The Washington Post

Social Security not a Ponzi scheme, says official Social Security Web site

In his 2010 book “Fed Up,” Texas governor and GOP presidential hopeful Rick Perry called Social Security a “Ponzi scheme,” a statement that’s been a point of major contention as the 2012 presidential race heats up.

Charles Ponzi, who swindled Americans out of millions of dollars in 1920. (AP)

In an entry on the site’s history page, last updated in January 2009, called “Ponzi Schemes vs. Social Security,” site historian Larry DeWitt writes:

There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go programs [in the social security system] in that in both money from later participants goes to pay the benefits of earlier participants... That is where the similarity ends.

DeWitt argues that the Social Security system is, unlike a Ponzi scheme, sustainable; it is a transfer payment, but not a pyramid scam. And he begs readers not to let similarities such as the “bonus” paid to early participants in a pension system, or the rise and fall of the balance in pay-as-you-go systems, confuse them into thinking it’s a Ponzi scheme.

DeWitt concludes his brief history rather snarkily, writing:

The American Social Security system has been in continuous successful operation since 1935. Charles Ponzi's scheme lasted barely 200 days.

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