Saturday, September 10, 2011

Social Security Fun

Here, Tabarrok outlines a couple of views on Social Security.

Person 1: Anyone who thinks SS is a Ponzi scheme is nuts.
Person 2: SS is a Ponzi scheme that WORKS!  A growing nation is the greatest Ponzi scheme ever contrived.
Person 3: SS is a Ponzi scheme...may or may not work. Tabarrok doesn't specify this person's view.
Person 4: SS is a Ponzi scheme that used to work great, now it has just gone flat and may even pay you less than you put in.

Persons 2, 3, and 4 are all Nobel Prize winners.

Oh, a Ponzi scheme is an investment scheme where people who invest initially are paid returns from money invested by other people (or their own money) not from any returns actually made through investing (think Bernie Madoff or Tom Petters (this guy dated my cousin!!)

So, is SS a Ponzi scheme?  For more info, read the links!

26 comments:

Timothy Swonger said...

After reading the article about Social Security being a Ponzi scheme and becoming knowledgeable about a what a Ponzi scheme is, I would have to say that I agree with person 4 that Social Security used to work great, but has gone flat and may pay people less than they put in. Although, I think Social Security is good for those of us who have a hard time putting money aside from each paycheck for retirement, as long as the government continues to distribute Social Security to senior citizens.

Bre Hart said...

Social Security has Ponzi Scheme characteristics, but I wouldnt go as far to say that it's an actual scheme. It was just a short-term fix to a long-term problem. People that are paying into it now will never see it, which is a characteristic of a Ponzi Scheme.

Danielle Verdin said...

Based on my limited knowledge of the ponzi scheme, I would say that the whole SS thing has ponzi-like features (stated by Krugman). It has the features in the fact that the people that are currently putting in the money are not going to see that money. All of the money that is going in right now is being paid out to the people that are currently on SS. The people right now inserting money are not going to see the personal money they are going to have to count on either other means of retirement or hope that the younger generations put in money so that they can use that money. SS was created when there wasn’t such a high amount of people living past the level of SS. So back then in the beginning it showed no resemblance to a ponzi scheme. Now on the other hand though there has been advances in medicine that has caused there to be a higher number of people living through the age of SS, meaning there is more people to spread around so few dollars.

Nikki said...

Having read quite a few of the comments/arguments left by other people on the original article, I came to this conclusion:
SS is not a ponzi scheme, but mirrors the characteristics of one. I do not believe that when it was created, the government believed it would not fully repay the 'investors'. However, through a lack of knowledge of SS (I'll admit), I don't fully understand why they distribute so much more than you would have invested. In class tonight, we looked at the 'math', and it was determined that with employer contributions, the yearly contribution (IF you make the max of 106,800) is only 11,000. Which would roughly equate to 900/month in benefits. But a recipient that made 100,000/year at retirement was getting double that. Has the government properly invested the funds and earned money off of it, then I could see how that is feasible. I'm not sure our government did a fine job of that.
Obviously there were unforeseen circumstances, such as population growth/reduction and longer life spans, that have caused the distributions to be much larger than our current input can sustain.
Solution: Everyone have a whole bunch of kids so they can pay for your SS when you retire! I'm just kidding by the way!
Oh, and while I don't necessarily agree with SS recipients (myself included if I'm so lucky) receiving more than 'invested', we (tax payers) would still be supporting the retired generation (those that don't have savings) by supplementing their income with other welfare means.

Amy said...

PONZI PONZI PONZIIIII. Yglesias uses the 401k as an example in his article for not being a ponzi scheme. "...you work while you’re working age. You earn money. You take some of that money to buy shares in firms. ...you’ll be able to exchange those shares for money. More money than you paid for them in the first place. Why would that work? ...we anticipate that it will work systematically is that we anticipate that there will be economic growth. In the future, people will in general have more money, so assets will be more valuable." i want to say false. the 401k seems to mirror social security --such as investing money for future returns. future returns that would not be made possible without other people investing money in the same shares. the only difference is that the 401k is a self instigated investment, whereas social security is government mandated. basically, the 401k is a ponzi scheme...& so is social security. I can't agree with Samuelson because social security, when it was formed, did not put into other additions such as projected population growth and job ratios. I agree with Friedman and Krugman in that SS is a ponzi scheme & it doesn't work anymore. I like Friedman's idea that SS should be voluntary and not government mandated. He uses a good example of a person with AIDS--"who has a short life expectancy and limited financial means, yet would be required to use a significant fraction of his or her earnings to accumulate what is almost certain to prove a worthless asset." investing money voluntarily for the self is much more beneficial than investing in the government :trust fund: for social security and the whole population: that you might not even receive when you're older. As for Krugman, i agree that this cleverly mandated ponzi scheme use to work, but was poorly constructed in projecting the calculations of population and job ratios...so now it doesn't function in the way that it was intended. hopefully i'm right, but then again, i don't have a philosophy degree from harvard & my knowledge is limited. [sorry for the length.]

Lauri Hess said...

Social Security has Ponzi scheme characteristics -people are paying into it now but will never see it. I agree with person #4 that Social Security used to work great, but has gone flat and may pay people less than they put in. This is a disturbing thought about our government that they make us contribute and they are not using the money correctly and not letting us make the choice if we want to invest our own money and make a profit like we discussed in class.

Keith Kaczocha said...

I am not sure that it is scheme as much as it is irresponsible spending. We all contribute money to Social Security and I think that it is only right that it be available to us once we reach retirement. If that is not going to be the case then they should change the way that the money is taken from us. I think that our government is just spending and spending and getting our country into more and more financial debty. They should quit funding a stupid cow meuseum for instance and start focusing on the people. There is so many Americans falling into the poverty zone that it is just crazy and doesn't seem right. While all those politicans and government people sit on their six figure incomes and don't have any care for the rest of America.

Andrew Schadegg said...

Yes it has some Ponzi characteristics but it sounds more like the typical American complaint to me. When SS started it worked great. Many people who were unable to save money during hard times could rely on it as they became close to retirement. Today we have many other options for saving and investing and don't necessarily need to rely on it. Yes it would be great to be able to trust our government and have that added security, but who can really trust the government? I feel that it is each and every one of our own responsibilities to get educated and protect our own finances and spending. The SS tax will continue to rise and be obsolete to us because of population growth and inflation and many other factors. Maybe if they lowered the tax and allowed the government to catch up on what is due may help and may allow a SS fund to be available to us as we reach retirement. Until then I would rather worry about my own 401k or other investments to guide me into retirement and quit looking toward the government for handouts!

Vickie Snell said...

I would not call SS a Ponzi Scheme, but it might as well be one, because we are currently adding to it, but may not see any benefits from it. I think the only difference between SS and a Ponzi Scheme is that, in a Ponzi scheme we can participate or walk away. But with SS we have no say so of our money. I hear so much being said about SS benefit being totally exhuasted in the year 2040. I would like to hear about some solutions that would fix the current SS problems. I do feel that if I had control over my money I would make the best investment choices for my retirement.

Ahmed AL Hassan said...

Ahmed AL Hassan,
according to my limited knowledge about the Social Security, I think the simple meaning of Ponzi Scheme we discuss in class gave me a little bit of the idea. In fact, I couldn't decide to whether be in this side or the other because I haven't lived my life owning my Social Security. Moreover, I'm international and I keep thinking about how if we apply some of the rules here back in my hometown. What would be the consequences of that?.
Second, based on the discussion in the class we had, people who are making the effort to pay that amount, will never get paid later from what they were kept paying. It's a whole debate about that issue.

Arianna Findlay said...

I agree with person number 4. The concept of social security, and the way it's supposed to work is a good idea, but obviously the resources have run out. There isn’t enough money in the social security fund to give a proper pay out. I think everyone should just start their own method of savings, and if they aren’t good at saving they should get good at saving. It doesn't seem like Social Security is going to be around for much longer.

Mary Beth Renz said...

I do not think that Social Security is not a Ponzi scheme. To me, it is a system that is like an insurance policy, and there is not enough money put in because the tax is too low and there is not enough money put in for how much is used. Just as the article stated, I do agree with Krugman, social security does have ponzi-like aspects and it is “crummy returns for average workers”. It is a social system that has gone broke. Social security is an unintentional fraudulent operation because it is not intentionally trying to rip you off.

Erick Holzhausen said...

Ponzi schemes are intentionally created to prosper the creator. Not saying the government might not have benefited in some way throughout the years from Social Security, but in my opinion SS reflects some major personality traits of a ponzi scheme. I'm not one hundred percent sure you would label it as a ponzi scheme due to the direct intentions of what it is trying to accomplish. Although, for this discussion I would have to lean towards person 4. There are currently more people taking out of SS than there was 30 years ago when SS probably sounded like a master-mind plan. Due to all of the baby boomers and the fact that my generation probably won't see a dime after putting thousands away throughout our lives, we can classify this as a system with ponzi scheme traits.

Una Kim said...

I was unsure what a ponzi scheme was but now that I know, I could see why it is seen as a ponzi scheme. It does have those characteristics but i wouldn't go to far into saying it is completely a ponzi scheme. Although the other novelists were very conviencing, I agree most with Krugman as well.

Anonymous said...

SS is like a ponzi scheme. SS worked great when the nation was growing and there was a pyramid with lots of children and very few elderly. Now SS is failing because all the baby boomers are old, so there's a lot of elderly, and their living longer. SS was not ment to be a ponzi scheme but it has turned into one.

Anonymous said...

Torie fuller wrote that^

Eng Hong Sin said...

I agree with what person 4 said. I would say that SS works everywhere. Back to the past, the country was growing. It used to work great and most of the retired folks get the benefit from SS. Nowadays, the growth rate is low and the inflation is great. Also, the return of returning from investment is not guaranteed. Eventually, the people could only get the paycheck less than what they put in. Personally I think that SS is just a bonus for retired folks. Retired folks should not rely too much on SS.

KristinK said...

Social security to me is exactly what person 4 said. It may have had great, helpful, wonderful intentions at first, but now it is not worth it. All of us paying now I believe won't see any of it later on in life when it's "our turn". It's pretty depressing if you actually think about it...all this money just gone from my checks. The government needs to get rid of it. But if some brave soul does do that, then they of course won't get a vote from the majority of the nation once it comes time for election. So in the heck who would commit political suicide like that? Nobody.

Chris Yang said...

Yes SS has some Ponzi characteristics and I agree with person 4. When SS started it worked great because many people who were unable to save money during crucial times could rely on it after they retired. These days there are many other options for saving and investing, so SS is kind of obsolete because of population growth is constant, inflation, and many other factors. I think each and every person should be financially knowledgeable and find solutions other than the government.

Shirley Paris said...

Social Security has elements that are similar to a Ponzi Scheme but i do not think it is entirely meant to be. I do not think that the younger generations should be paying for the older. The government should not even be touching the money people put into for social security.

C'Anne Reichert said...

SS may not have started out as a Ponzi scheme but over time it’s starting to look like one… Back in its heyday it was far from a Ponzi scheme working efficiently and as the government had planned. Unfortunately, like most government policies they weren’t able to completely project how it would affect the future generations and it decayed over time. These days SS mimics a Ponzi scheme in the way that they take from the younger generations to give to the older generations, in turn promising the younger generation that they too will see a return on their money invested when they meet the age required to obtain benefits.

Faith Evans said...

Yes Person 4 I concur. Sounds like a Ponzi scheme and if it were still working would be great, but the fact that we are paying into something that may not be available as a future benefit is very frustrating.

Madeline Newton said...

last year a man from SS can to my sociology class and tried to convince us that SS is not running out but you do need to save money now to retire on and not just rely on this alone since we are living much longer then expected when SS was first established assuming life expectance for 65+ collecting SS would be over in think 15 years later? not sure on that number but you get it. my own great grandparents are STILL alive and in their 90's they even say this is the GREATEST Ponzi scheme ever and this will run out and i will never see it. They laugh and say they are draining it because they just arent ready to die yet. The elderly population (baby boomer generation) is very great and they are living well past anticipated years when SS was first created, it has gone flat and will soon implode. Most of us will not see any amount back at this rate I do not think.

Melinda Spitzmiller said...

Social Security can be looked at as a Ponzi Scheme because they have similar characteristics. The government is taking money from the working class and giving it to the retirees. The problem is people paying into social security today will not see a dime when they go to retire. Now people are working longer and retiring later. When people of my generation go to retire there will be no social security because there will not be enough people working to suppliment all the retirees.

Dana Bartels said...

I have an optimistic view of our future SS benefits. I agree with person #2 that SS is a Ponzi scheme that works. I want to learn more about SS and what is will do for me and my family. What research shows the SS system will be gone? If we're continuing to pay into SS then how will the money be gone for us when we need it?

Andrew S. said...

Without a growing working force as will never survive.