Professor Ponzi Scheme

Social “Ponzi Scheme” Security

I’ve occasionally made passing comments about how similar the Social Security system is to a Ponzi Scheme.  Unfortunately some politicians have done the same, but only after pulling some benefits from it to pay for things like college.  Well, here it comes from someone who hasn’t.

As someone who almost chose a humanities major,
I thought this was funny (from http://www.phdcomics.com)

First, you must understand why Ponzi Schemes and Social Security are similar:

One of them relies on consistently increasing its base of investors in order to pay other investors a return.  The other does the same.

You can get the details at the following links:

Ponzi Scheme

Social Security

This is also a good description on Social Security:
How Stuff Works

Putting Social Security in this context may help you understand some of the debates around Social Security.  SS is not like an account that you put money into so that you can withdraw your personally saved money later.  It’s a pool of money immediately paid back out to those who qualify to withdraw the benefits.  It is based on the idea that the population will continually and steadily grow in both the number of people and the overall wealth of the country.

With the recent housing crisis, hopefully we can understand how silly it is to assume that something will steadily and eternally increase.  In all honesty, how can we condemn the investors who speculated on the housing market under the assumption that housing values never decline when we so jealously guard a general welfare system founded on the same principles?

The population will not always increase in number.  It will not always increase in wealth.  We need to recognize and prepare for the fact that at some point it will decline, and at other points, it will decline drastically.  It’s just how life works.  At those times (which I dare say will be fairly unpredictable,) Social Security will severely falter or fail, and a lot of people will be angry.

Don’t rely on your Social Security benefits as a sure bet.  It has plenty of risk, just like any investment (it’s just too bad that you don’t have a choice on whether to invest in Social Security.)

Keep Seeking Truth

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