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Is Social Security a Ponzi Scheme?

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I'm no fan of SS, but neither do I claim special knowledge of it. This video pretty much sums up my not-so-well-educated feelings about that system. I'd be interested in the opinions of the group.

As a not so small issue, I'd point out that a Ponzi scheme differs from a Pyramid scheme (in a Ponzi scheme all follow-on investors are dupes; in a Pyramid scheme follow-on investors must seek out their own subsequent victims).



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There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. - Ludwig von Mises

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A Ponzi scheme is built up by pretending to invest money, but actually simply keeping it in a bank account. Disbursements are into the perpetrator's pocket and in "return on investment" payments that make it look like the perpetrator is doing really well on investments, which draws more investment from the original investor and also new investors. It grows until influx of new money slows and the bank balance slips to zero.

A pyramid scheme is one in which each investor pays once, and is repaid by new investors; the profit depends on getting new people to buy in. Chain letters in which you send $1 to the name at the top of a list, delete that name, then add your name at the bottom, then send the leter to 10 other people is an example of a pyramid scheme.

A Ponzi scheme pretends to be an investment fund, when in fact there are no investments, and the money comes from the same people as well as new people. The money that the perpertrator takes for himself is not known to the people who think that their money is being invested. Thus a Ponzi scheme is basically a big, centralized fraud.

A pyramid scheme is transparent in that each investor knows what he/she is gettting into at the beginning. They fail because the number of people that would "ideally" be involved exapands exponentially with each new round of "investors." For example, if your list has 10 names and you send it to 10 people, then theoretically, after everyone sent in their $1 and send the letter on to 10 others, you would get 10^10 dollars or $10T. However, there aren't that many people in the world. Thus, it's not fraud, it's just dumb.

Both are zero-sum games with no income; the amount paid out is equal to the amount "invested."

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