Social Security a Ponzi scheme? No way

Social security is a ponzi and time will tell real soon if unemployment is, with all these checks going out every week and the states claiming they are broke, its pretty clear to see unemployent is a ponzi too. wonder where all that unemployment money that businesses send in every quarter went, if the business owners dont pay it in every quarter they are fined, i am a business owner and have paid in unemployment for my employees for over twenty years with no layoffs, that amounts to alot of money that was supposed to be in a fund collecting interest. SHOW ME THAT MONEY, i dont think they can, and isnt that a ponzi scheme?

SS is the only legal unfunded retirment program in the USA. Draw your own conclusion, but I call it a Ponzi scheme.

A rallying cry that can galvanize America: “Social Security is probably somewhat more sustainable than most Ponzi schemes. Also, it’s not a fraud because technically fraud is when we lie to you and you rely to your detriment. We told you facts write up front that make it clear how Social Security is bilking you out of a mountain of money to no purpose whatever. But you were dumb enough to vote for it anyway.”

Social Security is worse than a Ponzi Scheme. Ponzi Scheme’s dupe people into participating. Social Security forces people to participate. So, to the writer’s first point, no its not a Ponzi scheme. His second point that Social Security isn’t automatically doomed to fail is weak. Sure, Social Security can be tweaked. Another way to put that is taxes can be increased even more than they already are. Eventually, it will break. The third point, however, is the lamest. Social Security is better because its intentions were better. WHO CARES! If the result is still that threw a hell of a lot of money into a black pit, I don’t give a flying you know what about what the “intentions” of the creators of Social Security were.

Maybe its not technically a “Ponzi Scheme”, but its just as bad, if not worse. Those who say Madoff created the 2nd biggest Ponzi Scheme are not that far off. This is something that needs to be addressed.

To the author, I have some good florida swamp land to sell ya. SS is a dead duck.

Keep it simple. Social Security is not a ponzi scheme. Then what are our 401k? Somebody getting rich and it not me.

Sure it is a Ponzi scheme. Legally sanctioned but a Ponzi scheme nevertheless.

You are right! It’s worse than a Ponzi scheme, since it’s mandatory. And there’s jail time if we chose not be victimized by it!

NEWS FLASH! for Mr. David Lee and similar commenters below —

while the current Social Security promises are not soundly backed by adequate taxes, you omitted as an option changing the investment mix.

Fixing the American economy by removing impediments to successful investment and profitable production will make the stock market soar.

And just think how that would benefit the Social Security “trust fund” if it were being invested similar to the funds of annuity holders run by life insurance companies.

Investing solely in government debt is the equivalent of relying on future generations to bear increasingly higher taxes to fund your benefits. If/when the voters revolt out there [about 2030 or so] and act to cut benefits by 1/3rd or more, you’ll understand just how foolish it is to rely on government promises.

No SS is not a Ponzi scheme by the strict definition. But I disagree with the article that SS isn’t automatically going to fail. It is unless dramatic changes are made to the system. The federal government has put forth a system which taught, not deliberately, people that they didn’t have to save for retirement. Smart people see through this but many have not. If the government makes adjustments there will be a larger percentage of the retiring population that can not sustain themselves. In that sense SS is a system that will fail.

I see. SS is not a Ponzi scheme because its victims are forced to contribute to it and the motives for its creation were “high-minded” – the high-mindedness consisting in the coercion being for “our own good”. The coercion however is necessary – and the only way this particular scam can work – because no one would willingly contribute to it if they fully understood how poor its returns are.

I’m not sure about the PS aspect but everything I’ve researched about SS makes it unsustainable. There are no trust funds. They are IOU’s which are not backed by anything but a promise. Unfortunately, you can only print so much worthless money and at some point a loaf of bread will cost $10.000 just like in Africa. We are broke and getting broker.

I can disprove all 3 of your points. 1) SS was created to help the people at that time who had no retirement savings. The long term consequences were never considered. It was a political “bribe” to win over public support. The early “investors” paid almost nothing into the system and got returns into the thousands and sometimes millions of percent. For the rest of us, you can only collect a fraction of what you put in and that’s only if you live long enough to collect (transferring a fraction of that fraction to a surviving familiy member is not the same as a “return” on your investment). We know for a fact that the “returns” have and will continue to diminish over time and that the entire system will be bankrupt by 2047.
2) Yes, we are being lied to by people like Mitchell Zuckoff and the government. There is no question that the government has not been honest about SS. They have used it to syphon off money for special projects and replaced that money with an IOU. The money doesn’t exist because it has already been spent. The only “real” difference is unlike Ponzi and Maddoff the government can always print more.
3) Saying that SS is ethical or morally correct just shows how broken your moral compass really is. If #2 doesn’t clear it up then how about the fact that it’s a lottery on how long you live. Reach old age and get back 70% of what you put in or die young and get nothing. I also don’t see how putting our financial burdens on future generations is ethical. We should be preparing and saving for our futures instead of spending our childrens’ future. On top of that we now plan on running trillion dollar deficits for the next four years. If I had the option to opt out I would. I don’t plan on accepting SS because it is morally and ethically wrong to continue it.

Yes, I believe that Social Security is a ponzi scheme. It’s based upon paying those who “got in first” , the “upline” from money from those who get in behind you, after you, the “downline.” And yes more have to come into the program more and more and more to keep it afloat and some day it will crash. Yep, Social Security is a ponzi scheme.

The sad part is, it’s not the biggest Ponzi scheme we take part in. The government as a whole is growing in size, spending, and debt while it’s citizens have very little say towards actually balancing a budget. I think two things would help this situation. 1) make all public servants with any sort of budget take a basic accounting class to understand debits & credits and 2.) have some sort of accountability so the policy of making promises and not fulfilling them won’t cut it.

Social Security isn’t a lost cause. If we make some hard decisions and implement my plan to push all people currently over the age of 55 into a volcano, preferably the Yellowstone super volcano, we can eliminate the stress on the social security system AND appease the angry Yellowstone volcano spirits.
Look, if you’re not irate about the direction Social Security is going you probably plan on being dead before you get the shaft. Saying it’s not a Ponzi scheme because it was created with benevolent goals in mind is ridiculous. The road to hell is paved with good intentions and the fact of the matter is that regardless of the moral superiority of the social security program it will turn out to be a fraud in the end.. conveniently about the time I’m supposed to retire. As a relatively young man I’d rather put all that money into bonds or a savings account than into our stupid corrupt government, the same one that doesn’t have the rocks to give it to us straight.

Social Security is most definitely the biggest Ponzi scheme of all time…First, everyone is being misled. You’re a fool to think otherwise. Second, SS is doomed to be fail…most financial experts agree. Who’s the author of this? A high scholl freshman?

I don’t see how Social Security is not a Ponzi scheme. I’m 29 years old and I pay thousands of dollars per year into Social Security, and do not expect to see one penny of it when I retire.

Yes and no. It’s like a ponzi scheme because instead of being invested, new investors’ money is simply used to pay off old investors — and it’s fundamentally insolvent. It’s not like a ponzi scheme, because you’re forced to pay into it.

That’s the only reason no one’s being misled. If madoff could hold a gun to your head and make you invest with him, lest he lock you in a cage, he wouldn’t have to lie either.

No. A ponzi scheme is voluntary (albeit deceptively). The federal transfer payments are stolen by force.

It is a Ponzi scheme. And ultimately
unsustainable.

What’s the difference between seeking other investors as in Ponzi to prolong failure or increasing the rates for current investors as in workers in the Social Security system. Both are sustainable given time and suckers. Yup, if it walks like a duck!!!!!

If you consider that people of my generation (i.e. set to retire after 2040) are being told by financial planners etc. to plan on NOT having Social Security, does that mean most people think it will colapse like a Ponzi scheme by then?

Secondly, considering that there is technically NO money in Social Security anyway because every ounce of revenue + $1 trillion or so is being used to bail out banks, automakers, etc; then technically the Ponzi scheme has already colapsed and the feds are just writing checks against the governmental credit card.

Social Security, as currently run by our government, is doomed to fail. Sure, like any Ponzi scheme, if the organizers modify their behavior, the decline rate, and ultimate failure date, may change. At one time, Social Security may have had a chance of being something Americans could count on. But once our government elected to spend the excess contributions on General Budget items, and replace those funds with IOUs, Social Security began slipping beneath the waves. I want Social Security, my multiple 401-ks, IRAs, and Roth IRAs replaced with one retirement account that I direct, supervised by the government, but run like my Roth IRA. That’s far more fair and certain than Social Security.

It does not matter if Social security is technically a ponzi scheme or not. It is theft either way.

If you work, which almost everyone must, participation is mandatory. So, your property is confiscated against your will. That is theft, even if the government is behind it.

What’s more, this is a contract in which one side holds ALL the power. The government taxes you in whatever amount it wants. It determines when you can collect benefits and in what amount. And, even though your parents probably signed you up without your consent (and without full knowledge of what they were signing you up for) you may not terminate the contract. This program has no place in a free society.

People are not being misled ???????

Tell your children with an honest look on your face, ” Don’t worry, There will plenty of money in SS when you retire !!!” Please what a bunch of government propaga. Jump off the bus now people, our country is CRUMBLING.

Ask your CPA. You will then get the truth. SSI is the biggest scam ever concieved.

This is a stupid column, but Social Security is still not a Ponzi scheme. That’s just a stupid slogan used by the same people who two years ago were telling us the market always goes up. They understand neither the market, Social Security, nor Ponzi schemes.

Of course SS is not a PS. The two are in no way comparable so the question is rather silly. More internet dribble.

Better yet, it’s not in as big a mess and this article implies. With minor changes including allowing a small amount of risk beyond T bills, this system is fixable and sustainable.

The real mess that will cost us hundreds of billions is Medicare. Let’s focus on real problems with difficult decions.

First – People are clearly being misled about the solvency of the Social Security System. Even the CNNFN article is very misleading. If any investor was told that in the near future a company would be paying out more in expenses than it would receive in revenue with no plan in place to reduce spending or increase revenue, the stock would soon be worthless. Social Security is not sustainable as the system exists today and people are being told that the system is sound.

Second – Social Security may not be automatically doomed to fail for everyone, but there is a very high chance that it will fail for millions of people. Certainly Social Security will fail future generations, in that the benefits that they receive will be much less than they had expected. There are only three ways to solve this problem: 1) Tax workers more, 2) Reduce Benefits, and 3) Both 1&2. All of these solutions impact future generations more than those that have collected from the system. Social Security has not failed everyone, just like a Ponzi Scheme, Madoff and other investors that pulled money out early benefited substantially. It’s the future generations that will be paying the price for the failure of our government in solving the problem early.

Third, there is some moral strength in Social Security, at least when it was started. However, at the point where the system simply takes from one generation to give to another there is no moral standing at all. The system is not fair in that it’s not sustainable. Future generations will not receive the benefits that past generations received. It’s not a question of taking from the rich to give to the poor. I find it much more troubling and imoral that one generation can take the safety net away from future generations. It’s that simple.

Social Security is simply mortgaging our future in the biggest Ponzi Scheme known to this world. The system is broken and not sustainable.

This is crazy. I think I’ve seen 100 comments in a row from people saying exactly what I thought when I read this article.

a) It is a piece of crap. No support has been given to back up the assertion that SS is not a Ponzi scheme (in concept).

b) Everybody agrees it IS a Ponzi scheme in spirit.

Can the media be more out of touch with reality?

Of course SS is a Ponzi scheme: because it is dependent upon an ever-expanding population base, while the Earth is a finite space making infinite expansion mathematically impossible. SS started out (and was sold to the public) as ten young guys putting in a dime for every old guy taking out a dollar. It will wind up as every young guy putting in two dollars for every two “boomers” taking out a dollar apiece. Furthermore, it is more immoral than Ponzi because it is not voluntary and is enforced by government force. LIke Ponzi, SS is self-evidently unsustainable. Only government employees, such as professors would disagree. And that’s because they want to keep their unsustainable good deals while everybody else sucks wind and pays for them.

The author implies that Social Security is not a Ponzi Scheme because it doesn’t intentionally defraud people. That is true.

More acurately, we could call it a Ponzi-like scheme because the basic tenet is the same: you need more people to pay into the system every year or it will collapse.

Semantics aside, the result is the same, the problem persists, and Social Security will eventually collapse. At the rate the deficit is exploding, the entire federal government will collapse along with it in another 15 years or so. Just wait until the gov’t triple A bond rating is downgraded to a level it deserves. Things will spiral rapidly downwards after that, and then the last great economic bubble will come to a jarring end.

The articles argument that S.S. isn’t a Ponzi scheme because eveyone knows it a ponzi scheme is pretty lame.

It is this kind of lame reporting that has put this country into the sorry shape that it currently in.

Is Social Security a Ponzi scheme? Yes. Arguing that is isn’t one because the gov’t runs the program was pretty weak. Arguing that SS is not a Ponzi scheme because a Ponzi scheme is a product of capitalism was also weak, as well as the mandatory vs voluntary argument. Basic premise of a Ponzi scheme is robbing Peter to pay Paul. Basic premise of SS is taxing me to pay Granny, who might live until she’s 90. So for all intents and purposes, yes, definitely a Ponzi scheme.

Who cares what you call it! If Generation Xers invest a lifetime into the Social Security program and upon retirement get nothing – I would call this fraud, just like Madoff and a Ponzi Scheme. THANKS BABY BOOMERS!

If it looks like a duck, walks like a duck, talks like a duck, plucks like a duck, cooks like a duck and tastes like a duck, maybe, just maybe, it’s a duck. A dead duck. Social Security is a Ponzi scheme. It depends upon continued contributions from working people (one group) to pay benefits to the recipients (the other group).

The Social Security trust fund is a very long and dirty joke, which, by the time we get to the end, we’ll all discover we already knew the punch line. The only things in the Social Security trust fund are a bunch of government IOU’s – which will have to be repaid – with what?

Because of semantics, the social security system might not fit the dictionary definition of a Ponzi scheme, but it operates just like one. It’s a fiscally unsound system taking money from a large portion of the population and may return little to nothing compared with the amount of the “investment” by the younger generations.

Just because it’s legal doesn’t mean it isn’t crooked.

The correct answer is unabashedly YES. I came to this conclusion on my own years ago. I explained this to many of my friends when the Madoff story broke. Much of the column is up for debate, includng the idea that there will actually be ANY return on investment for many of us.

We are forced to participate in Social Security.
The way Congress uses the Trust Fund but keeps it off their books.
The way I am paying someone’s retirement benefits and I am promised someone will be there to pay for my future retirement benefits.
The Congress can change the term anyway they want.

All these make it worse than a Ponzi scheme.

While I agree with the writer that Social Security is not a true “Ponzi Scheme” in the sense of an intential financial fraud, there are several points in his article that I strongly disagree with.

First, todays workers unfortunately don’t understand that their payments do not go into their “account”. Many workers think that they are saving money for future benefits, therefore the I paid in, I should get benefits mentality.

Second, I disagree with the wealth transfer analogy proposed that the SS system moves money from the wealthy to the poor. I think the reverse is true. Payroll taxes are extremely regressive and generally current “poor” working people are subsidizing benefits for many of todays relatively well off individuals.

The overall goal of SS is positive, to place a required safety net retirement system in place. The system should be reformed to reflect a more true savings vehicle run by the government (to eliminate the “no privitization” argument) with insurance factors for disability.

We can reason it in all kinds of different ways to say that Social Security isn’t a Ponzi Scheme, but the reason the argument keeps returning and the reason it’s so convincing is because, quite simply, social security is much more a Ponzi Scheme than it is a retirement account or insurance policy.

First, let’s tackle the notion that it’s a retirement account. Many of us get statements every year explaining what benefits to expect based on how much we’ve contributed into the system. However, as has been said by many, there is no account, no savings, because the government has squandered all the funds that we put in it. And the first people receiving SS checks didn’t pay a penny into the system. Any system that gives a return on $0 put into it is not an investment or an account, but rather income redistribution. Whether that word is good or bad depends on your political views, and more than likely on whether you’re seeing income being redistributed to you or from you.

Next, let’s consider if this is a government form of insurance (aka security). Any insurance policy would be based on the the premiums charged to people for the policy, the expected payments that need to be given to those individuals, and some kind of margin to handle unexpected changes in the future. If an insurance company ran the SS system, it would have messed up on day one by giving benefits to those that never paid a dime into the policy. And it would be shutdown by the government for not keeping funds to payout future benefits.

So the key differences I see are that the Ponzi scheme was voluntary based on bad information where payouts were given to those that chose to withdraw first, where in SS you are mandated to buy into the system that everyone knows is broken and payouts are given to those that are the oldest.

One is a wolf in a red dress and the other is a wolf in sheep’s clothing, they will both take your money if you buy into it and withdraw to late. But at least with a Ponzi scheme, no one is forcing you into it.

Yes it is. The politicians have pillaged the Trust Fund and left it empty. If all of the proceeds since its inception had been left in there as T-Bills or Notes, the compounding of interest would have grown the Fund for such a time as this, when income will not meet outflow. Then reserves could be drawn on until the demographics flip again.
The fact that we are considering raising taxes, lowering benefits or raising retirement age is how we are going to pay for Congress’ mismanagment; no, theft of our Social Security.

So the entire rebuttal from Mitchell Zuckoff in his article is that Social Security is not a Ponzi because of transparency and intent. That is like saying to a cop; “Yes I was speeding but I didn’t mean to speed so that means I am not a speeder”. Just because they are not hiding the fact that the money will run out, or that and the intended purpose is to fund retirement and not steal retirement does not make it any less of a Ponzi setup. Even Ponzi, as admitted in the article, did not intend to create the pyramid it was merely an ends to a means to keep from admitting failure.

The bottom line is that for Social Security to work as intended it needed to keep and invest over the decades. Now many decades later, after several hands in the cookie jar, things are different. The investments utilized to facilitate the growth did not pan out. Funds have been loaned out and IOU’s left in their place. The system now can only maintain itself in an in-the-bottom out-the-top fashion. If it walks like a duck and quacks like a duck, it’s still a duck.

Yes… to go over your points…

1)Just because no one is being misled does not disqualify the fact the fact that it is the same as a classic Ponzi scheme.

2)If you look at the numbers, it is doomed to fail. The only way to not let it fail is to raise the SS tax on workers and lower the benefits… As most people, I don’t expect SS to be there when I retire in 40 odd years.

3)You believe that SS is moral and just. I would tend to say that it is neither moral nor just. Regardless of what we think, it has no bearing on whether SS is a Ponzi scheme or not.

And BTW, Social Security IS a Ponzi scheme…

Social Security is the biggest Ponzi Scheme ever concocted. It is also unconstitutional.

The idea that the government of a free people can forcibly take their money to “save” it for them is repugnant.

Instead of saving it, now they spend it on whatever they want thus compounding their gross abuse of power with the sin of lying.

These are the types of actions that influenced our founders to declare independence and fight for freedom.

a) Social Security is unconstitutional – it was held to be ‘constitutional’ through duplicitous reasoning in a 7-2 decision by a Supreme Court under a court-packing threat from FDR. Where once the prohibition of alcohol required a constitutional amendment, the creation of an old-age annuity paid for with tax dollars was deemed to represent the will and consent of all the people of the nation by 7 judges.

b) While trust funds were initially invested in marketable real assets, later legislation diverted these funds to general revenues and replaced with non-marketable IOUs.

c) The original pamphlet issued by Congress promised “the most you would ever pay is 3% of your income upto $3000″.

d) While I am currently paying into the system, I fully expect the same level of benefits/return to come to me as those currently drawing from the system. While Congress has the right to change entitlements, denying equal treatment to all would be revolutionary.

First, we are being mis-led by Politicians who say SS is akin to a “lock-box.” Those same Politicians raid SS to finance their own pork projects. Also, The Gov’t may not promise ‘massive returns”, but they should tell us what returns we should expect on our annual statements, i.e., negative real returns.
Second, SS is doomed to fail & will require a massive bailout at some point, i.e., lower benefits or higher taxes. The Govt should never have set up a system that would fail once retirees outnumbered workers.
Third, a lot of bad legislation was passed during the Great Depression. That’s why we still had > 15% unemployment in 1940 – 8 years after the inception of the New Deal. My question: Why should Govt be in the pension business at all? And why fund it with job killing payroll taxes?

Ok, so social security doesn’t meet the technical definition of a Ponzi scheme. It is essentially the same thing. Both are run by unsavory characters…thank you New Deal and Great Society!

Social Security is a Ponzi scheme. Even though we know how it works today, it wasn’t introduced and passed into law for what it is today. Why don’t the senators and congressmen pay Social Security tax if it’s such a good deal? Social Security is just a way for the superrich to use the money of the masses as are many government “taxes”. For example, where does the revenue from personal income tax go? It goes to the super rich. It goes to the international banking cartel in the guise of the Federal Reserve System. It is used to pay the “national debt”, money borrowed from bankers and identified as “legal tender” by the government. An interesting question is, “Why does the United States Government borrow the use of its own money? The United States Government can print its own money interest free. The answer is, “This is a way to transfer money form the masses to the super rich.”

Jason,

“the US Congress has the absolute authority to assess and collect taxes, the only constraint being that taxes should be fair and equitable. ”

Why does it even have to be fair or equitable? When push comes to shoves, with enough votes, the Congress can override both the Presidential veto and the Supreme Court by making constitutional amendments.

So why not just pass a consitutional amendment that confiscates 100% of income over an arbitrary basic subsistence level?

The ultimate law is not man-made law, but natural law. Government can only exist and pretend to be in a position to enforce law when it has the consent of the governed. That consent is not measured in terms of 51% vs. 49%, but the consent of the overwhelming majority; my guess is 90+% on issues that really matter in order to be sustainable in the long term. Failing that, enforcement against non-compliance becomes prohibitively expensive. Soak-the-rich schemes usually boils down to killing the goose that lays golden eggs . . . if not putting the fox in charge of hen house as the rich decide to seize onto that kind of absolutist power and use the power against you (which btw is also not sustainable in the long term, but can certainly make the lives of everyone miserable).

Of course! If it walks like a duck and quacks like a duck, it is a duck. The only difference between Social Security and a Ponzi scheme is that for Social Security, everyone is informed about the transfer of wealth from younger employees to older ones.

Dear writer, I wonder if you actually pay Social Security tax because your arguments don’t make any sense.
1. It’s not Ponzi scheme because government mandates that I pay this tax. Isn’t it even worse then? With Madoff, people had choice. SOCIAL SECURITY IS MANDATORY PONZI SCHEME. I guess we can solve our national debt, national infrastructure and any other government problem the same way, e.g. have people pay “national debt” tax.
2. It’s not Ponzi scheme because government can change the rules, i.e. I’m required to pay now but when it’s my time to retire I might be told that I’d have to work 20 more years or my SS payment would be 10% of original estimate. I’m sure Madoff, if he had this choice, could do the same thing by telling his investors that they will have to wait 50 more years and get 10% of their money and then invest in US Treasurys.
3. It’s not Ponzi scheme because as SS taxpayer I should feel great because I know that my money is used to pay somebody else. Well maybe Madoff investors should do the same, i.e feel good that their money helped somebody else to get richer.

Social Security would be a ponzi scheme if the “dollar” had a fixed value, because Social Security pays out benefits with current premiums. Any insurance company run like that, and with accummulated funding in the form of IOU’s from a different department of the insurance company itself would have long faced criminal prosecution.

The “dollar” however is not of fixed value. The government can print up more money whenever it wants. If Madoff had a legalized counterfeit machine that churn out money on demand, Ponzi Scheme or not would become quite irrelevent.

Mitchell makes three false assumptions based on the definition he hears from others:

First assumption- I disagree that Ponzi schemes require you to be misled. In fact, there are a number of Ponzi schemes that let people know what is going on. The idea is that you make your money and hope that enough people join afterwards so that you make money. Thus, the idea then that a Ponzi scheme requires people to be misled is false.

Even if you do agree that Ponzi schemes require fraudelent activity, Social Security still applies. Fraud means breach of confidence or deceitful pretenses. We are told that we have to contribute and that money will be there when it’s our turn to collect. That’s the pretense…we pay for people now and others will pay for us down the line. There are loads of numbers that show that that won’t be the case. Hence the idea that we will have money when it’s our turn may be deceitful and constitute fraud. Mitchell is wrong then that there is no fraud in social security….(and I’ll leave out the arguement that only those qualified get social security)

Second assumption- A ponzi scheme is automatically doomed to fail since it is unsustainable… In fact, as long as you have people willing or forced to join, the Ponzi scheme is sustainable. Isn’t that exactly what is happening with Social Security? The only difference with Social Security is that unlike most Ponzi schemes, people are forced to contribute 12.4% (when you combine what you and your employer pay). What happens when the money coming in is less then that going out? One of three things must happen. Those contributing must contribute more, those taking must take less or someone else must contribute. Hence, social security may fail…even though there will always be people to contribute…there just may not be enough.

Finally, Mitchell says that since the motives behind the creation of social security are different, it can’t be a Ponzi scheme. The story of Charles Ponzi himself shows that…”He tried to find a lefitimate way to deliver on his promises, only to bring ruin on many of his investors”. Motives were good. Idea was bad. Same with Social Security…..

A journalism professor making a semantic argument about whether social security is a ponzi scheme or not is substantially less than persuasive. Of course it’s a ponzi scheme!

Each of the professor’s arguments fails.

1. “No one is being misled.” Really? The average American thinks he is paying in to some kind of a retirement plan from which they will earn a future return. Baloney! Economists call these “transfer payments.” The people who got in early earn high “returns.” Those late to the table earn large negative returns.

2. “Social Security isn’t doomed to fail.” How does the professor define failure? While it may not bankrupt the country like Medicare and Medicaid will, the fact that it is not sustainable as currently designed certainly must constitute failure. The social security trust fund, where the government writes IOU’s to itself, is most certainly a fraud.

3. “Morally the polar opposite of a Ponzi.” A fraud, no matter how well intended, is still a fraud. Politicians who promise more than they can deliver (and don’t they all) created this mess and there is no way out except to raise taxes or decrease benefits.

When asked why he robbed banks, Willie Sutton, the 1920’s bank robber, replied, “because that’s where the money is.” Isn’t this the essence of the high minded ideals that promote the social security system? Robin Hood wasn’t really a robber; just a wealth transfer facilitator.

You completely miss the point. The issue is not that SS taxes being levied will at some point be less than the SS benefits being paid out. The issue is that during all these years that we have had SS surpluses (more taxes levied than benefits paid)that were supposedly placed in the SS Trust Fund, the surplus funds were actually not invested but rather spent on general gov’t expenditures. The only thing in the SS Trust Fund is a boatload of IOUs from the U.S. Treasury. When the time comes that the money is needed, the Treasury will need to raise NEW taxes from the citizens to pay off the IOU’s–or there will be no benefits. Let’s see: The investors (taxpayers) make the investments, the money is not invested, but rather, spent on things for which it was not intended. Then, when the money is need to repay the investors, there’s nothing there. Yep: It’s the world’s greatest Ponzi scheme.

I did a net present value analysis of social security using the governments assumptions for me as well as the cost of replacement value insurance. Social security in not a ponzi scheme, it is simply the worst possible investment you will make in your life. You should contact every government official you know to get rid of social security. The younger you are, the worse it is.

The author clearly misses the point he seeks to prove. If he danced around it any more he could have his own performance on network television.

Whilst swinging for the fence, he whiffs past the point in an attempt to fool us. Claims of morality to dispel its status that is in fact Ponzi, by any other name would be funny, were it not such a serious matter.

This is what politicians have done for years. Proffering any number of legislative acts over the years, that were presented to voters as one thing, only to morph them into something else over time.

If it is not a fraud (a lie), show me the money. Which he can’t do because the money is not there as Congress is using for sundry other things.

Congress keeps hiding the Social Security accounting in the General Fund and using it for as though it is its own. What could be more Ponzi than that?

The point is this; Social Security is clearly a Ponzi scheme. It RELIES on 1. new players coming into the system to perpetuate it and 2. keeping as many players in it for as long as possible to provide a source of funds to pay out while the intent of it is to use it for their own end.

It is clearly a fraud given Congress and/or the Social Security Administration’s numerous changes to the system over the years.

Of course social security is a Ponzi scheme. I’ll rebut the author’s points in order.

First, because of the way it’s marketed with “statements” sent out (including small, small type notes that benefits might change), most people think of Social Security as a “individual savings account” rather than the way it actually works. It’s not framed in a transparent way at all, and no policymakers wish to make it more transparent because then it becomes obvious that its more like, well, a Ponzi scheme.

Second, it will collapse unless something in the program changes. Which doesn’t speak well to the transparency/honesty of the program that is the basis of the author’s first point.

Third, let’s not get into issues of morality here. I can come up with tons of Ponzi schemes with admirable goals that are still Ponzi schemes.

C’mon – who thinks it isn’t?

Another good P scheme is the Federal Pension Program – right up there with Soc Security…

This is what Americans get for not demanding ( voting ) for hard campaign reforms, term limits, and demanding checks and balances…

I think the Constitution needs to be amended to allow US Citizens, on an annual basis, the ability to exercise a ‘vote of confidence’ for what the Congress is doing… If the vote fails, we have a run off for all the seats… This will allow the voting public to clean out the non performers who repeatedly do what is right for their pocket book at the expense of the American people…

the better question to ask is, : Can we keep our theiving political “leaders” sticky, corrupt finger out of it, so it can be used for its intended purpose, not to cover budget shortfalls….. The Answer ? Well if you were to ask Congress, they would wink at you and tell you better keep your 401k going.

IT BETTER NOT BE A PONZI SCEME!!! I have paid into it for 50 years because the Government said I had to and that it would be there for me when I retire – and IT BETTER BE! That is the difference between the two, the Government has promised it! I figure if I had had the option to invest (with employer matching), I would now have better than $2 Million, the Government has used my money all these years and it better be there for me when I need it (especially when the Government has seen fit to give away (sorry, bailout) hundreds of billions of dollars to rich people.
By the way, to “Boo hoo hoo”, you better make sure you get rich by the time you get 65 or you may just need the Social Security (and Medicare) you are criticizing today!
I sure hope the Government sets aside money to “bailout” Social Security and Medicare if these two vital Government programs need it, and also remember it is the common folk who keep the economy going (not the rich), as we are all seeing now.

So your argument is that Social Security is not a Ponzi scheme because you say it isn’t? In all other respects it looks just like a Ponzi scheme? I get it.

It’s worse than a Ponzi scheme. In a typical Ponzi scheme, only the investors that aren’t paid at the time of collapse suffer. With Social Security, many people that have collected or will collect before its collapse will receive either less than what they paid in or less than what they would have accrued if they invested their money themselves.

In effect, the government is borrowing money from current contributors to pay cutrrent beneficiaries without paying proper interest to the contributors for use of their money. This is done under the threat of imprisonment for tax evasion for those who fail to comply.

I am a modestly successful working man in my early forties. I was aghast when I examined my last Social Security statement projecting my future benefits. First, it stated that over $200,000 had been collected in taxes for SS/Medicare over the course of my life. Second, it told me that the rather meager benenfit that they had calculated was in jeopardy because the system was going broke!

Were I allowed to invest my SS/Medicare taxes conservatively, I would easily retire with over a million dollars.

The premise of the entire program is flawed. Perhaps the government has a legitamate role in raising revenues to provide for the truly indigent. It should not have the power to take my money and give it to others that are not. The argument that SS is an investment is fallacious. Any investment manager that produced the returns that SS does, would lose all his investors.

I wish I could get out without going to jail.

Absolutely. Moreover, the author’s “rebuttal” was extraordinarily weak.

Social Security is absolutely a Ponzi scheme. The author claims that since SS participants aren’t ‘misled’ in the same context as Madoff investors, it is not a Ponzi scheme. I wonder if he receives the same statements I receive from the Social Security Administration forecasting the payment I can expect once I become old enough to draw from the system. I, and it appears a great number of my Gen X contemporaries, don’t expect to receive this promised benefit. We feel certain we are being misled.

The author’s other arguments rest on irrelevant, subtle distinctions and are equally unconvincing.

technically, while social security did not start off as a ponzi scheme (originally, benefits were based on payments, and there were no benefits for children, spouses, etc), it now is a total ponzi scheme – the only difference, as your article mentioned, is that the government can force “new investors” to “join”. And can raise the “cost to join” and “members” have no choice but to join (other than to not work or go to jail).

But remember, employers currently pay half. If the rate is raised enough, employers will either be unable to make a profit and lay off employees, which then cuts “new investments”, or they will just shut down, still laying off employees.

Consider: based on numbers I’ve seen, social security currently collects in taxes about $90 billion a year more than it now pays out. That $90 billion pays for government programs (and government employee salaries, that also pay social security taxes (about $13 billion). In 8 years, its projected there will be no surplus. if we assume an average $90,000 / govt employee to make it easy – that’s 1 million govt jobs (if my math is correct) that would have no source of income except higher taxes on the private sector. and now consider the 2 million or so jobs lost in the past 4 months. Suppose the average is $20,000. that’s $40 billion less of taxable income. assume 15% for FICA / medicare. That’s around $6 billion less.

One way or another, the ponzi scheme we call social security is likely to come home to roost – particularly if lots of very wealthy see huge cuts in income, thus in taxes they owe.

Yes. And the steps taken to save it will exclude millions of people who have funded it all thier working lives from getting anything. If you have been responsible and seen the handwritting on the wall (ie, provided for your own) you will be excluded by means testing. It will become a vast transfer of wealth. Worse even than the progressive tax system

Social Security is definitely a ponzi scheme! You leave out an important point in your article that makes the current situation intollerable…

The US Government has not only taken funds out of the Social Security deposits to pay benefits, but has “BORROWED” money to cover every day government expenses. This borrowed money cannot be repayed unless benefits are reduced or taxes increased.

It should be a crime to take money out of that fund for purposes other than paying benefits.

Let’s just call Social Security what it really is… Just naother income tax the government can use how it sees fit.

Mr. Zuckoff,

In response to your article, I would slightly amend your definition of a Ponzi Scheme, and disagree. I define a “Ponzi Scheme” as “a system in which money from one group of people is used to pay promised returns to another group of people.” [I don't believe the word "fraud" is needed]

Under this definition, your distinctions regarding “intent to deceive” and “moral purpose” are irrelevant.

The key perceived similarity between the systems is that the method of operation of a Ponzi Scheme (paying forward) is inherently unsustainable, and Social Security utilizes the same method of paying forward and is therefore also unsustainable.

The only relevant distinctions between the systems are that “unlike a Ponzi Scheme, the Social Security system is sustainable because [Fill in here].”

Other distinctions are peripheral and just noise.

Congress promises us ‘X’ then, after they have robbed us, they INCREASE taxes, decrease benefits, then TAX US AGAIN on the diminished payout. Congress grabs the money for Boston’s Big Dig, beautiful MARBLE courthouses with palatial suites for judges, bails out Wall Street, detroit, pays for bush’s folly of Global Democracy for people who don’t even know the word, enriches their campaign contributors, and then, puts an IOU into the broken cookie jar, and attaches the lowest return legally possible, for THEY WRITE THE LAWS, with impunity!!! Nope, can’t find any evidence of a Ponzi-type scheme here….I work for a Pig 4 Accounting firm, like the one auditing ENRON or SATYAM.

PONZI PONZI PONZI. SS is absolutely a USOFA government mandated PONZI scheme.

To the comment: “First, in the case of Social Security, no one is being misled,” this is flat out not true. People of my generation are being misled that the government will supply us with SS income when we retire. But the money will be sapped and there will be nothing left. So, we are being misled that the money will be there when we need it … it won’t.
So, please, Mr. Zuckoff, I know you’re a Baby Boomer who is desperately grasping at the false hope that SS will make up for lost income when you retire, but, please, people two generations younger than you don’t believe in Santa Claus anymore. Don’t insult our intelligence.

It is my understanding that Social Security was originally set up to be a stand alone system. Once the account balance reached a certain level, the US government starting dipping into it for other purposes. If the system would go back to its original stucture, I do not believe we would be having this discussion about it being either a Ponzi scheme or being on the verge of backruptcy

No. Social Security is not a pyramid scheme. It is an income replacement program for disabled and retired people and their survivors. It was set up during the Great Depression because we had millions of destitute people. Since then, it has worked beautifully in solving this problem. It provides enough money for food, clothing, and shelter. If we were to discontinue it, we would again immediately have millions (probably tens of millions) of destitute people. These people are your grandparents, parents, aunts, uncles, and collateral relatives (and maybe some of you).

Social Security currently brings in a lot more money than it pays out. The current forecasts are for the trust fund to last from 35 to 75 years:
http://www.ssa.gov/OACT/ProgData/fundFAQ.html#n8

The differences in the scenarios are due to income (GDP growth) and expenses (payout growth).

Don’t tinker with eligibility age or benefits; these are very painful for all of us when we’re old. If we want to ‘fix’ Social Security, the least painful way would be to remove the salary cap from the current level of about $96,000 per year. If we did this, we could actually LOWER the 6.2% payroll tax and still produce more revenue. A carbon tax is another possibility.

Social Security will not run out. It will exist long after Wall Street is gone. If we can bailout rich people, we can set aside a little bit of money for ourselves, too. With all of the uncertainty out there, it’s good to know that we have programs that are solid like Social Security. Sleep better at night.

He is a Journalism professor. Why is he commenting on Social Security?

If SS look like a ponzi scheme, acts like a ponze scheme, then guess what? It is a ponzi scheme.

Absolutely YES

Absolutely yes! Social Security is a Ponzi scheme. The fact that we know the nature of the beast, doesn’t change what it is. But there’s an even bigger one than Social Security – it’s the very essence of the way we do business all over the world today.

Think about it…Businesses run on credit (new infusions of cash from banks or investors – like a ponzi). When the credit markets dried up last year and there was no more money comming in, the scheme began to unravel. There was no money to pay expenses (or in the case of a ponzi – return to investors or shareholders) so the economy began to contract. When you boil it down, we ran out of new money and the economy collapsed. It’s not much different than a Ponzi scam – is it?

Oh boo hoo hoo.

The people who receive benefits now from Social Security are going to outvote the complainers, so why bother complaining?

Social Security is not a Ponzi scheme, because a Ponzi scheme is a capitalist’s scheme.

Social Security is a Tax. It is therefore a government scheme.

Consider that all earned income is subject to Social Security and Medicare taxation, but only up to a certain level.

Consider that a lot of very rich people do not pay much Social Security tax. They derive their income from capital gains or dividends, neither of which is taxed for Social Security or Medicare purposes.

There are people like Steve Jobs, CEO of Apple, who gets a salary of $1, but stock options potentially worth millions. He pays Social Security only on the $1.

Congress can easily raise the revenue stream for Social Security by removing the upper limit on earned income, and by taxing unearned income, again with no upper income limit. That would nail all the excessive income received by corporate executives and the Weasels of Wall Street.

Consider that the US Congress has the absolute authority to assess and collect taxes, the only constraint being that taxes should be fair and equitable. The filthy rich have never paid taxes comparable to their assets or income, or the demands they make upon the rest of us, so it’s time to fully include them in the Social Security taxation scheme.

Social Security is failing for the same reason Ponzi schemes fail – not enough new ‘investors’ can be recruited to cover the payments to the existing investors.

The program has no assets except for the promises of politicians.

Only people who are financially educated know that Social Security is a wealth transfer program. Most people think they are paying into their own retirement ‘accounts’, and the annual statements and politicians don’t do much to change that view. (But the 2008 statement does say that there isn’t enough money to actually pay the benefits we are promised.)

I think the phrasing “like a ponzi scheme” would bring everyone, including the author, in agreement.

The moment that Congress started using the Social Security Trust Fund as a piggy bank it became a Ponzi scheme. True, it is openly a Ponzi scheme but that doesn’t make it less a Ponzi scheme.
More interesting to me is that no one is calling the derivatives market and all the other games that AIG et al were play Ponzi schemes. Very clearly they were and are.

Seriously Mr Zuckoff – you wasted your time defending SS as not a Ponzi scheme – ok technically you’re right – but what does that matter? the analogy people are making (and everyone knows it’s tongue in cheek) is plentt close enough and helps put the SS scheme into better focus for many.

The article is really a game of semantics.

If you ask the uneducated about Social Security, they will say it’s great program.

If you ask the informed, then they will say, no, it’s a ponzi scheme.

The correct answer is grayer, and lies in between. The program, when set up in 1933, was not a scheme. Most people didn’t live beyond 65, so at most the elderly would be collecting 2.5 years. Today, I believe the oldest average US age is 84, which is rougly two additional decades of liabilities not anticipated.

Therefore, today, yes, it is a ripoff. Either the Social Securities will cut back on entitlements (which will never happen because Seniors vote), they will raise taxes to cover the hole, or/and they will destroy the currency (higher inflation) in which the promises are paid. The last solution is probably the hardest for ordinary folks to understand, but it amounts to a promise kept, but a promise denied. In other words, yes, seniors will get the check they were promised, but it wont be able to pay for anything.

In conclusion, yes it is a scheme, but what is a way out? Remember Bush (43) wanted private accounts in 2002? Can you imagine if retirees lost 40% in the market last year-now what would they do? The bottom line is that people should invest themselves, but if it is retirement, it should absolutely be in conservative, 3-4% fixed income instruments that are there when you’re ready to retire.

The author failed in his task: to refute the claim that social security is a Ponzi scheme.

It most certainly is a Ponzi scheme – the fact that it is not being run by a private sector con man who claims the payouts are coming from investment returns is irrelevant. The mechanics are exactly the same – a transfer of wealth from one group of people to another.

Furthermore there are indeed elements of fraud involved. Exhibit A is the so-called social security “trust fund” which the excess payroll taxes are supposedly “invested’ in. Those “investments” are nothing more than IOU’s the government has written to itself after spending the money. No private sector company would be able to get away with classifying an IOU it wrote to itself as an “investment” on it’s balance sheet. If it’s fraud when a private sector company does it, it’s fraud when the government does it. There are no “special” principles of economics for government.

Also, many people have no idea that paying the SS taxes does not entitle anyone to any level of benefits or any benefits at all. The Congress can change or eliminate benefits for anyone at any time and those people have no legal recourse whatsoever based on paying the taxes. The courts have already ruled this.

Finally as to the authors remarks about “morality” – there is nothing moral about government stealing money that belongs to one person to give it to another. Furthermore, the primary responsibiltiy of government is to confine itself to it’s legitimate Constitutional powers as is required by the 10th Amendment.

There is no power delegated to the government in the text of the Constitution that authorizes it to create a program like social security (or medicare).

Social Security is not only an immoral Ponzi scheme, it is flat out unconstitutional.

Social Security is worst government lie to the american people.

Every working american is forced to participate in this government sponsered scam. We don’t even have the right to say no.

How about an alternative plan.

Take an average college educated 23 year old american starting out with say a 40,000 income. Estimate an average increase of 3% per year in income. Take the 12.6% social security robs of each paycheck and invest it principle protecting 4% long term CD. Work until full retirement 67 years old. You have a million dollars saved.

Draw the same income that you would have qualified for social security. It takes 20 years to deplete your million dollars still earning at 4%.

We should all retire with at least a million bucks and a 20 year income buffer. Not living paycheck to paycheck from social security.

The only real distinction between Social Security and a Ponzi Scheme made by the author is that they differ in intention. Social Security does have good intentions, but it is otherwise a Ponzi Scheme. It can be fixed, but a a tremendous cost to someone–retiree and/or beneficiaries. The political will for a fix does not seem to exist.

First, the kind of fraud the author is suggesting is not required for something to be a Ponzi scheme. The concept of a Ponzi scheme involves a transfer of money among a limited number of fools. “Send $5 to me and pass it on to 5 other people and you can make a good income” letters are an example. The plan is clearly an unworkable scheme even if no information in it is falsified. Social Security advocates claim you can make an income when you are old. But unlike the chain letter, which only *implies* that the system can remain solvent indefinitely, the advocates of Social Security make this claim outright and explicity. Both attempt to find more victims as time runs out. But all Ponzi schemes eventually fail: Private sector schemes within a few years, public sector schemes within a few generations.

Second, as others have pointed out, Social Security is significantly less moral than a private sector Ponzi scheme because the former is coercive. You are free to say no to private sector schemes. You are not free to say no to Social Security. That makes it evil. Appeals to the welfare of its victims does not make it moral; chain letters promise the receiver the same thing. What matters is that they are both attempts to make an end-run around reality. The difference is that when one person promotes a wealth transfer scheme, it is called fraudulent and villainous, but when millions of people agree to it, it is called above-board and virtuous. But it is not.

You state: “First, in the case of Social Security, no one is being misled.” This is incorrect. When I began paying into Social Security, the early retirement age was 59-1/2 and full retirement was 62. Now I must wait until age 62 or 66 respectively. Then, the FICA was split into two parts, and one part no longer has any salary cap on it. Greater investment is required just to hang onto the originally-promised entitlement. Had I known this would happen, I would have voted differently these past 30 years.

You state: “Second, Social Security isn’t automatically doomed to fail.” Here, you attempt to re-write history, hoping all of us forget the campaign platforms of the 1980’s and 90’s warning the impending bankruptcy of the Social Security plan. That said, it IS doomed to fail because government will never leave it alone: once raided, always raided. Much of our earned entitlements are being paid out as un-earned charity, when that was not agreed-to by informed voters.

Skip for a moment the contrast between voluntary and mandatory. Social Security promises a return, as you can see on your statement. Under the current social contract and the realities of economic growth, delivering on that promise is not infinitely sustainable. When the government has to adjust the terms (including default on benefits), that’s no different than investors failing to realize promised returns.

The imminent collapse is determined by the fact that the U.S. economy is not perfectly scalable, just as the pool of potential Ponzi investors is not perfectly scalable. Any economics student knows that a system will suffer diminishing returns if any of the inputs is finite.

The only way that diminishing returns can be avoided is through sufficient technological innovation. Malthus’ prediction that population growth would outstrip food supply failed to anticipate major innovations in food production, and we’re all still here. I could be equally wrong about the necessary failure of Social Security under the current configuration.

What a bizarre article. The author never makes any points that support SS not being a Ponzi scheme….except morally? That makes no sense. The workers paying in today have little hope of getting a decent payback on their contributions. Of course it is a Ponzi scheme. It is a forced contribution and that takes away any ‘moral’ defense.

I’m not counting on SS when I retire. I max out my 401k ($16,500 per year in 2009).

Pay yourself first:

This is a huge amount of money to save and invest (every paycheck) for retirement.

I’m not going to put my future stability in the hands of the government.

You can take control of your money. Wealth can be created by saving and investing regularly over your career.

If you don’t understand how wealth accumulation works (many folks don’t), then read personal finance books and magazines from the public library (free).

Retiring is only an option if you saved enough to support yourself.

I’m not counting on Ed McMahon showing up at my door with a Publisher’s Clearinghouse check (although if he shows up, I will invite him in)!

Even Ed McMahon is broke. Did he save for his retirement? He is still working / seeking work, so I guess he didn’t.

The author missed the proverbial forest for the trees. Note please that comparing SS to a Ponzi scheme is an ANALOGY. In an analogy, you are saying SOME aspects about two or more items/situations are similar, and stating the reason why. The fact that differences exist between the two items [SS and Ponzi schemes in this case] do NOTHING to disprove the analogy, because an analogy is not meant to mean the two things are IDENTICAL. It is simply stating some similarities. To disprove an analogy, you need to disprove the similarities, which the author roundly did NOT do.

Social security IS and CAN be compared to a ponzi scheme in its most basic fact: there is not sufficient income and return within the SS system to pay current beneficiaries out, and therefore funds received from “newer” people need to be used to pay out the beneficiaries. It’s an unequivocal fact. And if something isn’t done, it will collapse and leave the “newer” (younger) people without one dime even though they paid in thousands of dollars. It’s unjust and unamerican.

The solution, even though no one will have the political courage to do it, is to scale back benefits to current beneficiaries. The reason we’ll have shortfalls is simple, they are being PAID OUT more than they PAID IN. That’s it. So, it’s not fair to use our money to pay them and then leave us out in the cold. I hope someone sees this eventually and has the courage to do what’s right.

The author should change the title of this article from “Social Security a Ponzi scheme? No way” to Social Security a Ponzi scheme? Hell yeah!”. He has done quite a good job at proving why it IS a Ponzi schema or more accurately something even worse since it is forced upon us. In regards to your first point, how is no one being misled in this whole thing? As someone else posted we all get those “statements” saying how much we will received at certain retirement levels. It may not be a promise of a huge return but it does imply a promise. Second, you state it won’t automatically fail but say it will run out of money in 30+ years unless changed. Well if Madoff could have changed the rules in the ways you suggest for SS (forcing people to pay higher taxes or changing the formula on your return) he probably could have sustained is charade too.

“First, in the case of Social Security, no one is being misled.”

Uh I have to disagree. I am 29 and I’m being misled. I have absolutely no say in how the money that is taken from me is invested. The money I EARN now is going to pay for people who are currently in the system. That is a scam. I should be able to do what I want with that money. Instead, it’s taken away to fund a huge Ponzi scheme.

I have no problem with the government helping people with retirement. But the money YOU get when YOU retire should be the money YOU earned in YOUR lifetime.

Social Security is a Pyramid Scheme. If a private company or individual created the exact model Social Security uses they would be in jail. People receiving benefits today far exceed what they paid into the system long ago. It is unsustainable. It will be turned into a welfare program where benefits will be taxed to $0 for all people making over a certain amount. I do not expect to see a dime of the money I paid into the system even though I have already paid into the system the required maximum amount. A more honest representation of the system would be to call it retirement welfare with no expectation of future returns unless you need it to survive. There is no money in an account with your name on it as the Social Security system alledges. It is an I Owe You without any guarentee of payment because the Government can decide to eliminate benefits at anytime. I will take my IRA or 401K over the Government’s Social Security promises even in todays investment environment.

Yes, its very similar, unsustainable, its a scheme because most people dont know it wont last.

In a word – YES.

(From sec.gov)
the Ponzi scheme works on the “rob-Peter-to-pay-Paul” principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses”

Social Security doesn’t work that way does it??

(Howstuffworks.com)
“In the Social Security system, the money you pay into the system gets immediately paid back out to the people who are currently getting Social Security checks. This arrangement came into being because of the way the system started. In 1935, when Roosevelt signed the Social Security Act into law, there were a lot of people who needed benefits (because of the Great Depression), but there was no money to pay those benefits with.”

There was no money to pay the benefits with so FDR decided to start a Ponzi scheme to pay for it. Congratulations, your part of a $509 billion dollar a year SCAM!!
The worst part is all Ponzi schemes run out of money when they can’t get enough new people in.

(Investpedia)
For “(Ponzi)” schemes, however, eventually there isn’t enough money to go around and the schemes unravel.

(Prudential.com)
In 1940, there were 42 workers per retiree. In 1950, the ratio was 16-to-1. Today, there are 3.3 workers per retiree.)

Sounds like this Ponzi scheme is in trouble.
Social Security is nothing more then a Ponzi scheme, the funniest thing about it is the social securtiy website has a fraud reporting tool!!!!! The SCAM has a fraud reporting tool!!!! I filled out this form and am still waiting for them to get back to me.

Of course its a Ponzi Scheme.

Just because it has a noble intent doesn’t make it any less doomed to fail when withdraws are higher than deposits. I’m young and social security will fail before I retire. The only difference is that the government forces me to give away money to never receive any payment in return. If I were allowed to bail out of this train wreck called Social Security I would today.

The author does not make fundamental distinctions between Social Security and a Ponzi scheme. Saying that it is not run for the purpose of satisfying personal greed is true but for people participating in Social Security, who cares? Had Ponzi donated all his money to charity could we now compare the two?

Like a Ponzi scheme Social Security needs to maintain a certain ratio of payers to payees. This can be done with an ever increasing population, which is unsustainable or by reducing the pool of people that qualify as payees, either by raising the age or requiring a means test or both. Ponzi deceived his investors. Anyone who’s currently under 50 and doing a good job of preparing for their retirement is being deceived by the government. If you fall into that category and believe the statements sent to you regarding your future benefits you’re a fool. The government is knowingly misleading you just as Ponzi did.

Other ponzi schemes–even Madoff’s–can be detected by a savy investor(s) that checks the books. Furthermore, no one holds a gun to their heads to invest into a ponzi scheme.
Social Security is FAR worse than a ponzi scheme, because we are forced into it and know it will fail–as ALL ponzi schemes do/will. Who would invest in a ponzi scheme knowing they would get screwed–no one. But the government forces us into one. So comparing Social Security to a ponzi scheme is unfair to ponzi schemes.

Since I know Social Security will fail, I max out my roth ira every year and put away 21.6% of my salary into my 401(k) (including the 3.6% company match).

I agree completely with Fred. I was born in 1976, so I will not get full benefits until I am 67.

I would love to see an opt-out system for those under 40. Give us a small buyout and let us (and our employer) opt out of paying future taxes.

Until that happens, I will continue retirement planning assuming I will not see one dime of SS.

While deception and the ability to choose are part of the classical Ponzi scheme, the crux of it involves paying into a system that pays long-time investors first and leaves people at the bottom of the ladder with nothing.

SS is a Ponzi scheme because without “political will” to change, the music will stop and a lot of people (the younger people at the bottom of the pile) will be totally hosed.

Yes it is a Ponzi scheme.

The baby boomers has the largest population, as they retire there will be less people to kick into the pool. The ones that are left will have to pay a lot more. SS should be phased out. Our world is more advanced than in the past. Make retirement savings a part of education.

This argument is truly insane!

My favorite has to be the admission that increasing taxes can keep the system going – Similar to how a Ponzi setup can increase participants to keep the system going. The Ponzi scheme fails when no one wants to ‘invest’, Social Security fails when tax revenue in support of this [half-witted] idea ceases to grow in pace with the population requiring it’s “benefits”, or the population is just plain taxed out. Something tells me we are going to start approaching one of them.

To the author – No, it’s not fraud, it’s duress, which is morally unsettling to this citizen.

The esteemed professor is wrong on many issues. Most importantly, there is no Trust Fund. That is ulsess you consider over 2 trillion dollars worth of IOUs a “trust fund”. Since the number of new taxpayers is dwarfed by the new SS recipients, the program has exhausted its “investor” base. Congress can in fact change the rules, but in the end some will never see there investment returned. I’m sure Madoff would’ve liked to change the rules too. Social Security is a Ponzi scheme if there ever was one. PaulB

Of course it’s a Ponzi scheme, and a vicious, thieving rip-off fraud. It’s a way for the government to pick your pocket in broad daylight while you hold it open for them. Zuckoff should do his homework. It’s Social(ist) (In)security that was run in on America under utterly false claims and promises, including claims that is was “voluntary,” and that it would never be used as a national I.D. number–which, really, is all it ever was meant to be, as a means of tracking every man woman and child and stealing them blind.

Obviously Soc. Sec. is not a Ponzi scheme. With a Ponzi scheme like Madoff’s, if you are smart enough you don’t have to get in. But with Soc. Sec. you have no choice. It is a legit robbery.

On the whole, Social Security is a Ponzi scheme, but one that can be fixed because it is part of a larger entity that can back up the system.

Zuckoff errs on several points, particularly the idea that SS returns are not guaranteed. That may be true, but who hasn’t received that annual notice from the government detailing how much your SS payments will be if you retire at age 65, 70 etc.? To most people, that represents the government’s guarantee.

Zuckoff also errs in saying that it will take great political will to fix the system, an obvious reference to the concept of raising taxes to pay future benefits.

Actually, it will take great political will to NOT fix the system. When D-Day comes, name one elected official who will be able to look their constituents in the eye and tell them that they will not be receiving any benefits, or even that their benefits will be less than what those SS statements have been telling them for years? That elected official will have to explain why they are not getting any return for all of the money that the federal government has been taking from them for their entire working life.

Again, name one elected official who will do that to the people who gave them their jobs?

Believe it, when the time comes the money will be there. It will magically crop up just like all of the billions of bailout dollars that the government is doling out right now.

You bet social security is a ponzi scheme and the article author is dead wrong! Any system where people pay in and those funds go to current recipients is a Ponzi scheme.

Correct me if I’m wrong, but when first instituted 15 workers were paying for each recipient 15:1, and now the ratio is what 3:1?

Raising taxes, changing formulas, and increasing eligibility requirements only hides the problems in this worthless system. That the federal government has also been raiding the surplus just compounds the criminality.

Whether it fits the true definition of a Ponzi Scheme is irrelevant. The real issue is whether or not it will survive, which I highly doubt it will.

When I do my family’s retirement planning, I expect $0.00 from Social Security. Anything I do end up getting will be gravy.

A professor of journalism making a defense of an economic house-of-cards as being fundamentally sound! The day the logic of that defense becomes hermetically tight will be the day after journalists come to realize that their job is to report what they see rather than opining about what they see…

The ultra Irony is that the Federal employees and fire and police have their own system which is also guarrenteed by the taxpayer,While the private worker has to put 15% of their earned income in this bucket without any guarrantees and then still save another 10-20 % for your 401. At 100,000 annual that is a ton. That is why this is tragic, Most GOVERNMENT employees get a crack at SSI income in addition to their GOVT. Guarrenteed Pensions and still are able to get the SSI as additional income for only a 10 year effort in the private work place.

Call it whatever you want, it is money that is taken from one person and given to another, which at some point will not be available to the people that are paying. It’s not intended to be a scheme but it has the “Ponzi” makings of one unfortunately.

Pon⋅zi   
/ˈpɒnzi/ Show Spelled Pronunciation [pon-zee] Show IPA Pronunciation

–noun a swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks.

—-Risks like not getting your money back!

Yes it is a Ponzi scheme but really only the secondary ponzi schema from the US Government, the original is the federal reserve system and the almighty dollar. I negotiate contracts expecting the dollar to have a specific value but it is constantly robbed of its value which to me seems like a bait and switch ponxzi scheme, all the problems with SS would not exist if the dollar had not had a constant inflationary pressure on its value. Those of you who think your private retirement savings and investment plan will sustain you are being just as misled as those who think SS will be there. Look at the damage done to your retirment investment in 2008 – look at the total destruction of pensions and retirement ssavings accounts in Britain in the last decade. private accounts or social security the entire retirement trap is a Ponzi schema – Im certain my retirement will be saying “Welcome to America Mart”

It’s worse than a Ponzi Scheme, in part because of what the other comments raise up, but also due to the fact that it brings in a socialism (the term Social) element, which flies completley in the face of a true capitalistic society. And Ponzi at least paid out right away to the early investors-we all have to wait to get screwed! Where’s the “Security” in that?

does the author, and his employer, take note of the fact that nobody buys his arguement? i think not – when you are convinced the government will take care of everything – you write an article like this. If you actually watch what is happening, you cannot believe 1+1=5, and it would have to for social security to work out.

The author conveniently ignores the fact that Social Security was first known as “SSI,” that is, Social Security Insurance. That implies the monies collected are invested for future benefits. That was a lie, and eventually one of the “insured” sued and forced the government to admit it was just a tax. But when it was created, it was sold to the public using a lie. That element of fraud is what make Social Security a Ponzi Scheme.

An educated public is an essential ingredient of a free society. Ambitious governments would have far greater difficulty implementing schemes that undermine liberty and prosperity were they faced with an informed and vigilant population.Our government and monetary system do not work for we the people, we the people work for it, as slaves. You’d think by now, with all the information, with all the abundant resources, and all the previous history, that we as a people would be able to be free in the sense of, absence of debt. We pay for food & water. we pay for light. we pay and labor our entire lives realistically to support an quasi-empirical empire who’s only objective, being monetarily based, is PROFIT. Our society is being held back by the amount a time required to sustain any kind of decent quality of life. and for what? to be SAFE? to be Happy? No, to continue to fund a corrupt government that serves corporate interests, not the peoples, it serves profit interests. Wake Up!!!

“First, in the case of Social Security, no one is being misled. ”
Of course people are being mislad. Most taxpayers actually think they will receive the benefits promised to them.

“Second, Social Security isn’t automatically doomed to fail. ”
Maybe not automatically, but mathematically. Espeically with our greedy politicians spending every last dime paid into this scheme and replacing them with IOUs.

“Third, Social Security is morally the polar opposite of a Ponzi scheme and fundamentally different from what Madoff allegedly did. ”
The participation in Madoff’s scheme was voluntary, the participation in SS is mandatory, that’s the moral difference.

In 30 years SS will consist of a place in the shelter and a ticket to the soup kitchen while Medicare will throw in a bottle of Asprin. Good luck with that!

It’s a ponzi scheme enforced by the government. A fair social security system would pay people in proportion to what they put in.

If Social Security is a Ponzi Scheme then so too are Military, Federal, and State Employee Pensions. The taxpayer is paying for the pensions of others when they have no pension of their own and now the system we have been paying our own dollars into is being threatened. Stop the bloated taxpayer pension system before threatening our payroll funded social security!!!

You are talking semantics here. Whether or not the intent of the social security system is different is irrelevent. Unless the social security system is sustainable or “solvent”, the ride will eventually end with last-in being the most hurt.

The article clearly implies that for something to be a Ponzi scheme, it must necessarily be intended to defraud and lie about what is happening. I respectfully disagree. In the 1980’s there were Ponzi schemes that were stated as being “Pyramid Investments” with no cover-up about what was happening.

Social Security is the same. MOdels consistently show that it runs out of money. Increasing taxes just delays the date that it runs out – and even assuming people keep no money and it all goes to taxes still has an eventual failure date. Reducing benefits to less than was contributed also equates to failure of the system. Thus, regardless of how you slice it, Social Security is a Ponzi scheme and was always fated to be on the model that new contributions finance older obligations.

It sure is, especially if the death rate is lower than the birth rate for enough time.

What a worthless puff piece written by Mitchell Zuckoff. If a public corporation ran their books and disclosures the way that the US government runs and reports on Social Security, then prison terms would be in order for the executives involved.

Yes, it is a Ponzi scheme. The only people who made out are the first people in. Just enough to sucker the rest of us into it. Now we have trillions lost in this black hole government program. The only reason it is kept is because these lifetime politicians want the elderly and the babyboom vote!

It is worse because only selected group of people are fooled into a Ponzi scheme but every one is forced into SS

Its worse than a Ponzi scheme because the government takes the money right out of YOUR paycheck. That’s the only possible way they can keep their Ponzi scheme going this long. Oh and along with that pushing back the retirement age, etc.

No, Social Security is not a true Ponzi Scheme.

The primary difference is that you have a choice to invest in a Ponzi scheme. With Social Security, you have no choice.

I was born in 1981. Under the current system, I must wait until I am 67 to retire with full Social Security benefits. That’s in 2048. The system will reach insolvency sometime between 2041 and 2047.

No, I’m not in a Ponzi scheme. Unlike a Ponzi scheme where I have the false expectation of dividends, under Social Security, I have no expectation of any returns.

I am saving for my own retirement. I don’t want a government retirement program. Let me out of it!

How can the government forcibly relieve me of my income in exchange a guarantee of no benefit? In any court in the nation, that would be considered theft.

Except this time, the government is the thief.

you better believe it, im 42 and i will gaurantee that i will never see a nickle of that money

Of course it is a Ponzi scheme! The experts (?) say the system is good to 2040 or so. What a load of crap! The “surplus” SS taxes are all spent by the Fed Govt…every penny! What’s left in the “trust fund”, are imaginary bonds paying imaginary dividends. Once we start paying out more than we take in, which is going to happen in just a few years, the plan is to make up the difference by just printing the money. That is fiscally unsound, and as the gap gets larger and larger, it’s going to be a real problem. So we have trustees administering the trust fund. Has the word “trust” ever been abused this much? I don’t think so. It’s truly an outrageous situation. The sad part is, it can be fixed, but there is NO political will by our so-called leaders to tweak the system and make it solvent into the future.

People will put a large percentage of their income into their ‘account’ and there is a very good possibility that they will not get anything out of it when they retire because what they pay in immediately goes out to other ‘investors’. Hmmmm… PotÅto PotØto. It’s all the same.

The term ‘Ponzi Scheme’ will be replaced with ’social security scheme’ one day. When people are actually required to pay today’s dollars with no chance of getting the future benefit it is a scam.

A Ponzi scheme, definitely. Originally a sustainable one, definitely. But with any liberal pork system, it gets expanded more & more to where it’s current mission not longer represents the original intent. Original Intent: INCOME SUPPLEMENT FOR THE ELDERLY. NOTHING ELSE!!

Of course it is. The politicians don’t have the courage to make the changes that are required for it NOT to continue being a Ponzi scheme. We don’t want to compare it of course to The Legislators’ retirement program either – now THAT is a scheme to the other degree and latitude.

That article’s three points were extremely shallow and proved nothing. Point number one–nobody is being mislead. How do you know that? I speak to many people who believe that SS is something more than it is. How can you speak for every last soul?
Point two–if the government reduces payout to $1 per person than it has met the requirement of not failing?
Point three–SS is morally opposite to Ponzi? Here again the author knows the morale values of the entire US population?

It is a complete Ponzi scheme. The end result is the same. Money disappears, what the productive past generations put in, will not be returned by future generations, because we have an immigration policy that imports millions of, on average, less productive third world have-nots, and a cultural/governmental policy of spending more money now than we can spend, or in the case of social security, dipping our hand into funds we are not legally and/or morally entitled to dip into. Although there is no fraud involved and so this argument is sound on your part, a Ponzi scheme can technically last a long time(at it did in this case) and could theoretically last forever if investment expands forever. Nonetheless, that is neither here nor there. The point is that the end result is the same. We will push back the year of entitlement until the system breaks down under its own weight or the dollars it ultimately awards buy nothing. The sad part is that every American knows it is a scam. You can call it a ponzi scam. You can call it whatever you’d wish. It is going to fall apart, if not tomorrow, then the day after. It is mismanaged and unsustainable especially given America’s current prospects. Money is going to go out the window that Americans, decent people and legitimate taxpayers, earned, and it won’t be returned, rest assured. Nobody should have to pay it given the undeniable knowledge of where it is headed. So maybe it doesn’t fit the definition of a Ponzi scheme. So, instead it is just a robbery, by an illegitimate government.

Do I actually think that the government will make changes to make Social Security sustainable. Absolutely not, hence its doomed to fail and likely take a chunk of the federal government with it.