David B. Shemano wrote: > To the extent that we think of social security as a self-funded transfer > arrangement, then it is a ponzi scheme, in the sense that it "pays returns to > separate investors from their own money or money paid by subsequent > investors, rather than from any actual profit earned." ... <
Unlike a Madoff scheme, OASI, the social security system is not an investment plan aimed at making a profit either for its trustees or its contributors. Rather, it's more of an insurance (risk-pooling) plan, where people are insured against poverty in their old age. (In fact, the "I" in its name stands for "Insurance.") As such, it's very efficient compared to private programs, since it has such low administration costs. With a real Madoff scheme, there have to be an increased number of contributors (buying shares) each year because the purchasers of shares in previous years have to be paid dividends. The fact that new share-holders have to be brought in makes the problem worse, so it's "inherently unsustainable, doomed to blow up, because of the imbalance between payouts and in-go," as Max says. In math terms, with a Madoff scheme, to keep the inflow of money buying shares equal to the outflow of money to pay dividends constant (ignoring the rake-off by the con artist running the scheme), the number of _new_ purchases of shares is proportional to the total number of previously outstanding shares, holding the share purchase price and dividend pay-out rate constant. With OASI, on the other hand, the problem is not the need for an increasing number of new contributors. Rather, the problem (in theory) arises because of the decreased size of the entire tax base (not just new members) relative to the number of beneficiaries. With OASI, to keep the inflow of tax revenues equal to the outflow of benefits (ignoring administration costs and the trust fund), the _total_ number of people paying the tax is proportional to the total number of beneficiaries, holding the tax per person and the pay-out per person rates constant. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
