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Social Security vs. Ponzi schemes in one Venn diagram

at 05:14 PM ET, 08/29/2011

So many Republican politicians call Social Security a Ponzi scheme that I’ve basically stopped taking notice of it. But Rick Perry’s recitation of the talking point has attracted a fresh round of ire from hardier souls than me. Jonathan Bernstein, for instance, writes that “anyone who says that Social Security is a Ponzi scheme either misunderstands Social Security, misunderstands Ponzi schemes, is deliberately lying, or some combination of those.”

As he explains, a Ponzi scheme is a fraud that relies on new investors being unaware of the program’s financing mechanism. Social Security is a fully transparent system of age-based redistribution that releases regular actuarial reports explaining, in great detail, how it is financed now, and what it will need to be fully financed into the future. Or, as Russell Long (apparently) put it, “Social Security is nothing more than a promise to a group of people that their children will be taxed for that group’s benefit.” You may like that structure or you may hate it, but it’s not a Ponzi scheme. And in case you forget, Nick Baumann went ahead and made a Venn diagram explaining the situation:

Note that a lot of the elderly investors who saw their money vanish in Madoff’s Ponzi scheme are going to be kept afloat in their old age by, yes, Social Security. That’s another difference: Ponzi schemes tend to be pretty unreliable. Social Security has been sending out checks without interruption for more than 70 years.

 
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