Some politicians have recently stated exactly or in effect, that Social Security is a Ponzi scheme. Can Social Security legitimately be called a Ponzi scheme?
Merrian-Webster defines a Ponzi scheme as “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks”
There often is a difference in any program that has been in place for a long time in what it was intended to be, how it it was set up, and how it is real time.
There are several significant facts to demonstrate that Social Security cannot be called a Ponzi scheme, including:
– A Ponzi scheme is a scheme, or scenario whose origins and intention was fraudulent from the beginning. Social Security, was never structured to be an intentional fraud. The premise was a sincere and honest effort to assist in the financial retirement of senior citizens.
The intention, or sole intention of a Ponzi scheme, or and fraudulent scheme is to enrich either an individual, or a group of individuals, or entity. The purpose of Social Security was never to make someone rich, and has to this day never had such a purpose.
Those that call Social Security a Ponzi scheme and say it is going bankrupt and in financial distress have an obligation to point out that many past administrations have been taking huge amounts of money that it says it “borrowed” from the Social Security retirement fund, on many occasions. There have been little or no reports of occasions when these funds have been paid back. If small portions have been paid back, the amounts that have been borrowed far exceed amounts that have been paid back. If these amounts had not been taken from the Social Security retirement fund, then the fund would have significantly higher funds today. The long term future may still have been in doubt or not long term financially solvent, but for some of the financial problems, politicians should take partial responsibility that the “Math does not work anymore”
“Encourage more and bigger risks” – One of the goals of the Ponzi scheme is to encourage more and bigger risks by future investors, that is, each time, get the “next or later people” to invest, or put in more money. Other then for inflationary reasons, in Social Security, later investors are not putting in, or being pressured and sold to put in more money or as much money as they can.
In a Ponzi scheme, future investors are told, sold and pressured to invest because it is sold and portrayed as an outstanding, or can’t miss investment. Social Security was not and is not characterized this way.
In summery for the 6 reasons below, while Social Security does have significant financial issues and cannot long term be solvent in it’s current state without significant structural changes, Social Security is not a Ponzi scheme.
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