4 ms·

That means that I need to pay myself in order to be paid? At the risk of sounding pejorative, and understanding that there are volumes of sophistries in suppor

That means that I need to pay myself in order to be paid? At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?

loeg 5y ago
The essential element of a ponzi scheme is that investors are deceived. > A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
- akoncius 5y ago
  so main difference is kinda transparency? everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
  - lotsofpulp 5y ago
    Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.
  - loeg 5y ago
    Some other differences. Ponzis promise high rates of return on investment; Social Security promises vastly below-market returns for most workers. Investors can theoretically redeem from Ponzi investments at any time; SS is completely locked up until you're ~62. Ponzis are voluntary; SS isn't. SS is a mandatory government spending program; ponzis aren't.
  - kmonsen 5y ago
    Ponzi schemes have a fairly specific definition, social security is just a tax that we pretend is going to yourself when you get old. In reality it is just a tax paid by workers and some amount of the government's budget is used to pay retired people money.
- smitty1e 5y ago
  Another crucial element distinguishing a Ponzi scheme is that whoever runs it doesn't let the marks escape easily.
putlake 5y ago
I had this same question when I first learned about social security and saw a non-trivial amount of my paycheck funding the program. So I wrote this comparison (it is about 10 years old but still accurate): https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Security https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Sec...
nostrademons 5y ago
Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. People who don't budget for this properly grow old destitute and unable to convince anyone to aid them. In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way. Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
- lmm 5y ago
  > Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
rtpg 5y ago
Because unlike in a Ponzi scheme, the US government can simply choose to create more money, thus meeting the obligations of its payments. A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain. You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
- cartoonworld 5y ago
  >Because unlike in a Ponzi scheme, the US government can simply choose to create more money, It sure can, but this doesn't go far enough. The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times. The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
  - snowwrestler 5y ago
    Fractional reserve banking pre-dates the US by hundreds of years. It’s not related to central bank operations.

loeg 5y ago

The essential element of a ponzi scheme is that investors are deceived. > A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.

akoncius 5y ago
so main difference is kinda transparency? everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
- lotsofpulp 5y ago
  Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.
- loeg 5y ago
  Some other differences. Ponzis promise high rates of return on investment; Social Security promises vastly below-market returns for most workers. Investors can theoretically redeem from Ponzi investments at any time; SS is completely locked up until you're ~62. Ponzis are voluntary; SS isn't. SS is a mandatory government spending program; ponzis aren't.
- kmonsen 5y ago
  Ponzi schemes have a fairly specific definition, social security is just a tax that we pretend is going to yourself when you get old. In reality it is just a tax paid by workers and some amount of the government's budget is used to pay retired people money.
smitty1e 5y ago
Another crucial element distinguishing a Ponzi scheme is that whoever runs it doesn't let the marks escape easily.

putlake 5y ago

I had this same question when I first learned about social security and saw a non-trivial amount of my paycheck funding the program. So I wrote this comparison (it is about 10 years old but still accurate): https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Security https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Sec...

nostrademons 5y ago

Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. People who don't budget for this properly grow old destitute and unable to convince anyone to aid them. In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way. Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).

lmm 5y ago
> Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.

rtpg 5y ago

Because unlike in a Ponzi scheme, the US government can simply choose to create more money, thus meeting the obligations of its payments. A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain. You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.

cartoonworld 5y ago
>Because unlike in a Ponzi scheme, the US government can simply choose to create more money, It sure can, but this doesn't go far enough. The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times. The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
- snowwrestler 5y ago
  Fractional reserve banking pre-dates the US by hundreds of years. It’s not related to central bank operations.