Gov. Rick Perry has drawn a lot of criticism for calling Social Security a “Ponzi scheme,” but the fact is that it bears more than a passing resemblance to one. In both cases earlier participants can only get their money back if new participants join; in both cases no wealth is actually created; in both cases the earlier participants get a better return than the later ones; and in both cases the system is unsustainable. But of course there are also differences. Ponzi schemes are run to make their originators a profit. The federal government is running Social Security at a loss that is set to increase.
And Social Security, unlike a Ponzi scheme, can be reformed to be made sustainable. Slow the growth of benefits sufficiently, for example, and the program’s fiscal gap will disappear. Its disincentive effect on saving, and on delaying retirement, would also diminish. But neither Governor Perry nor his principal critic, former governor Mitt Romney, has offered any specific proposals on Social Security, and both of them run the risk of setting back the cause of reform.
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