Raghu writes: >> On Fri, Dec 19, 2008 at 6:19 AM, Jim Devine <[email protected]> wrote: >> > [Has the financial industry really been a Ponzi scheme, i.e., paying >> > current dividends by selling new assets? Right-wingers used to call >> > the US social security system (OASI) a "Ponzi scheme," but that was >> > totally bogus...] >> >> >> Every bubble is by definition a Ponzi scheme, so to the extent the >> financial system is dependent on asset bubbles (rather than fee based >> income), it is a giant Ponzi scheme. >> >> But I think the term Ponzi is either widely misunderstood or >> deliberately misused to mean all pay-as-you-go schemes such as Social >> Security that involve ongoing borrowing in perpetuity. The way I >> understand it, the difference between Social Security and "true" Ponzi >> schemes is that (as long as demographics are stable) SS does not >> necessarily imply an ever-increasing amount of borrowing. On the other >> hand, US current account deficits do have the characteristics of a >> Ponzi scheme because it involves seemingly ever-increasing borrowing >> levels to roll-over current obligations and to fund current >> consumption.. >> -raghu.
A real Ponzi scheme has three fundamental elements (1) a talented con man to convince fooliish/greedy/etc. people to give him money in exchange for unrealistic returns, (2) the nominal business activity is a sham and the real business activity is simply convincing more people to give money, and (3) the scheme continues to exist until the promised distributions exceed the amount of money the con man is able to raise. As for social security, element (2) is met, because contributors misleadingly believe that the money they pay belongs to them and misleadingly believe that the funds are invested and appreciating, when in fact social security is simply an additional tax paid to the general treasury and there is no legal requirement the government pay a penny back to them. Element (3) is arguably met, because the scheme can only work to the extent that the government can collect enough money from new contributors into the system and that will end soon enough based upon existing levels of taxes and benefits. The only way to argue that element (3) is not met is for the government to admit that social security is not an independent fund and payments are made from general tax revenues (but there is no legal requirement), but then the program loses all of its aura. Therefore, the real difference is element (1). While a real Ponzi scheme requires a talented con man to convince people to give him money, the government doesn't give you a choice of whether you should participate. So Jim is right, social security is not a Ponzi scheme. David Shemano. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
