Social Ponzi Scheme: The US Social Security System

There is a trillion dollar scam happening in the US and its spelt like P-O-N-Z-I.

Except that the perpetrator is no Bernard Madoff type investment fraudist, it is the US government itself. The Social security system wroks like a very large Ponzi scheme according to this Mises Inst article, and its hitting deep deep trouble.

The Social Security program is much like a mass pension scheme akin to the one we have here in Sri Lanka. except for the fact that workers across all industries and sectors contribute to it. As such, it nets massive revenues. But the ratio of workers to non workers is decreasing due to various reasons, and new measures are needed for the system to sustain itself.

This will either involve a reduction in SS benefits or an increase in SS taxation, or a combination of both.

There is little reason why SS schemes shouldn't succeed IMO. As long as the revenue of the funds outstrips its outflow. But how fair are these on the people they tax?And there they really making as much return on their investements as they could be doing investing the money elsewhere? And is the government taking undue advantage of the existence of such a massive source of idling funds?

Most Ponzi schemes falter due to being unable to meet bulk withdrawals, this factor does not exist in a Social Security system, but it is also subject to the laws of the time value of money and relies on a share of its potential recipients never being able to claim their pension, prompting the writer's sarcastic suggestion that perhaps the government should rethink its tobbaco policy.


A Virile Nagalingam said...

speaking as someone who has paid into the system throughout his working life and faces a strong probability that it will not pay out, I am convinced that it is, in effect, a Ponzi scheme. That is, a special class of depositors are enriched beyond their contribution and a cursed class given nothing.

I would argue, however, that my 401(k) (which is generally sold to workers as a smart, long-term bet) has declined over 38% in Q1 year-over-year.

Retirement planning, and financial advisors in general, seem to represent the kind of fallacious groupthink that will be characterized as the next great scam--the thought that you can beat the market consistently, not by picking individual stocks (thanks 90s!), but sinking all your savings into index funds.

TheWhacksteR said...

I agree about a certain class of people overbenefiting. But its generally the poorer and disabled class of who does so isnt it? In a semi-socialist state, this would be one mechanism of ensuring welfare.

im not saying that your income should be taken away from you though. And the 401k is devious in the sense that it transfers the risk of losing the value of the money in the pension fund to the employee itself.

As for the fallacy of markets never failing, i guess most people never believe that 'that shit could happen to me!' also most people probably dont have the time and interest when it comes to securing for their retirement for them to take more of a proactive stance on it.

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