The Logic Group posted on March 02, 2009 08:35
Recently many media outlets have focused on ponzi schemes poignantly highlighting the ease of taking money from investors and falsifying the returns. Bernard Madoff's admission that he was running what could amount to as a $50 billion ponzi scheme rocked not only his investors, but all investors. Ponzi schemes unfortunately happen frequently, however the sheer size of this most recent event is hard to fathom, especially considering the sophistication of those taken by Madoff’s scheme. Although the devastation was massive, it pales in comparison to the scheme our government has orchestrated.
We could focus on many programs the government has created for our “benefit,” but let’s first examine Social Security. In theory there is a social security trust which is meant to take the money you save today and pay you a benefit should you become disabled or retire. This benefit came about when the government decided that its citizens were not responsible enough to pay for their own retirement or disability and that we needed their support in order to provide at least a minimal benefit. The social security administration fancies themselves as a pay as you go system, where funds from current contributors are used to pay a former contributor and thus not a ponzi scheme. At the very least a pay as you go system is short sighted due to potential demographic shifts between the number of people working and the number of people receiving benefits. The pipeline as the Social Security Administration describes it can both dry up and overflow.
The SSA, in the article below, defends their pay as you go program. While they admit that there are some problems with pay as you go programs from a demographic standpoint they do not happen to mention the utility of the past surpluses. For example, in a true pay as you go system, when a surplus occurs the excess funds are put aside in a trust and invested for the inevitable drought that will come. The SSA had such a surplus when all of the baby boomers were in the labor force while their smaller circle of parents were retired. The lack of such a surplus and the missing description of how those funds were invested is more evidence that they were using the funds all along to pad the government's budget rather than preparing for the future stresses on the social security system.
In that article, they humorously describe the similarity as superficial; they should explain how funding excessive government programs is different from Madoff funding his excessive lifestyle with contributions from his investors. The baby boomers put their money into the system in good faith expecting a payout on the terms set at the time. Unfortunately, the government realized their system would not work and was forced to make amendments, such as the taxation of benefits and the qualification age for benefits. It is highly likely that these rules will change significantly for the Generation X’ers paying in to the system right now. If they receive any benefit at all it will be heavily taxed and they will have to wait significantly longer to receive benefits.
The true difference between Social Security and a ponzi scheme is that Social Security is government run. Thus after it blows up we will all have to pony up more money to keep it going, in theory to provide for the retirees. In reality, it would be an admission that the government orchestrated and ran the biggest ponzi scheme of all time.
http://web.archive.org/web/20011007160228/www.ssa.gov/history/ponzi.html