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?
