Is Welfare a Ponzi scheme?

via Andrew Sullivan

Texas Governor Rick Perry is an aspiring presidential nominee and he has been suggesting that welfare, or social security as the American’s call it is in fact a Ponzi scheme. Since welfare is what the country is talking about then this discussion via Andrew Sullivan is extremely pertinent.

Reacting to Perry’s repeated claims, Zaid Jilani consults the dictionary:

A Ponzi scheme is an economic arrangement where the money paid into the system by later entrants is paid right back out as benefits to earlier entrants. None of these social insurance programs that Perry mentioned fit this definition. They benefit those who pay into them with guaranteed benefits.

Daniel Indiviglio perks up:

Wait — what? Social Security fits that precise definition.

It was created during the Great Depression by President Franklin D. Roosevelt. Retirees began receiving benefits immediately, without having paid into the program themselves. Those benefits were paid by taxing current workers. So, in fact, Social Security is technically identical to the definition of a Ponzi scheme that Jilani provides.

But what about those “guaranteed benefits”? Don’t those make a difference? Well, let’s think about this. Imagine if an investment advisor came to you and said:

“Hi there! I want to sell you a retirement vehicle for which you will be provided a guaranteed benefit of x dollars per year after the age of 65. But the money you contribute will be paid to current beneficiaries, while your money will be paid by future beneficiaries. If there’s ever a shortfall, we’ll just borrow money from China in order to keep the guaranteed benefits coming — or force future contributors to provide more money. Alternatively, we might increase the age at which you’ll receive benefits. And we might even think about means testing your benefit.”

All of those supposed “guaranteed benefits” sure come with a lot of caveats, don’t they? Is it even fair to call those benefits guaranteed? For all we know, the U.S. could continue to run into deficit problems for the next few decades and could feel compelled to do away with Social Security altogether.

 

 

 


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  • jimbob

    Whale you are frightening the horses.

  • Todd

    I have said for a while that what Bernie Maggoff got jailed for Govt all over the world do exactly the same.Go figure!.

  • Richard McGrath

    Peter Schiff has been shouting this from the rooftops too. If enough of us keep saying it loudly, the MSM may just pick up on it.

  • thor42

    Great article! Very thought-provoking – I love to see articles like this which challenge the status-quo.

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