http://pyramidschemealert.org/is-social-security-a-ponzi-scheme
Here are the main points from that page --
...
Fact, Not Opinion: Social Security Is Not a Ponzi Scheme
Here’s why:
• Social Security does not require an ever-growing base of new contributors. It is sustainable.
• The rate at which we each contribute to Social Security is calibrated to be sustainable, and if there’s a big change – in birth or death rates or unemployment – it can be recalibrated.
• Social Security does not employ concealment or deception. It is fully disclosed.
• Social Security is exactly what it claims to be, a mandated, government operated insurance program. It is not a private, individual investment program. It is a national, social insurance system. As in all legitimate insurance, the transfer of money is intentional and financially sound.
Social Security’s sustainability is a matter of mathematically verifiable fact, not opinion. Ponzi schemes, which are not sustainable and which rely on deception, are identifiable. They have traits that separate them from legitimate sales businesses, insurance and investment programs. This is a matter of fact, not opinion. ...
Fact, Not Opinion: Social Security Is Not a Ponzi Scheme
Here’s why:
• Social Security does not require an ever-growing base of new contributors. It is sustainable.
• The rate at which we each contribute to Social Security is calibrated to be sustainable, and if there’s a big change – in birth or death rates or unemployment – it can be recalibrated.
• Social Security does not employ concealment or deception. It is fully disclosed.
• Social Security is exactly what it claims to be, a mandated, government operated insurance program. It is not a private, individual investment program. It is a national, social insurance system. As in all legitimate insurance, the transfer of money is intentional and financially sound.
Social Security’s sustainability is a matter of mathematically verifiable fact, not opinion. Ponzi schemes, which are not sustainable and which rely on deception, are identifiable. They have traits that separate them from legitimate sales businesses, insurance and investment programs. This is a matter of fact, not opinion. ...
Regarding the first bullet point above, note that the OASDI trustees report from 2011 discusses the unsustainable imbalance between Social Security's income and costs, due to the increase in retirees vs. workers —
http://www.ssa.gov/oact/tr/2011/II_E_conclu.html
https://archive.is/L4mcb
So even in 2011 when that pyramidschemealert.org page was written, Social Security was in trouble because the costs were already exceeding the program's income, since the number of workers had not increased to overcome the increased number of retirees drawing benefits due to the aging baby-boom generation. In other words, the first bullet point is clearly false — Social Security requires a much larger number of workers paying into the system, than retirees receiving benefits, or it won't perform well (never mind failing).
Also, notice this article from a fellow at the Brookings Institution that repeats this point about the imbalance, but goes on to claim there's no immediate problem. Why? Because the interest income on the trust fund is NOT being counted, and that the nation's private pension system is also normally in this 'cash negative' situation — of course, the author of this article doesn't mention the obvious point that Social Security's interest income is paid from taxes, since the so called Social Security 'trust fund' holds government treasuries, so any Social Security income is yet another expense that must be paid by future taxpayers — that is, the so called income from Social Security's 'investment' must be paid by the plan participants — this is certainly not the case with private pension plans holding real investments that generate income that is not paid by the plan participants —
http://www.brookings.edu/research/opinions/2011/11/16-social-security-burtless
Going back to the pyramidschemealert.com bullets, the second bullet point listed above is using euphemistic language that explains nothing. Of course, Social Security can be 'recalibrated' to even further reduce the return — this is something that has already happened (such as raising the retirement age), and will continue to happen — this has no relevance to the question of Social Security being a Ponzi scheme. How does making Social Security even less effective by 'recalibrating' it, make it NOT a Ponzi scheme. Charles Ponzi could also have 'recalibrated' his postal coupon scheme by paying investors a much smaller return to make that fraud seem sustainable.
The third bullet point above is a total non-sequitur — disclosing the structure of anything has no effect on what the structure actually is, and whether that structure constitutes a Ponzi scheme.
The fourth bullet point, that states Social Security is an insurance program, confuses the nature of insurance. Insurance plans are risk pools that pay out for uncommon events. This must be the case for an insurance plan to be economically viable, since insurance plans must pay out less than they collect in premiums to remain solvent. So, insuring a regular expense must cost more than the expense itself. Who will not draw on SS when they reach retirement? Every SS contributor will draw benefits when they retire, making it impossible for SS to function as a typical insurance plan, taking in a small fraction of the normal benefits it pays to a beneficiary. This is 'Sandra Fluke Insurance' — trying to fund a risk pool for normal expenses that have close to a 100% probability of occurring, with a fraction of that cost (think of why you can't buy 'Grocery Insurance' to cover your food costs — the plan would have to cost more than the typical person spends on food, so it wouldn't be cost effective to purchase such insurance, even if it were offered).
Here's another odd quote from the same page on pyramidschemealert.org --
The program pumps $727 billion into the economy in benefits each year. Additionally, the reserves are invested in our government bonds and earn interest.
This is an obvious begging the question fallacy — where did the $727 billion come from? Social Security payments to beneficiaries must be taken out of the economy before they can be paid. It's absurd to claim that such payments benefit the economy — Social Security payments must be a net loss to the economy, after administrative costs (however small) are taken into account. And note, again, the fallacious statement that the interest paid on government treasuries should be viewed as income, and so taxpayers who must make these interest payments should view them as a benefit.
There is one crucial respect in which Social Security is not a Ponzi sheme — Charles Ponzi had no way to force people into his scheme, so it had to fail before it could harm the entire population. Given the ability of government to force people into Social Security, it's inevitable that the entire population will suffer. Notice that the vast majority of even current recipients receive less than they would have, had the money simply been put in bank CDs — so the vast majority are already being made to suffer, since even if Social Security were sustainable, it's a bad investment —
http://research.stlouisfed.org/publications/review/05/03/part1/GarrettRhine.pdf
And here's an interesting quote from a 1967 Newsweek article by the famous economist Paul Samuelson that highlights the assumptions that supported the belief in Social Security --
https://www.princeton.edu/~dixitak/home/PASLegacy2_WP.pdf
http://www.economicpolicyjournal.com/2011/09/samuelson-thought-social-security-was.html
The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times (or five times counting employer payments)!
How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population.
More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.
Social Security is squarely based on what has been called the eighth wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived.
Well, we all know how that turned out — you can't assume a constant population growth (even if you could, wouldn't that create another set of problems?). Social Security desperately needs to be reformed — it's already in the process of failing —
http://www.cato.org/sites/cato.org/files/pubs/pdf/PA689.pdf
But reform isn't possible when a majority of people are determined to pretend there isn't problem.
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