Is Social Security a Ponzi scheme?
by Daryl Dominic Tan

Following the GOP debates closely, I’ve come to realize that the view on one very contentious issue has been of extreme importance to the GOP candidates running for presidency - Social Security. Governor of Texas and 2012 presidential candidate, Rick Perry, has been adamant on his stance that Social Security is a Ponzi scheme. However, Perry isn’t the first to make such an inflammatory remark. Many comparisons have been made over the past, and countless are still scratching their heads as to whether the Social Security program is even constitutional in the first place. Bumbling left-leaning liberals are quick to dispute by proclaiming that since the administrators of the Social Security do not gain any profit nor do elderly people(at the top), it can't possibly be likened to a Ponzi scheme. Other liberals argue that it is indeed constitutional, and till today, that same argument remains wide open to inference and no conclusion has ever been drawn from it.

So, is Social Security a Ponzi scheme?

First off, a Ponzi scheme is a fraudulent act that offers returns to investors not through actual profits earned by the organization, but through money paid by other subsequent investors. The need for new investors is necessary in order for a Ponzi scheme to work. The quasi “profits” gained by the first few investors are supposed to entice others to join the scheme, and the cycle carries on. The scheme is only exposed and the cycle finally ends when there is a mass withdrawal or lack of investors.

Now let’s look at Social Security - a social insurance program designed to protect people against poverty, old-age, disability, unemployment and others. It is funded through payroll tax and is mandatory as soon as you start working. A chunk of your income will have to go in to Social Security supposedly to aid you with retirement benefits when you grow old.

Of course, this all sounds like a great deal, up till the point where we realize that a realistic crisis might occur in the near future. How the current system works, is that retirees are being paid their benefits through the mandatory investments of younger Americans. What is happening though is that the ratio of retirees to young Americans, is according to statistics, becoming increasingly unbalanced. Americans are living longer while the birth rate is declining. What happens then, if there are not enough young Americans to pay off their babyboomer seniors?

THE GOVERNMENT RIGHT??? As they are always supposed to intrude in every single affair and help? Well, the government has been indeed helping out, thus actually worsening their deficit problem. Above that, the government also issues out IOUs ( documents that acknowledges debt) when they become too insolvent to pay their recipients, and they have been already doing as we speak. The government uses the chunks of money deposited into Social Security for their own purposes such as funding of federal programs, and in turn, pay their recipients their surpluses through subsequent investors (the young Americans). This sounds very much like a Ponzi scheme to me. Plus with the looming crisis predicted by many analysts, can the Social Security program even be sustainable in the long run?

Pullitzer-prize winning columnist and political commentator Charles Krauthammer thinks that the only difference between Social Security and a Ponzi scheme is that a Ponzi scheme isn’t a FORCED program.

My conclusion? I would say that Social Security is unconstitutional and coercive, but it has good intentions theoretically speaking, I'll give it that. So no, I wouldn't liken Social Security to a Ponzi Scheme per sebecause there is no criminal intent whatsoever in the idea of such a program - though practically speaking, and being run the way it is, especially with severe mismanagement of government funding - it sure as hell looks and works like one.