Social Security: Is it a giant Ponzi scheme?

https://readthespirit.com/ourvalues/wp-content/uploads/sites/17/2013/03/wpid-0912_Social_Security_poster_1930s.jpgSOCIAL SECURITY PROMOTIONAL POSTER used in the 1930s to build interest in the federal program. Image from Wikimedia Commons.Is Social Security just a giant Ponzi scheme? A grand federal fraud? In the Republican presidential debates last week, candidate Rick Perry said it is, repeating the charge he made in his 2010 book, Fed Up! Here’s a similar remark, made on the campaign trail in Iowa: “It is a Ponzi scheme for these young people. The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie. It is a monstrous lie on this generation, and we can’t do that to them.”

Perry isn’t the first to make this claim. The idea that Social Security is a Ponzi scheme goes back at least to Paul Samuelson in 1967, a Nobel laureate in economics. But he meant it in a positive way: “It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population.” Perry’s worry is that Samuelson’s assumptions—a growing economy and more young than old—are no longer accurate.

So, the Ponzi-fraud charge is not new. It has been made many times. In fact, whenever a new Ponzi scheme is uncovered, like Bernie Madoff’s, someone will liken Social Security to it. What I find particularly interesting this time around is that’s it’s a presidential candidate who made the claim. And it’s set off a spirited debate among politicians, pundits, and the media, with one group saying “No, it isn’t!” and other saying “Yes, it is!”

Social Security is one of the federal government’s most popular programs. It’s also one that is in need of repair. This week on OurValues.org, we’ll look at various facets of the program and charges against it. For today, here’s how the Securities and Exchange Commission defines a Ponzi scheme:

 “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Do you think Social Security is a Ponzi scheme?

Do you think Perry has a point—or is he off base?

Originally published at www.OurValues.org, an online experiment in civil dialogue on American values.

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