I don't think we mentioned it here, but Perry's been calling Social Security a Ponzi scheme. As much as I dislike Perry, I can't say he's altogether wrong. And, most counter-arguments I've seen are pretty dang weak. Like this one by Nick Baumann which he encapsulated in a supposed Venn diagram: http://motherjones.com/mojo/2011/08/social-security-not-ponzi-scheme-venn-diagram Government can tax people and print money: Ok, so it might not collapse, but the money is still being shifted from later investors to earlier investors. If we have to tax people more and print more money to keep it going, that cost to the late investors just goes up. Is transparent: Ok, but the point of keeping it a secret is to induce people to continue to invest. If you can force them to invest with taxes, you get the same effect without needing deception. Not a deliberate fraud: Not sure that it being accidental makes it better. I imagine quite a few Ponzis actually do develop accidentally. Paid in by every working American: I'm not sure where he's going with this. Scale doesn't matter in defining a Ponzi scheme. Doesn't enrich the scheme administrator: That's nice and all, but if it impoverishes some of the participants, that's small comfort. Promises only small returns: I get it, they're marketing is bad. But even the return they promise is apparently more than they can muster. If they could muster those returns, the system wouldn't be on track to bankruptcy. Actually invests in something (treasury bonds) instead of nothing: A Ponzi schemer who actually invests the money is no less a crook. Can be tweaked: And it has been, increasing the rate from 2% of wages at inception to now 12%+ (well, 10%+ right now due to payroll tax holiday). So they're going to take an increasing share of workers' wealth over time, or else deliver less benefit than promised to retirees? And this is an argument that it is not a Ponzi scheme? Obviously, since the participant base isn't growing like a Ponzi scheme would like, you have to take larger investments per participant instead. Operating since 1935: Ponzi had his operation going only 200 days, but Madoff kept his operational for about 20 years. The SSA actually has the best argument I've seen: http://www.ssa.gov/history/ponzi.htm. They argue that a Ponzi scheme grows geometrically, whereas Social Security is a Pay-as-You-Go system that fluctuates with demographics. I agree with them in that SS is not technically a Ponzi scheme. But, like a Ponzi scheme, what you get out of your investment has more to do than it should with when you joined and when you exited. And I'm not primarily thinking on an individual level, but about whole generations kicking the can down the road for the later generations to deal with. Even in a classic Ponzi scheme, it's not bad to be an investor unless you still have your money in when it falls apart; early investors can profit if they leave early enough. So, I don't think Social Security is a literal Ponzi scheme, but calling it such is more good rhetoric than it is a lie. Can anybody give me a good argument (since I can't find one on the web) for why a Pay-as-You-Go system like Social Security doesn't transfer wealth from later generations to earlier ones? Or why that's not a bad thing?
of course SS is a ponzi scheme. how is this even a subject for debate? we can of course, debate whether it's good policy, needs to be reformed, but those are different questions from the underlying structure of the program.
Well, since you're normally reasonable I'll indulge you but honestly this is really kind of dumb: Saying "ok so it might not collapse" is basically akin to saying "ok, it's not really a ponzi scheme, but honestly, aside from that, it's a ponzi scheme." The fact that it's premised on infinite attraction of new investors is the primary weakness of a ponzi scheme. Social security is meant to be infinite, as well las basically mandatory. This pretty much negates it by itself. uhh...see above. Yes, you don't need deception, because it's not a ponzi scheme which is defined by such. If I beat you up with a stick and can force you to buy my McDonalds shares, I don't need deception. Does that mean my making you buy my McDonalds shares is a Ponzi scheme, jsut without the deception? Do you actually even know what "fraud" means? It's the intentional misrepresentation or omission of a material fact in order to induce a behavior - it requires scienter (intent). So, you might not be sure that an "accidental" fraud is "better" - but the law is, which is why a non-intentional fraud is at worst negligence, and actual fraud can be a felony that will send you to prison forever in Madoff's case. Of course you don't understand, you don't even know what a Ponzi scheme is and have just told us that all defining charactersitics of it don't matter, so I expect this line to be lost on you. I'm actually already tired of doing this so I'm gong to stop here... but your argument basically exhibits 2 main flaws that tend to repeat ad nauseum. (1) you take the distinguishing factors of a Ponzi scheme that differentiate it from any other investment structure and say that they don't really matter, ergo SS = Ponzi...they actually do matter, since it's the very comparison you invited upon yourself. and related, (2) then you also try to say that "well, at the end of the day, little comfort for people who lost their money/not sure we should take much comfort in that/damage is still the same/blahblahblah" This is useless, because any failed business venture or investment scheme can be boiled down to a fungible set of profits or losses - that doesn't make them all the same as a ponzi scheme. LOL, and after I typed that, I notice the kiss of death comes here:
You answered your own question. From that same link: There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go programs in that in both money from later participants goes to pay the benefits of earlier participants. But that is where the similarity ends. A pay-as-you-go system can be visualized as a simple pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end. So we could image that at any given time there might be, say, 40 million people receiving benefits at the back end of the pipeline; and as long as we had 40 million people paying taxes in the front end of the pipe, the program could be sustained forever. It does not require a doubling of participants every time a payment is made to a current beneficiary, or a geometric increase in the number of participants. (There does not have to be precisely the same number of workers and beneficiaries at a given time--there just needs to be a fairly stable relationship between the two.) As long as the amount of money coming in the front end of the pipe maintains a rough balance with the money paid out, the system can continue forever. There is no unsustainable progression driving the mechanism of a pay-as-you-go pension system and so it is not a pyramid or Ponzi scheme. In this context, it would be most accurate to describe Social Security as a transfer payment--transferring income from the generation of workers to the generation of retirees--with the promise that when current workers retiree, there will be another generation of workers behind them who will be the source of their Social Security retirement payments. So you could say that Social Security is a transfer payment, but it is not a pyramid scheme. There is a huge difference between the two, and only a superficial similarity.
I was talking to a successful businessman about SS a few weeks back and he has paid in for the last 40 years. His opinion is it's a ponzi scheme. I would trust his perspective on it too, not somebody with a political agenda against Rick Perry. If you think about it, the government took in $$ all those years on a strong dollar and are going to be paying it back devalued and depreciated. If I'm an investor, I'd prefer another route. Not that it is a bad idea, I just think poorly executed given the current state of affairs.
2 brief q's: 1. Was this at an infomerical taping and 2. how many popeill pocket fishermen did you walk away with afterwards?
There is no question that it is a ponzi scheme. The big questions about welfare social security concern how big it should be, what the rules should be to get money, etc. Constant government budget defecits themselves are essentially ponzi in nature.
lol. You're agruing a literal ponzi scheme. I think that term just means a really ****ty investment when people bring it up and talk about it in relation to SS as the intention of SS is not with malice.
I think your criticism is more of the same of the flawed logic I see from bloggers taking digs at Perry. I'm all for taking digs at Perry, but I like my arguments to be tighter. What is the essential kernel that makes a Ponzi scheme? You and others would like to use characteristics that are common to Ponzi schemes as part of the definition -- that it uses deception, that it is unsustainable, that it is done to enrich the perpetrator, and so on. Not every Ponzi scheme has to have these characteristics. To take the low-hanging fruit, Madoff sustained his Ponzi scheme for 20 years and it didn't even collapse on its own then -- his sons turned him in. So, I don't think that gets to the kernel of it. I'd define a class of investment mechanisms that use their growth to sustain themselves instead of their production. And the Ponzi scheme is one type within this class. The Pay-as-You-Go is another in this class. It's pay-outs are not undergirded by the yield of its investments. So, if we get into an adverse climate, suddenly it won't be sustainable. It's not the only famous PaYG strategy. Our auto industry was weighed down by the PaYG nature of their pension programs. This is not a wise way to go. I know it's already a politicized issue, so everyone's already got their backs up and their talking points at hand. But, I'm not a basso operative (and it doesn't help that him and Cohete want to piggy-back on my thread). Just saying sometimes the republicans are right, even if by accident. I don't want to kill Social Security, but the way people plug their ears and throw out weak-ass arguments when someone points out the foolishness of this model, it drives me crazy. It needs fixing -- not just changing the retirement age or the contribution amounts, but real change of the essential model.
Heh, and then you unleash this steamer on us in which your whole argument is "sure, those are all characteristics of a ponzi scheme, but let's just disregard all those because I arbitrarily said so and my one characteristic is the best".... YOu mean the actual characteristics? The ones that basically define whehter or not something is lawful conduct or a felony offense? Perish the thought, brah. What do you use to be the essential kernel that defines a mortgage? The charactersitics of it? Like you know, terms, a security interest in real property a rate of interest, a loan, etc? Or is basically every transfer of money a mortgage. Look Juan, there are many types of investment schemes, plans etc out there. Many of them share some similarities with Charles Ponzi's scam early 20th century "give me money and I'll make fabulous returns from buying stamps!" plan. That does not make them all basically Ponzi schemes. And by the way...Madoff did not run a classic ponzi scheme, a la Charles Ponzi. It was also mixed with a pyramid scheme since he recruited other fund managers who invested without their clients knowledge. This definition blows. Your savings account earns interest. The interest you earn earns interest, even if you don't put an extra dime in it. Is your savings account a Ponzi scheme? How about a dividend reinvestment program? You buy shares. Shares pay a dividend. Dividend used to buy more stock. Stock price is increased that much more. Onward and onward forever. Ponzi scheme? Actually what about any stockk buybackk program? Many corporations have this program in place. I guess this is a ponzi scheme too. Oh and speaking of mortgages above, I guess that's another ponzi scheme. Do you have an alternative definition? Maybe you could talk to a smart businessman like another poster. Because the one you provided sucks.
Maybe the problem is your reading comprehension. I'd say we were ships passing in the night except that I don't think you're making any sincere attempt to understand in the first place. When I say the scheme relies on growth, I'm referring to the growth of the principal through additional investment (either from more people or more investment per person or recaptured principal from people who die or otherwise don't collect). In a savings account example, this would be your direct deposit, say. The production of this savings account is the interest you earn on the savings. So, a savings account is nothing like a Ponzi scheme or a PaYG scheme because it puts out exactly wha you put in plus what it produces with that input. The same is true with a dividend re-investment program. The same is true with a mortgage. With Social Security, you don't have a tight relationship like this: input + earnings = output. Social Security is input + earnings + a portion of your kids' and grandkids' input = output +/- a portion that your parents and grandparents gave or took from you. I meant to address this yesterday, but I suppose belligerence attracts more attention. That is why I posted the link, because I thought it was the best counter-argument. And, it is what persuaded me to draw a line between Ponzi and Pay-as-You-Go. However, the article only explains why it is not technically a Ponzi scheme (though it oversimplifies what a Ponzi scheme is), and then wnats you to conclude that it must be A-OK as long as it's not a Ponzi scheme. That's where it's flawed. I'd say the difference is superficial and the similarity essential. They admit it is a transfer payment. I don't have a problem with Social Security redistributing within a generation. If you take from the rich and give to the poor, or take from the dead and give to the living, that's okay with me. Because I think we can manage funds at a given point in time to make sure things don't go disastrously wrong. You can redistribute wealth again if things go unbalanced. But, when you transfer money intergenerationally, it can cause a problem because you can't take it back. You can't transfer wealth or debts back to dead people. So, if a future generation runs into a funding problem all they can do is pay more, or transfer the deficit to a yet-later generation.
I think the problem is that you're pretty much determined from the get-go to define Ponzi scheme, which has a pretty narrow definition after a very specific type of scheme, as broadly as possible, have arrived at the conclusion that SS is one, and are not going to let anything get in your way. Never mind of course the fact that the defining characteristics that make a Ponzi scheme dangerous (you run out of investors, there is little to no underlying investment corpus) are completely absent - you have been convinced because it transfers payments between present and subsequent investors, it's a Ponzi scheme. Fair enough. The problem of course is that this is not just inherently silly, but that all kinds of arrangements are now ponzi schemes. If found a company, solicit one round of VC investment, then go public and payoff the VC investors with IPO proceeds before turning a profit, by your and Rick Perry's logic, I'm running a ponzi scheme. By an actual defitnion, I'm not. So if me and everybody else who has an account with Chase went and asked for our money back right now, we'd be able to withdraw it and take home stacks of dollar bills, right? The distinguishing factor is now the ability to take out exactly what I put in plus what "it produces"?
It is similar in that you are taking today's investments to pay earlier investors, but I wouldn't call it a Ponzi scheme. It isn't deceitful, you won't run out of investors, since the only ways around it aside from rare cases, are not working, or doing something illegal, and nobody is stealing the money from you.
Actually, I started off by doing some reading to find a good argument why Perry was wrong to call it a Ponzi scheme, and I just couldn't find one. The reason being that everyone tries to employ a No True Scotsman argument to define a Ponzi Scheme so narrowly that very little can actually fall into it -- you don't even want to call Madoff's scheme a 'true' Ponzi scheme! And each time you reply, you build on the No True Scotsman line of reasoning, saying that by my definition, Englishmen are Scotsmen, French are Scotsmen, Chinese are Scotsmen. It's not so. So, your VC example doesn't work because the IPO of the stock would be made knowing that some would be used to pay VC investors and it would affect the purchase price of that stock. You don't have that dynamic with Social Security. And I don't know if your run on the bank example illustrates anything. Everyone withdrawing money from a bank at once or everyone selling a stock at once or everyone collecting Social Security at once, or everyone selling their houses at once, HP selling all their Touchpads at $99 at once, or otherwise everyone cashing-out on whatever investment they've made -- they would each have a calamitous effect. I'm not sure what that has to do with anything. The promise of a savings account is principal plus interest and a guarantee from the Federal Government. The promise of Social Security is... well don't worry, we'll take care of you to the level we feel we can afford when the time comes.
Therein lies the problem. Basically you are asking people to prove a negative, and you're absolving yourself and Perry any responsibility of having to adhere to the actual definition of a Ponzi scheme. Witnesseth we have things like this: That's utterly irrelevant to your "definition" of a Ponzi scheme which, when finally teased out of you, consists of this This is the definition you came up with. It fits your definition. Either you came up with a bad definition that needs to be modified, or any start up company (or actually ANY company that raises capital while simultaneously distributing capital to other investors without turning a profit) fits your defintion.. Which is it? Only that the "it's different because you can always get your money back" assertion is false. Umm, yeah, because when Charles Ponzi was pitching his idea to sell investments in postage stamps, he was selling direct to investors, he wasn't selling his idea to a hedge fund that somebody else accidentally and unknowingly invested in via a fund of funds, a lot more similar to pyramid-type fashion. You keep pointing to Madoff and tryign to figure out how it lasted for two decades....that's how. ALso his returns were much lower than Charles Ponzi so he was able to keep going for longer.
Woah there feller. This is not a right or left issue, and it is not a new issue: myself and others on this board have brought it up, but it is yet older than our posts. http://en.wikipedia.org/wiki/Ida_May_Fuller That's a freaking huge return on investment. If Bernie Madoff had been promising those kinds of returns people would have laughed and he would never have Ponzied anyone. Now, Ida May Fuller is definitely not the standard social security receipient, but it should have been evident there would be some inequalities in the system 70 years ago. However, those inequalities were not and for the most are still not a big concern. People in America during the 1930's and 1940's were starving and living in squalor, not because of a tremendous food shortage or crop failure (though there were crop failures), but because people did not have money to buy food because there were no jobs for them. It was a mental and not a physical road block to feeding themselves that meant so many people would starve and live in squalor. People could work, did want to work but had no jobs. Social Security was to protect a part of society that could not work, primarily the elderly, now extended to the disabled. The government started massive spending programs to create short-term jobs so people would not squalor away and start rioting. Ricky Perry is not the first politician to say this, Ron Paul, former Libertarian, has been saying this for a while, as have others. So to split hairs, the government does not appear to be pursuing social security to defraud its investors. I am not even sure if that happened to Madoff and maybe things just got out of hand.
