Is Social Security A Ponzi Scheme?

Contrary to rhetoric it is, indeed, a ponzi scheme, which is defined as early entrants are paid by later entrants under the assumption that there will always be enough new entrants to pay for each person exiting. 

It’s not insurance because Insurance works by a lot of people giving a little bit of money to an investor who invests the money at a reasonable rate of return, then pays out to some small percent of people in the event that a few of them actually need a lot of money.   That is not the case, since all of us both enter and leave.

When social security was conceived, people didn’t live very long. It was in fact, at that time, insurance.  But as we have lived much longer, we are confronted with the problem that old people are still not very useful in the work force, and it’s hard for them to work at even small jobs as they age, and we have smaller population growth and a smaller population who must sacrifice more and more of their incomes to pay for aged people who live much longer and have very high health care costs.

To compensate for this problem, western countries have brought in large numbers of immigrants in order to increase the number of working people, But this has in turn created cultural friction as the only people that can be brought into the country are largely the poor from the third world, who are much less productive per person than the prior generations. 

The counter argument is that people should be forced to save, even if we redistributed money via taxation to people’s savings accounts. Then this money could be insured by the government, and people could actually plan.

There are numerous arithmetic arguments to suggest that it is possible to perpetuate this scheme indefinitely, but they are heavily biased with assumptions. The reason is that most of our economic data starts with the postwar era, And economic data before that time, with the colonial period. And it is not certain that our country can remain competitive.

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