SS has collected trillions more than it has paid out. To deal with the post baby boom reduction in the work force. A true Ponzi scheme can't be stable over hundreds of years but SS could be.
PS: I would like to see SS start at ~75 which seems to be the time when most people are incapable of meaningful work. And it's the age where most people who retired young start having major problems with their savings keeping up with inflation. I would also increase benefits slightly because it would be the only source of income for many people. I fear a lot of people retired far younger than the would have because of SS and ended up far poorer because they outlived their savings.
A Ponzi scheme is an investment system where the payout of current investors comes from the payin of future investors. That's the definition of ponzi.
Does SS meet that definition or not? If so, it's a Ponzi scheme. The fact that it lasted longer than other historical Ponzi schemes does not change it's nature.
Social Security isn't an investment system; it's a social insurance program. A Ponzi Scheme is an investment scam; victim investors are, for a short time, paid an unnaturally high rate of return based on the recruitment of an ever-broadening base of new victims.
The retirement component of social security is not insurance. It does not spread the cost of low probability, high cost events among the insured. Only the very small disability insurance part of SS does this. As I mentioned, that is a separate issue.
Tell me; if Madoff called his hedge fund an "insurance program", and actually devoted 1% of it to providing disability insurance, would that make it not a Ponzi scheme? Incidentally, Madoff's returns were not unnaturally high, just unnaturally regular.
As for the fraud, it's true that the nature of SS is quite clear. SS uses force instead; if you don't pay in, you get locked up. So maybe "Ponzi Protection Racket" would be more accurate than "Ponzi Scheme".
You're arguing that Social Security isn't an insurance program. I'm arguing that it isn't an investment system. If we're both right, it's still not a Ponzi Scam. It doesn't blow up like a pyramid scheme, and it doesn't attract victims with returns on investment. What it does is allow a generation of entrepreneurs to start companies instead of working for Geico and Alcoa to keep their parents out of the cat food.
I'm not sure how it isn't an investment system; you put money in because you are forced, but with the hope of getting money out later. That's closer to an investment than to insurance, though I guess the use of force confuses things.
You could be right, I never thought of it this way. Take a scam, then use a gun to force people to participate without disguising your intentions. Is it still a scam? Maybe not, I'll have to think about it.
SS is based on the assumption that people will die at some predictable rate. http://www.ssa.gov/history/genrev.html"If I have anything to say about it, it will always be contributed, both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury." It's only a scam if people who live don't get paid.
Anyway, they are projecting problems 40 years into the future if nothing changes. An influenza outbreak could dramatically change those predictions as could moving retirement age back 1 month. Suggesting we know the shape of the economy in 40 years is probably overly optimistic.
Madoff was a Ponzi scheme because he paid 12% interest. That interest meant he had to get new people in the door to fund it. Ponzi himself borrowed money, then paid it back with interest.
What's the odds you live to be 105? What's going to pay your income if you live that long? Ok, what happens in the great depression II shows up in 40 years?
As I noted before, the really old are a small fraction of SS. If SS were really just protecting people against outliving their investments (say, it kicked in at age 90) and against disability, I'd have little objection to it. That's just insurance, and a small portion of SS.
As for GDII, I'm not sure how SS helps there. That sounds like a place where the ponzi-like nature of SS will become readily apparent: not enough money from new investors to pay off the old ones.
I agree that increasing the SS age is a good idea.
Anyway, Employment is vary stable even in the GD I vs. every other asset class. If unemployment goes from 5% to 20% the drop in income does not change much on a year over year basis, but just about every other asset class is going to tank. If unemployment stays over 20% vary long there is not much that can save your retirement.
The reason to fund SS with workers income is it's more stable than just about everything else in the economy. Inflation or deflation and people still make about as much money.
If you have 5x what you need to live off of and it's extremely diversified then it's not a problem but what's the point in waiting that long?
You might have 20% cash on hand but how long is that going to last you? You might have some bonds but if the company tanks your out of luck. You could have some property but who's buying? etc.
PS: How much money do you think you need to save and how would you invest it to have a 99.9% chance to live off of 20k inflation adjusted for the next 30 years?
A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit.
SS does not hide the fact that it pays money from dead investors to the living so it's not fraudulent. It does use some money from new investors to payout money but so does life insurance.
PS: While some people get far more out of SS than they pay in many people got zero benefits. With a SS their will would still "own" their money but with SS it diapers into the void. I don't mind calling SS a period scheme, but a lot of 22 year old's are going to die before their 60's so the math can work out just fine.
One point that has not appeared in your dialog, in favor of identifying SS as a Ponzi scheme, is that the excess accumulation of Social Security taxes has been spent on other things and replaced with IOUs by Congress (this is how the Clinton administration produced a so-called budget 'surplus').
First, the Clinton administration did not synthesize a surplus out of the social security trust fund; they simply had the good fortune to take office during a period of historic productivity expansion.
Second of all, the "IOUs" you're talking about are government bonds. For your argument to hold, you have to assert that the government is going to default on its own bonds.
Governments default on their own bonds often enough. Cf. Argentina plus a whole slew of third-world countries.
I'll skip the theory and offer a single data point: the employees of the Social Security Administration do not, themselves, use or pay into SS. Neither do any other US Government employees. That is, the people who know the most about the system think it's so good that they don't want any part of it. It's almost like they know something some of us don't.
I would suggest that the general fund is a Ponzi scheme backed by selling IOU's. We are borrowing more money to pay the interest on money we already borrowed and adding more debt on top of that. Long term we need to start borrowing less than the interest on our debt - inflation. Which is not all that high a number vs GDP.
PS: I would like to see SS start at ~75 which seems to be the time when most people are incapable of meaningful work. And it's the age where most people who retired young start having major problems with their savings keeping up with inflation. I would also increase benefits slightly because it would be the only source of income for many people. I fear a lot of people retired far younger than the would have because of SS and ended up far poorer because they outlived their savings.