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Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

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Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#61

Post by Retric »

yummyfajitas wrote: post #59
Retric wrote: post #58

Earlier quoted context omitted.

SS has collected trillions more than it has paid out. To deal with the post baby boom reduction in the work force. A true Ponzi scheme can't be stable over hundreds of years but SS could be. PS: I would like to see SS start at ~75 which seems to be the time when most people are incapable of meaningful work. And it's the age where most people who retired young start having major problems with their savings keeping up…

A Ponzi scheme is an investment system where the payout of current investors comes from the payin of future investors. That's the definition of ponzi. Does SS meet that definition or not? If so, it's a Ponzi scheme. The fact that it lasted longer than other historical Ponzi schemes does not change it's nature.

A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit.

SS does not hide the fact that it pays money from dead investors to the living so it's not fraudulent. It does use some money from new investors to payout money but so does life insurance.

PS: While some people get far more out of SS than they pay in many people got zero benefits. With a SS their will would still "own" their money but with SS it diapers into the void. I don't mind calling SS a period scheme, but a lot of 22 year old's are going to die before their 60's so the math can work out just fine.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#62

Post by tptacek »

yummyfajitas wrote: post #59
Retric wrote: post #58

Earlier quoted context omitted.

SS has collected trillions more than it has paid out. To deal with the post baby boom reduction in the work force. A true Ponzi scheme can't be stable over hundreds of years but SS could be. PS: I would like to see SS start at ~75 which seems to be the time when most people are incapable of meaningful work. And it's the age where most people who retired young start having major problems with their savings keeping up…

A Ponzi scheme is an investment system where the payout of current investors comes from the payin of future investors. That's the definition of ponzi. Does SS meet that definition or not? If so, it's a Ponzi scheme. The fact that it lasted longer than other historical Ponzi schemes does not change it's nature.

Social Security isn't an investment system; it's a social insurance program. A Ponzi Scheme is an investment scam; victim investors are, for a short time, paid an unnaturally high rate of return based on the recruitment of an ever-broadening base of new victims.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#63

Post by gills »

Retric wrote: post #61
yummyfajitas wrote: post #59

Earlier quoted context omitted.

A Ponzi scheme is an investment system where the payout of current investors comes from the payin of future investors. That's the definition of ponzi. Does SS meet that definition or not? If so, it's a Ponzi scheme. The fact that it lasted longer than other historical Ponzi schemes does not change it's nature.

A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit. SS does not hide the fact that it pays money from dead investors to the living so it's not fraudulent. It does use some money from new investors to payout money but so does life insurance. PS: While some people get far more out of SS than they pay in many people got…

One point that has not appeared in your dialog, in favor of identifying SS as a Ponzi scheme, is that the excess accumulation of Social Security taxes has been spent on other things and replaced with IOUs by Congress (this is how the Clinton administration produced a so-called budget 'surplus').

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#64

Post by tptacek »

gills wrote: post #63
Retric wrote: post #61

Earlier quoted context omitted.

A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit. SS does not hide the fact that it pays money from dead investors to the living so it's not fraudulent. It does use some money from new investors to payout money but so does life insurance. PS: While some people get far more out of SS than they pay in many people got…

One point that has not appeared in your dialog, in favor of identifying SS as a Ponzi scheme, is that the excess accumulation of Social Security taxes has been spent on other things and replaced with IOUs by Congress (this is how the Clinton administration produced a so-called budget 'surplus').

First, the Clinton administration did not synthesize a surplus out of the social security trust fund; they simply had the good fortune to take office during a period of historic productivity expansion.

Second of all, the "IOUs" you're talking about are government bonds. For your argument to hold, you have to assert that the government is going to default on its own bonds.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#65

Post by yummyfajitas »

tptacek wrote: post #62
yummyfajitas wrote: post #59

Earlier quoted context omitted.

A Ponzi scheme is an investment system where the payout of current investors comes from the payin of future investors. That's the definition of ponzi. Does SS meet that definition or not? If so, it's a Ponzi scheme. The fact that it lasted longer than other historical Ponzi schemes does not change it's nature.

Social Security isn't an investment system; it's a social insurance program. A Ponzi Scheme is an investment scam; victim investors are, for a short time, paid an unnaturally high rate of return based on the recruitment of an ever-broadening base of new victims.

The retirement component of social security is not insurance. It does not spread the cost of low probability, high cost events among the insured. Only the very small disability insurance part of SS does this. As I mentioned, that is a separate issue.

Tell me; if Madoff called his hedge fund an "insurance program", and actually devoted 1% of it to providing disability insurance, would that make it not a Ponzi scheme? Incidentally, Madoff's returns were not unnaturally high, just unnaturally regular.

As for the fraud, it's true that the nature of SS is quite clear. SS uses force instead; if you don't pay in, you get locked up. So maybe "Ponzi Protection Racket" would be more accurate than "Ponzi Scheme".

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#66

Post by Retric »

mattmaroon wrote: post #45
Retric wrote: post #35

Earlier quoted context omitted.

In defense of social security: It pays significant disability and survives benefits which has little to do with investing and everything to do with insurance. So consider SS as insurance in case of a long life. Some people will live well over 100 so finding the "correct" amount of money to save is overkill for most people who die far younger than that. If you invested a portion of your savings each year and pooled yo…

The life insurance aspect of SS is always overlooked in discussions on its impending collapse. I would guess that it's just not a significant factor. The yearly Social Security/Medicare payments for the average American is something like $7,500. Term Life would be what, $600? I'm not sure what you meant after that. Actuarial tables take life spans into account. And people are not living longer, see my original commen…

The average lifespan is not increasing but the percent of people living into old age is. Someone dieing at 55 vs 60 does not save SS the money of someone dieing at 85 vs 80.

The baby boom also distorted the number of young people supporting old people, but over the next 40 years far more people will reach 95 than did 40 years ago. The other main support of SS was the long term increase in income, but middle class wage stagnation has also impacted SS. Most of the economic growth over the last 20 years has occurred well above the SS cap so it's not capturing that growth.

PS: (technology) Cars kill the young, medicine and sanitation keeps the old alive. Few young people need much in the way of medicine and few old people drive.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#67

Post by tptacek »

yummyfajitas wrote: post #65
tptacek wrote: post #62

Earlier quoted context omitted.

Social Security isn't an investment system; it's a social insurance program. A Ponzi Scheme is an investment scam; victim investors are, for a short time, paid an unnaturally high rate of return based on the recruitment of an ever-broadening base of new victims.

The retirement component of social security is not insurance. It does not spread the cost of low probability, high cost events among the insured. Only the very small disability insurance part of SS does this. As I mentioned, that is a separate issue. Tell me; if Madoff called his hedge fund an "insurance program", and actually devoted 1% of it to providing disability insurance, would that make it not a Ponzi scheme?…

You're arguing that Social Security isn't an insurance program. I'm arguing that it isn't an investment system. If we're both right, it's still not a Ponzi Scam. It doesn't blow up like a pyramid scheme, and it doesn't attract victims with returns on investment. What it does is allow a generation of entrepreneurs to start companies instead of working for Geico and Alcoa to keep their parents out of the cat food.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#68

Post by spkthed »

tptacek wrote: post #53
spkthed wrote: post #50

Earlier quoted context omitted.

On the second point, that baseline is going to drop much, much lower unless they drastically raise taxes. We have what, 8 years until we start taking out more than is going in. On the third note, agreed. Medicare/Medicaid have massive problems. That doesn't mean that SS doesn't have problems too. They do have issues with workers taking more out than putting in. The birth rate continues to decline. On the small paymen…

On your first point, the "we have until 2018 before the trust fund runs out" factoid is apocryphal. Present estimates put that date into the 2040s. And that's simply the point at which Social Security starts being funded out the general budget, assuming the retirement age isn't adjusted. On your second point, there's "birth rate" and there's "productivity", and those are two hugely different things. On your third poi…

Point one: Right, but, depending upon whose numbers you use in 2018 we stop putting money into the trust fund and start pulling from it. Also, it's not really a trust fund. Excess funding does go into a trust fund but it is then lent to the Treasury and spent. Instead of using the power of time to get a decent rate of return it's basically sitting.

Two, I agree, mostly. Since SS depends upon multiple workers for every payee, as the birth rate grows taxes increase or benefits decrease. As either happens it stops being perceived as a retirement plan (which the general public currently does) and starts being perceived as welfare.

On the third point, I don't disagree at all on how many people live off of it. Our generation expects a much, much higher quality of living than our parents and grandparents. $1,000 a month is barely enough to pay for the cost of very basic living. Think no vacations, meager meals, no cable TV, no going out for movies, etc.

The terrible thing is, if that money had been invested instead of sitting like it has, those people could easily be living on man, many times that.

I think far less people would have issues with parking a mandatory 12% of their income into investments than letting the government handle it.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#69

Post by yummyfajitas »

tptacek wrote: post #67
yummyfajitas wrote: post #65

Earlier quoted context omitted.

The retirement component of social security is not insurance. It does not spread the cost of low probability, high cost events among the insured. Only the very small disability insurance part of SS does this. As I mentioned, that is a separate issue. Tell me; if Madoff called his hedge fund an "insurance program", and actually devoted 1% of it to providing disability insurance, would that make it not a Ponzi scheme?…

You're arguing that Social Security isn't an insurance program. I'm arguing that it isn't an investment system. If we're both right, it's still not a Ponzi Scam. It doesn't blow up like a pyramid scheme, and it doesn't attract victims with returns on investment. What it does is allow a generation of entrepreneurs to start companies instead of working for Geico and Alcoa to keep their parents out of the cat food.

I'm not sure how it isn't an investment system; you put money in because you are forced, but with the hope of getting money out later. That's closer to an investment than to insurance, though I guess the use of force confuses things.

You could be right, I never thought of it this way. Take a scam, then use a gun to force people to participate without disguising your intentions. Is it still a scam? Maybe not, I'll have to think about it.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#70

Post by Retric »

yummyfajitas wrote: post #69
tptacek wrote: post #67

Earlier quoted context omitted.

You're arguing that Social Security isn't an insurance program. I'm arguing that it isn't an investment system. If we're both right, it's still not a Ponzi Scam. It doesn't blow up like a pyramid scheme, and it doesn't attract victims with returns on investment. What it does is allow a generation of entrepreneurs to start companies instead of working for Geico and Alcoa to keep their parents out of the cat food.

I'm not sure how it isn't an investment system; you put money in because you are forced, but with the hope of getting money out later. That's closer to an investment than to insurance, though I guess the use of force confuses things. You could be right, I never thought of it this way. Take a scam, then use a gun to force people to participate without disguising your intentions. Is it still a scam? Maybe not, I'll hav…

SS is based on the assumption that people will die at some predictable rate. http://www.ssa.gov/history/genrev.html "If I have anything to say about it, it will always be contributed, both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury." It's only a scam if people who live don't get paid.

Anyway, they are projecting problems 40 years into the future if nothing changes. An influenza outbreak could dramatically change those predictions as could moving retirement age back 1 month. Suggesting we know the shape of the economy in 40 years is probably overly optimistic.

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