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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 sup

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.
- chii 5y ago
  When people call investments a ponzi scheme, they implicitly discount the fact that said investment is _producing_ extra stuff. A real ponzi scheme is one which is not producing stuff, but requires new investment to pay out old investors. Stocks are not ponzi schemes, because a stock does not require a new investor, because the company behind the stock is earning profit. A new investor is willing to buy the old stock for a higher price than originally sold, because the company is making more money (and is expected to make even more in the future).
  - jrs235 5y ago
    If one must withdraw from their 401k (sell it's holdings), which they must at a certain age, without new buyers (investors) keeping demand up, the prices would deflate. New 401k and Wallstreet investors are needed to keep prices up.
    - lmm 5y ago
      If the holdings are inherently valuable then their value should be stable regardless of how many people are buying or selling. (In reality there's a spectrum of how speculative any given investment is; basic things like food and land are certainly subject to some speculation, and even hyped penny stocks probably have a nonzero fundamentals case for why they're valuable. But that doesn't mean there's no distinction at all)
    - chii 5y ago
      i dont know in detail how 401k is managed, but if you're nearing retirement, you do not keep such a high allocation of stocks in your account, because the volatility is going to prevent you from being able to accurately plan financially. So it "doesn't matter" where the prices are - because a well planned retirement means you convert some % of your allocation to a more stable asset, like bonds, and live off those bonds. In the mean time, fluctuations of the stocks doesn't affect you as much, and you can strategically sell when the prices are "high".
- TheCoelacanth 5y ago

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.

chii 5y ago
When people call investments a ponzi scheme, they implicitly discount the fact that said investment is _producing_ extra stuff. A real ponzi scheme is one which is not producing stuff, but requires new investment to pay out old investors. Stocks are not ponzi schemes, because a stock does not require a new investor, because the company behind the stock is earning profit. A new investor is willing to buy the old stock for a higher price than originally sold, because the company is making more money (and is expected to make even more in the future).
- jrs235 5y ago
  If one must withdraw from their 401k (sell it's holdings), which they must at a certain age, without new buyers (investors) keeping demand up, the prices would deflate. New 401k and Wallstreet investors are needed to keep prices up.
  - lmm 5y ago
    If the holdings are inherently valuable then their value should be stable regardless of how many people are buying or selling. (In reality there's a spectrum of how speculative any given investment is; basic things like food and land are certainly subject to some speculation, and even hyped penny stocks probably have a nonzero fundamentals case for why they're valuable. But that doesn't mean there's no distinction at all)
  - chii 5y ago
    i dont know in detail how 401k is managed, but if you're nearing retirement, you do not keep such a high allocation of stocks in your account, because the volatility is going to prevent you from being able to accurately plan financially. So it "doesn't matter" where the prices are - because a well planned retirement means you convert some % of your allocation to a more stable asset, like bonds, and live off those bonds. In the mean time, fluctuations of the stocks doesn't affect you as much, and you can strategically sell when the prices are "high".
TheCoelacanth 5y ago