimum wages so they can shop at Wal-Mart on the cheap. The little people on minimum wages of $5-6/hours get to work 40 hours a week to make a living with little savings. They thought they could still achieve the American dream by buying their own homes using subprime loans only to find out that they will be kicked out on the street when the tide turned. Everyone is for themselves and gets what they deserve.

Maybe now is the time for us to realize that fanatical capitalism is not working. There is a role for government to regulate the market and prevent people from ripping off others. Government is also to provide supports for the old and the disabled and the infant. If you have an accident tomorrow, would you want the SS scheme to be there provide you some income support or you want to rely on God? who is to say that 401 k accounts cant go bankrupt in the future? Same goes with healthcare.

A recent article from NY times shows that we spend more money per person for healthcare than those countries that provide universal coverage for their citizens( free healthcare for the retired, disabled and infant). Most of the wasteful spending is ending up in the pocket of insurance companies and admin costs.

From the 2006 figure, SS trust fund had an income of $750 billions and paid out $540 billions. It is not likely to be bankrupted any time soon. Even if it is, money can be saved by cutting the annual defense spending of about $1 trillion/year or farm subsidy of $20 billions or oil industry subsidy $15-30 billions/year or US foreign aids of $40 billions dollars. One should start to provide charity at home first before going out to preach others.

Smokehouse - I am a millionaire myself and i do not think I need to rely on SS for my retirement.

Spofford White

January 1, 2009 12:34 PM

The reason Social Security IS a Ponzi scheme is that it fools the participants into believing they have an actual account with real assets in it they truly own. This is NOT the case. If it is REAL, how can it pay a defined benefit, and then give people a cost of living increase? How could any pension keep giving recipients raises while their life expectancy keeps going up? Social Security does it by means of new money coming in, period. Forget illegal immigrants, they have discovered the ITIN.

Steve Spenser

January 1, 2009 08:29 PM

Your definition of a Ponzi scheme misses several key elements:

1) a Ponzi scheme involves deceit. Investor's are told that their investment is available for redemption at any time, when in fact it isn't. SS beneficiaries have no expectation that they are going "redeem" their account at any particular time, other than as annuity payment at retirement, or as income replacement in the event of disability.

2) Social Security is insurance, not an investment. Like all insurance, SS payouts begin at some triggering event like retirement or disability. The retirement component of SS is a defined benefit plan (not a defined contribution plan). Thus there is no account balance and benefits are paid in the form life annuity based on earnings--this is very similar to private defined benefit plans.

3) Yes, unlike private insurance companies, SS obligation to beneficiaries is unfunded; the federal government has not purchased stocks and bonds in sufficient quantities to meet future commitments. There are several reasons for this: one, if the feds did, the government would own a huge chunk of corporate America--not good. Second, we rightly expect private insurers to invest prudently for future obligations because private companies must rely on future cash flows from such investment to pay their obligations. The government relies on it's taxing authority to pay benefits. If there is a mismatch between economic growth, collectible taxes, and benefits promised, then we have a problem. But that doesn't make it a Ponzi scheme.

Ajay

January 2, 2009 08:22 AM

Good comments by Beau, Bill, and John. I wonder why only these Social Security posts randomly get so many comments, a front page BW link? I'll leave the wage
indexing argument alone and point out that SS is clearly a Ponzi scheme, as I've pointed out to Mr. Mandel before (http://www.businessweek.com/the_thread/economicsunbound/archives/2006/11/deficit_dementi.html). What's interesting is that he now clearly acknowledges that the trust fund is unfunded and taxes will have to be raised to make good on the supposed trust fund, yet he still refuses to take that into account with his numbers, blindly citing the $4.3 trillion shortfall from the SSA summary without including the $2.2 trillion trust fund that has yet to be funded (http://www.ssa.gov/OACT/TR/TR08/IV_LRest.html#276411). That means the shortfall is really $5.5 trillion, if not more, as the combined taxable payroll has magically increased by $32 trillion since the 2006 report, among other accounting irregularities. The biggest problems with SS are that it's a defined benefit plan that only invests in government bonds. There's a reason that most corporate pensions have been moving to defined contribution plans and the government hasn't solved that problem. The bigger problem though is how you invest any surplus or contribution. Currently, the SS fund is just a slush fund that congress can use for whatever government pork projects that they want. Clinton didn't really have a budget surplus in the '90s, he raided SS just like everybody else and claimed a false surplus. That's why Gore then talked up the SS lockbox in his debates. Ultimately, Mike's argument is that SS is a ponzi scheme: however, he says that's okay because the government doing it forcibly makes it legitimate, as other commenters have pointed out, and because we can just tax the shortfall of trillions of dollars from our richer descendants. What this facile analysis ignores is that there's hundreds of billions of dollars every year that could be invested in projects that will indeed enable fast growth, that money is instead shit away on government pork today. This sucking up of resources only delays growth and impoverishes our kids.

If you want to force a minimal level of saving (which I'm against but not as much if it isn't done stupidly as it is today), why not allow another option than treasury bonds and defined benefit plans? Why not allow people to opt out into defined contribution plans with corporate equities and bonds, as private SS accounts would do? When the SS supporters immediately and vociferously fight this option, it becomes clear that their real goal is to use the SS trust fund to finance govt spending and to use SS
to bribe voters, as Nixon and other presidents have done by repeatedly kicking up the SS benefits around election time. However, you cannot just kick this can down the road forever, rising taxes
are coming within 8 years, as that's when the intermediate projection says that we'll have to start paying out the trust fund, and SS will be reformed because it cannot sustain the
baby boom retirement bulge. The only question is how and when. Why not transform it into a defined contribution plan with real investment options, ie private SS accounts? This is the only sustainable option for saving, everything else is a way to steal money from one person to pay for others' profligacy, which unfortunately is the raison d'etre of leftist commenters, who're provided support by a left-leaning economist like Mandel. At least he admits that SS is a ponzi scheme, to their chagrin, though he then tries to rationalize it in a dumb way.

jozee

January 2, 2009 03:49 PM

Many of the comments and the original post are based on rumors, untruths, and twisted statistics. People prefer to believe whatever they want, rather than the truth, and it is just amazing how ignorant most folks are about SS. I believe in SS, believe it will be there, and I find it disturbing that many would just rather let old people die of hunger and poverty. Just wait til you get there and then you may have some respect for older people. They do not live in wealth. Also, politicians do pay into SS just like everyone else and have for about 20 years or more, so research the law. It is a paid into system, not welfare, not meant to be all you have to live on, and if our wonderful brilliant politicians would stop borrowing from the trust funds for other purposes, we would be better off. It is not a Ponzi scheme. The people that run this country today, and the financial institutions and Wall Street are immoral ,greedy crooks who have bankrupted our country, and eliminating SS would be disastrous for average WORKING Americans, who are the backbone of this country
right on, sunny and Lord

dirk

January 3, 2009 09:43 AM

These are not exact quotes, but theories that were foisted onto the general public.

Intenet stocks will continue to rise as technology continually advances.--Henry Blodgett

House prices allways go up, cause they don't make land anymore.--National Realtors Association

Madoff is a genius, he allways makes consistent returns regardless of the overall markets.--Various Hedge Fund managers

Social Security is a sound system and needs just a few tweaks.--Michael Mandel


Claud Bauls

January 4, 2009 07:27 PM

Those that argue Social Security is a Ponzi scheme based on the fact that it leads tax payers to believe that there is a specific SS account in their name with a specific amount of money when no such account currently exists must also concede that the same holds true for the American banking system. Everyone looks at their bank statements and assumes the money is there but in actuality the money has been loaned out so that the bank can make money on the spread. If everyone withdrew the money their money from banks at once we would realize what a Ponzi scheme our banking system is today. The banks would collapse. Yet Mandel doesn't have any complaints about the private banking system that benefits the wealthiest American investors, just a public program that benefits the poor and middle class. One wonders why.

Paul

January 11, 2009 09:04 PM

It is definitely like a Ponzi scheme since it depends on future sources of taxes to continue paying those eligible for SS. Future workers pay your SS just like you paid previous workers SS.

The Government use to send me a notice of how much SS I had coming and how much earnings they had recorded against my account. They would ask me to check on my investment. I would send them a note back saying this ain't no investment and why are you misleading people in this manner. Eventually they quit using "Investment" in their letters.

robert

January 12, 2009 04:21 PM

I am more confident that I will get a higher percentage of what I paid into SS back then the percentage that I will get of what I have paid into my 401k.
SS isn't a perfect system, but I really wish you guys would come up with a retirement solution that is half as stable as SS before you get you destroy it.

Joshua

February 13, 2009 10:55 AM

Michael, I've appreciated both your original post on this as well as your response.

Thought you might get a laugh out of a t-shirt I designed that parallels this theme:

"Uncle Sam is a Big Fat Ponzi"
http://www.clothmoth.com/products/ponzi

Keep up the great articles for Businessweek and others, and all the best.

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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