Yes, Social Security Really Is a Ponzi Scheme

A few minutes ago, I let the late, great, Frederic Bastiat pick the low-hanging fruit, with regards to the question, Is Social Security a Ponzi Scheme? I didn’t think it would be necessary to offer any further commentary, but I read the article anyways. It is worthwhile to note that Zuckoff does appeal to the government-conferred-legitimacy argument which Bastiat exploded, but he kind of glossed over that aspect, probably because it’s the least convincing lie concoted by Social Security proponents.

Here’s the three reasons why Zuckoff says Social Security is not a Ponzi scheme, and my more thorough rebuttal.

It’s hard to knock down such a persistent and seemingly elegant analogy [that comparing Social Security to Ponzi's scheme]. But since it creates a false impression of Social Security, and since I for one consider real Ponzi schemes too important and interesting to obfuscate, it’s worth rebutting this myth.

First, in the case of Social Security, no one is being misled.

Ahhh, so the completely voluntary, yet fraudulent system run by Madoff is intolerable and worthy of real rebuke, but the completely involuntary System imposed without choice or consent on one generation by another generatoin, is AOK?

Second, Social Security isn’t automatically doomed to fail. Played out to its logical conclusion, a Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted. That’s when the last people to participate are out of luck; the music stops and there’s nowhere to sit.

…But Social Security can be, and has been, tweaked and modified to reflect changes in the size of the taxpaying workforce and the number of beneficiaries. It would take great political will, but the government could change benefit formulas or take other steps, like increasing taxes, to keep the system from failing.

So, rather than exhaust the number of participants, the government simply reduces the size of the chairs?

Third, Social Security is morally the polar opposite of a Ponzi scheme and fundamentally different from what Madoff allegedly did. At the height of the Great Depression, our society (see “Social”) resolved to create a safety net (see “Security”) in the form of a social insurance policy that would pay modest benefits to retirees, the disabled and the survivors of deceased workers.

Stop calling it “insurance.” It’s not. Social Security is fundamentally the same as Madoff’s scheme. It differs in only one regard: Anyone could’ve “invested” (or not)with Madoff; everyone is forced to contribute to Social Security.

The wholesale absence of choice is what makes Social Security morally reprehensible. It is the means by which it is perpetrated which I condemn, not the ends.