With a constant or ever-growing pool of members (workers in the case of SS), a pay as you go, intergenerational tax-and-transfer system from current to retired workers can go on indefinitely. With rising productivity and/or population, the size of the transfers can grow too. In a rich society a glitch in the growth rate of contributors can be cushioned by a supplementary tax of some type.
In a Ponzi scheme, the rates of increase of payouts are opaque to participants and deliberately set too high, the better to benefit the initiators of the scheme, resulting in an unsustainable system. That's the difference, in a nutshell. On Thu, Mar 10, 2011 at 1:10 PM, Bill Lear <[email protected]> wrote: > I'm continuing to try to understand how to articulate the difference > between a Ponzi scheme and Social Security. My basic conclusion is > that a Ponzi scheme has a criminal who steals money, whereas Social > Security does not. Secondarily, Ponzi schemes are supposed to depend > on a geometrically increasing progression of victims, whereas Social > Security does not. > > Typical Ponzi schemes blow up rather quickly, and this short time span > is often said to be the hallmark of a Ponzi scheme. See, for example, > this: http://www.socialsecurity.gov/history/ponzi.htm, where the > author states that the problem with such schemes "is that it is > difficult to sustain this game very long because to continue paying > the promised profits to early investors you need an ever-larger pool > of later investors. The idea behind this type of swindle is that the > con-man collects his money from his second or third round of investors > and then beats it out of town before anyone else comes around to > collect. These schemes typically only last weeks, or months at most." > > However, Madoff's scheme went on for decades --- the government thinks > it went on for perhaps 30 years or more --- and by Madoff's admission, > it started in the early 1990s. How did he achieve this if he was > running a Ponzi scheme? I realize that the power of a geometrical > progression can certainly alter things, but I haven't found anybody > who has yet commented on this seeming contradiction. Was Madoff simply > very "conservative" in his desire or ability to add new victims? Did he > siphon very little from their accounts? > > > Bill > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
