Over at Good Math, Bad Math, Mark Chu-Carroll heard Mayor Micheal Bloomberg refer to Social Security as a Ponzi Scheme and said,
This is, to put it mildly, bullshit. Incredibly, stupid, rampant, bullshit.
Technically, of course, he’s correct. In spite of the many times I’ve refered to SS as a Ponzi Scheme, there are differences and Mark enumerates them.
- Ponzi Schemes are investments and voluntary. Social Security is a tax and non-voluntary.
- In a Ponzi Scheme you have the investors at the top making their money while the poor saps at the bottom aren’t getting anything. In Social Security benefits are paid out to all recipients based on a formula.
- A Ponzi Scheme is based on deceit. No one is ostensibly trying to profit from Social Security, so there is no reason to lie.
- A Ponzi Scheme tries to make a profit and have enough liquidity to make good on some of its promises. Social Security is a zero-balance tax-funded benefit.
In spite of the fact that its not considered an investments, there are those statements you can have mailed to you, where they give you your earnings record along with your estimated benefits, not unlike something I might get from my 403(b).
Politicians have joined in the charade somewhat by referring to the monies collected as investments. And we refer to those benefits as entitlements.
The Trust fund has been skimmed by the government to cover deficits in the general fund, one of the reasons those in the know look at Baby Boomers beginning to collect benefits with some trepidation.
Although not technically a Ponzi Scheme, one can find enough similarities to justify the label.