Is welfare a Ponzi scheme? Ctd

I have blogged previously about Welfare essentially being a ponzi scheme. There are more and more people discussing this, both left and right. Don Boudreaux looks at some measurements for determining whether or not welfare is a Ponzi scheme:

What is that essence?  I submit the essence of a Ponzi scheme is

(1) its promise that contributions today to the scheme’s manager will pay off handsomely (that is, better than alternative investments) in the future to each contributor;

(2) that current contributions to the scheme are not invested but are spent – in particular, are spent to make good on promises made in the past to previous contributors who now expect their stream of pay-offs;

(3) that the manager of the scheme maintains his ability to pay the promised streams of pay-offs only by getting other contributors into the scheme, but

(4) the manager doesn’t let on to contributors (and would-be contributors) that the funds for paying off the promises come not from any profitable, productive investment of contributed funds – nor from any actuarially justified program for reallocating risks across persons or across time – but come, instead, simply from the hope that future contributors can be corralled into the system;

(5) that if future contributors do not arrive in sufficient numbers, the scheme has too little money on hand to pay off all promises;

(6) that the manager of the scheme, in short, successfully persuades his or her targets that the scheme is financially something that it really is not.

Note that I do not list “pyramiding” – a “pyramid scheme” – as being among the essential qualities of a Ponzi scheme.

On these points, Social Security strikes me (again, as it has struck even some of its illustrious champions) of having a great deal of Ponzi-ness about it.

It seems to me also that welfare, in particular superannuation is clearly a Ponzi scheme. Discuss.


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  • arlo

    Welfare is similar to a ponzi scheme with the added twist that contributors are required by law to continue payments plus governments can borrow to top the scheme up and also print more money to keep the whole show on the road. The collapse of course is infinitely worse.

  • peterwn

    Further examples:
    1. ACC as envisaged by Sir Owen Woodhouse and as operated by Labour.
    2. Defined benefit superannuation schemes for public sector employees in the pre-Rogernomic days.
    3. Investments in Alan Hubbard’s entities – see point 4. If some prospective investors were aware that he and/or his entities were insolvent and that their investments were paying back old investments, they would not invest.

    Welfare (including suoperannuation) is IMO not a Ponzi scheme, because the payments are made by operation of the law rather than contract. Parliament by amending legislation can stop making welfare payments, so there is no forward liability for welfare payments.

    Even assuming that such payments should be ‘funded’, the issue becomes of when they should be taken on the Government’s books. For example if a person becomes blind, the person is entitled to an invalids benefit until 65 years old (the person may need to ‘burn off’ savings etc first), should a ‘fund’ be set up at the becinning to meet the future payments, or can they be paid out of revenue year by year.

  • notavictim

    Just more reason to review/abolish super. If everyone took responsibility for themselves we wouldn’t need it, instead we have people relying on it to fund their retirement. I know lots of people who get super who dont need it, good on them, but i bet there is also plenty of people who reach retirement and have nothing else to live on. So while one group has planned for retirement we have another who have chosen not to and spent all their money every week and then expect the rest to pay for their bewildered years. I know living on the amount of money you get on the pension wouldnt be great but why should I pay? I’m not betting on getting anything in 30yrs time. Just another example of a lack of responsibilty for ones own affairs, that has been bought about by the welfare state.

    • thor42

      Agreed! Well said!
      I too am not expecting to get anything from super, and I’m planning on that basis.
      Anyway, I agree with the whole of WO’s post. ALL of welfare is a ponzi-scheme, including super.
      FFS – the Nats could at LEAST start with demolishing “bludging for families”. It has only been going for a few years. ***NO-ONE*** would starve if that were axed. It was a vote-bribe and economic sabotage by Labour – pure and simple. Economic sabotage because they knew damned well that once it was introduced, it’d be difficult to remove without causing a ruckus from the left (not that they should be paid any attention).
      It is also time to raise the entitlement age for super. F**king-well do it NOW. Putting it off will just make the transition worse.

      • Honcho

        Could not agree more, The boomers are set to retire on-mass and nothing has bothered to do anything about it, that or had the testicular fortitude. Putting the retirement age up will also affect me as someone much younger, of course in due course and all the more reason for it if every generation is achieving not only longer life but also better quality of health into later life.

        What disappoints me, is instead of insightful debate we get this rubbish;

  • Mr Blobby

    Like all Ponzie/Pyramid schemes it will eventualy collapse under it’s own weight. Sooner if people wake up and find ways to opt out.

    There are others further along this road than us. We will get a front row preview of how it will all end. It won’t be happy ever after.

  • Phronesis

    A beneficiary walks into a WINZ office and says “I really want a job, what have you got”. The WINZer replies “I have just the job for you, full time but only 10 hours a week, no qualifications or experience required, and best of all it pays 100k a year.”

    “You’re taking the piss” says the beneficary…

    The WINZer replies “yeah, but you started it”.

  • the biggest ponzi-scheme is an environmentally degrading economy..


  • Oh, FailUre has come out of his drug-induced coma and is straight back to thread-jacking. Nice try, Eco-tard.

    But back on topic… John Key’s lack of any vision for New Zealand is on show pretty much everywhere you turn, but nowhere as obviously as welfare, particularly his stubborn refusal to do anything other than make the National Super ponzi scheme the next PM’s problem.

  • Kiwi in US

    Interesting discussion – the same one as currently being held on republican talkback radio here in US