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Wow, downvoters! Seriously, just google "is social security a pyramid scheme". You'll find a LOT of breathless articles from personal blogs and sites like Wor

by Frondo 10y ago

Wow, downvoters! Seriously, just google "is social security a pyramid scheme". You'll find a LOT of breathless articles from personal blogs and sites like World Net Daily calling it a pyramid scheme. You'll also find a lot of, for lack of a better way to put it, content of actual substance that describes how it's not a pyramid scheme, but a sustainable government program that's worked out just fine for decades (with regular adjustments, as all human endeavors need).

uiri 10y ago
It's not a "pyramid" scheme. A pyramid scheme involves selling a product - something like knives or energy drink. But the actual thing which is sold are licenses to sell the product. Each licensee passes some of their profits up to their licensor who is the licensee of someone else and passes along part of that and so on. Eventually the last round of licensees are stuck with product that they can't sell and the upstream licensors are getting rich from the "pyramid" of downstream licensor/licensees recruited into the scheme. A ponzi scheme is quite different. You pretend to invest an initial investor's money. The returns to that investor are paid out of money coming in from later investors. Social security works in this way. The money paid into social security is not invested at all. The returns from social security (money going out to current retirees) come entirely from new investments (money going in from current workers). This is the basic definition of a ponzi scheme. It is a sustainable ponzi scheme so long as taxes collected from current workers exceed benefits paid out to current retirees. The designers of this system did not count on two things: (a) ever increasing life expectancy and (b) the baby boom. The former has increased the length of time each person collects benefits and the latter has resulted in a demographic bulge that is now hitting its retirement years. Thank you Mr. Bismarck![0] [0] https://en.wikipedia.org/wiki/Otto_von_Bismarck#Old_Age_and_Disability_Insurance_Law_of_1889 https://en.wikipedia.org/wiki/Otto_von_Bismarck#Old_Age_and_...
soundwave106 10y ago
Upvoted you to try to counter-act the downvotes, which I am really confused by. Social security is a pay-as-you-go pension plan, like pretty much almost every public pension plan in the Western world. I understand the comparison to Ponzi schemes, but I consider these comparisons rather hyperbolic. The intent of a pay-as-you-go pension never is fraud. There are some definite problems with pay-as-you-go systems, especially now due to the fertility decline in the West, but the issues do not stem from pure malice.
- Frondo 10y ago
  That's it! That's the whole crux of the matter. A ponzi scheme has an intent to defraud. That's why they're illegal. Social security has no intent to defraud. It's not "legal cause the gubmint says so," it's legal because it's not a fraudulent money-making scheme designed to enrich the leader.
  - xienze 10y ago
    Splitting hairs. Of course the intent isn't to defraud, but they function in the same manner (need a constant supply of new investors [workers] to pay off the old investors [workers]) and have the same failure mode.
    - soundwave106 10y ago
      No, not really splitting hairs, as the solution for each is consequently is going to consequently be different. Ponzi schemes get banned because they are a form of fraud and have little redeeming value. The solution to a Ponzi scheme is to shut it down and arrest the con artist. Social Security and other pay-as-you-go schemes aim to reduce poverty, especially elderly poverty. By this measure, it has succeeded quite well (http://www.nber.org/bah/summer04/w10466.html http://www.nber.org/bah/summer04/w10466.html), and the probable reason pay as you go was chosen I imagine was to provide immediate benefit (recall this scheme was launched during the Great Depression). I would consider it radical (and would want one to provide considerable justification) if one wanted to ditch Social Security entirely. A better debate in my mind, of course, would be whether to phase Social Security into a fully funded model versus pay-as-you-go model. I can buy that kind of argument, a fully funded retirement scheme is more secure than a PAYGO type. But even as it stands, the current Social Security gap doesn't sound like a complete disaster. Part of it actually is because Social Security is not completely pay as you go -- Congress raised payroll taxes in 1983 in part to cover this gap (http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-about-social-security/ http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-abou...). Part of it is because we have some variables to play with -- raising the retirement age or raising the payroll tax cap, for instance. Medicare actually sounds like its in worse shape at this moment.
deleted 10y ago
[deleted]
cmurf 10y ago
You mean wnd.com? World Net Daily? The crackpot website?
- Frondo 10y ago
  Yes, thank you, edited.

by Frondo 10y ago

uiri 10y ago

It's not a "pyramid" scheme. A pyramid scheme involves selling a product - something like knives or energy drink. But the actual thing which is sold are licenses to sell the product. Each licensee passes some of their profits up to their licensor who is the licensee of someone else and passes along part of that and so on. Eventually the last round of licensees are stuck with product that they can't sell and the upstream licensors are getting rich from the "pyramid" of downstream licensor/licensees recruited into the scheme. A ponzi scheme is quite different. You pretend to invest an initial investor's money. The returns to that investor are paid out of money coming in from later investors. Social security works in this way. The money paid into social security is not invested at all. The returns from social security (money going out to current retirees) come entirely from new investments (money going in from current workers). This is the basic definition of a ponzi scheme. It is a sustainable ponzi scheme so long as taxes collected from current workers exceed benefits paid out to current retirees. The designers of this system did not count on two things: (a) ever increasing life expectancy and (b) the baby boom. The former has increased the length of time each person collects benefits and the latter has resulted in a demographic bulge that is now hitting its retirement years. Thank you Mr. Bismarck![0] [0] https://en.wikipedia.org/wiki/Otto_von_Bismarck#Old_Age_and_Disability_Insurance_Law_of_1889 https://en.wikipedia.org/wiki/Otto_von_Bismarck#Old_Age_and_...

soundwave106 10y ago

Upvoted you to try to counter-act the downvotes, which I am really confused by. Social security is a pay-as-you-go pension plan, like pretty much almost every public pension plan in the Western world. I understand the comparison to Ponzi schemes, but I consider these comparisons rather hyperbolic. The intent of a pay-as-you-go pension never is fraud. There are some definite problems with pay-as-you-go systems, especially now due to the fertility decline in the West, but the issues do not stem from pure malice.

Frondo 10y ago
That's it! That's the whole crux of the matter. A ponzi scheme has an intent to defraud. That's why they're illegal. Social security has no intent to defraud. It's not "legal cause the gubmint says so," it's legal because it's not a fraudulent money-making scheme designed to enrich the leader.
- xienze 10y ago
  Splitting hairs. Of course the intent isn't to defraud, but they function in the same manner (need a constant supply of new investors [workers] to pay off the old investors [workers]) and have the same failure mode.
  - soundwave106 10y ago
    No, not really splitting hairs, as the solution for each is consequently is going to consequently be different. Ponzi schemes get banned because they are a form of fraud and have little redeeming value. The solution to a Ponzi scheme is to shut it down and arrest the con artist. Social Security and other pay-as-you-go schemes aim to reduce poverty, especially elderly poverty. By this measure, it has succeeded quite well (http://www.nber.org/bah/summer04/w10466.html http://www.nber.org/bah/summer04/w10466.html), and the probable reason pay as you go was chosen I imagine was to provide immediate benefit (recall this scheme was launched during the Great Depression). I would consider it radical (and would want one to provide considerable justification) if one wanted to ditch Social Security entirely. A better debate in my mind, of course, would be whether to phase Social Security into a fully funded model versus pay-as-you-go model. I can buy that kind of argument, a fully funded retirement scheme is more secure than a PAYGO type. But even as it stands, the current Social Security gap doesn't sound like a complete disaster. Part of it actually is because Social Security is not completely pay as you go -- Congress raised payroll taxes in 1983 in part to cover this gap (http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-about-social-security/ http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-abou...). Part of it is because we have some variables to play with -- raising the retirement age or raising the payroll tax cap, for instance. Medicare actually sounds like its in worse shape at this moment.

deleted 10y ago

[deleted]

cmurf 10y ago

You mean wnd.com? World Net Daily? The crackpot website?

Frondo 10y ago
Yes, thank you, edited.