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IPFS News Link • Social Security

Social Security Is Not a Ponzi Scheme

•, by Jacob G. Hornberger

A Ponzi scheme involves investors, who are induced to invest in a particular product on the promise of a large return on their investment, say, 25% after one year. At the end of the year, when that 25% return is due to be paid, there is insufficient money to pay off the investors because the organizers of the scheme have spent the money on themselves. So, they use the money from new investors to pay off the old investors. This process goes on and on until one day new investors cannot be found. That's when old investors don't get paid off because there is no money to pay them. That group of investors, who have clearly been defrauded, gets caught holding the bag and loses everything.

That's not the way Social Security operates. There are no investments when it comes to Social Security. That is, no one invests his money in the Social Security system.

Moreover, contrary to popular belief, people do not "put their money" into the Social Security system or into a Social Security "fund." That is, Social Security is not a retirement account, like an IRA, where people send their money each month or where an employer withdraws a certain percentage of a person's income and puts it into a retirement fund.

Social Security is nothing more than a welfare program, one that is no different in principle than, say, food stamps. In the case of food stamps, the welfare ostensibly helps the poor to buy food. In the case of Social Security, the welfare helps seniors to buy food, housing, vacations, golf balls, or whatever else they wish to spend the money on. It's essentially a retirement pension that the government is giving people.

Let's assume that the American people went without Social Security for more than 100 years (which is actually the case). Suddenly, the government decides to enact a program by which the government is going to provide a retirement stipend to everyone who is 65 years or older.