Sunday, September 11, 2011

Is Social Security a Ponzi Scheme?

I had an interesting exchange of ideas with Jonathan:

My views follow, would like to hear from others.

Jonathan, you make many good points. I don't disagree with much of what you say. I define SS as a Ponzi Scheme because it pays current beneficiaries from subsequent and current contributors. Since it is law, the part of the definition you refer to is nullified unless the debate ventures into a separate domain. Illegal laws are illegal. I don't see the debate leading in the direction of the Constitutionality or legality of SS in our discussion. SS is by the nature of its mechanics Ponzi. I say again, I see no rational argument to the contrary. But I do acknowledge that a scheme implies illegal activity, therefore, you win the argument by narrowing the definition.

I request a broader scope. The danger exists, regardless of legality, that when subsequent or current contributions can't support current beneficiaries, the system/scheme is not viable. I think this event, the collapse, is the most obvious indicator that the Ponzi Scheme creator should be identified and punished accordingly, and we have the right as victims to sue the culprit. But in this case, we would be suing ourselves. The other option is to educate ourselves to avoid Ponzi Schemes. Social Security has been referred to as insurance. I agree that insurance policies have similarities to SS, but today I have a choice whether to buy insurance. Indeed, I own some good quality whole Life Insurance. I assume the risk that the company may die before me, and that I or my beneficiaries may receive no benefit. I also receive an annuity from the US Government in the form of military retirement pay. I entered voluntarily into a transaction with our government and in return the government has honored its part of the bargain. I would like to believe this will continue, but in light of the recent alleged budget crisis I have my concerns which are probably best reserved for another thread.

My final point is that these other Ponzi-derivative opportunities are voluntary and rely heavily on personal bias as to whether or not they are a good risk, whereas Social Security was placed on me involuntarily and is becoming a bad risk, a mal-investment. I will lose my investment if there are not enough current and future contributors. I am not given a choice, unless you consider the right not to work. Even when I was self-employed I had to pay additional self employment tax which I don't foresee being able to recover.

BTW, your reply is so full of interesting points of view. If you don't have a blog, please start one, if you do, please send me there!

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