# Are Social Security & Medicare "Ponzi schemes" or not? **URL:** \ **Category:** Great Debates\ **Created:** [June 15, 2010, 2:57am UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249 "2010-06-15T02:57:18Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 6:23pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/61 "2010-06-15T18:23:25Z")
> [@Steve\_MB](#): > > Benefits are based on FICA-taxed income (both being capped at a certain amount). This is an essential linkage to preserve the concept that Social Security is an insurance program rather than a welfare-payment program. Well, you can raise the cap to a billion dollars and achieve much of the same result. ---
**Author:** ![A.Selene](https://avatars.discourse-cdn.com/v4/letter/a/3ec8ea/32.png) [@A.Selene](https://boards.straightdope.com/u/A.Selene)\ **Post date:** [June 15, 2010, 6:32pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/62 "2010-06-15T18:32:32Z")
> [@Voyager](#): > > Well, a raven is like a writing desk also. I think it is very clear that those who call Social Security a Ponzi scheme are trying to scare people. It is also like many other things which are not scary. > > Now, the fact is that it is not necessary for there to be an increasing number of people to fund the system in principle. The problem we are running into today is that people are living far longer than envisioned when the system was set up. If some horrid disease killed everyone at 75 the system would be awash in money. No one who supports Social Security denies that there has to be some tinkering with the system in order to adjust for the demographic situation expected. We’d just like conservatives to follow in the footsteps of St. Ron and face the situation squarely, without accusations of fraud or even saying it isn’t a fraudulent scheme, it just shares many of the characteristics of a famous fraudulent scheme. You’re right in that it is compared to a Ponzi scheme to scare people, and that it is not an all together fair comparison. I guess in this case, I’m all right with being a little scared, and if it takes a comparison that is unfair in some ways but illuminates a problem with some relevant similarities, I’m OK with that. When you project out the spending for the entitlement programs, things start looking pretty scary to me. ---
**Author:** ![Xema](https://avatars.discourse-cdn.com/v4/letter/x/9de053/32.png) [@Xema](https://boards.straightdope.com/u/Xema)\ **Post date:** [June 15, 2010, 6:36pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/63 "2010-06-15T18:36:03Z")
> [@ElvisL1ves](#): > > But not to Social Security, whose cash flow imbalances can be fixed, i.e. is sustainable with only some basic management. Any evidence of that “basic management” being exercised - or politically feasible? Something that’s theoretically possibly but never seen and highly unlikely may not be important in discussing likely future trends. > [@](#): > > There are many who think SS is an investment, that you have an account you pay into that you withdraw from after retirement. It is nothing of the sort, it is a transfer system, not an investment at all. Quite right - but you need to explain that to the SS Administration, which is happy to send you a summary of your “account”. > [@](#): > > He didn’t. He said the \*number of payers \*must necessarily increase. That’s false; it doesn’t. He said (in post#25, to which you responded in #32) “The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.” So he said the money must increase, whereas you are claiming he said the number of payers must increase. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 6:41pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/64 "2010-06-15T18:41:05Z")
> [@Steve\_MB](#): > > Don’t tell me; tell the politicians who sell the program on that basis. But it does in fact work like insurance in many ways. Is it exactly like commercial insruance policies? No. Does the trust fund operate exactly likea commercial insruacne company? No. Does taht mean its a Ponzi scheme? No. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 15, 2010, 6:50pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/65 "2010-06-15T18:50:34Z")
> [@Xema](#): > > Any evidence of that “basic management” being exercised - or politically feasible? Something that’s theoretically possibly but never seen and highly unlikely may not be important in discussing likely future trends. [The 1983 Amendments.](http://en.wikipedia.org/wiki/Social_Security_(United_States)#The_1983_Amendments). It is a bit rich for those trying to scare people by calling it a Ponzi scheme complaining about it being politically infeasible to make the small changes necessary. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 6:51pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/66 "2010-06-15T18:51:20Z")
> [@A.Selene](#): > > Others not suffering from a severe case of eyerolls see the other similarities and their importance, and recognize that SS is currently failing. Not doomed to fail, it could be fixed, but it is currently failing, just as a Ponzi scheme would. I think that ignoring absence of the fraud element of Ponzi schemes while at the same time using the word Ponzi to try and discredit SS is what makes break out with a case of the eyerolls. The fact that SS is not fully funded, the fact that SS is largely a system of transfer payments does not make SS a Ponzi scheme. The Ponzi scheme characterization is not an attempt to accurately reflect SS, it is an attempt to ignore the more accurate descriptions that already exist. It is similar to the attempt to redefine the esatte tax as a death tax. Yes it is a tax that was imposed upon death, but ONLY if you had an estate worth over $3.5 million. I have 6 brother in laws and a sister who are doctors, I have a sister and a sister in law that are lawyers, 3 pharmacists and more MBAs than I think society needs and the vast majority of them think that my mother (who impoverished herself sending us all to college and graduate school) is going to be subject to the estate tax. I see this characterization of the SS system as a Ponzi scheme as similarly dishonest and ultimately unsuccessful attempt to demonize social security on something other than the merits because the actual merits will put people to sleep. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 6:54pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/67 "2010-06-15T18:54:11Z")
> [@Voyager](#): > > That’s easy - pure demagoguery of the same order as calling Obama a Socialist. Social Security is kryptonite to radical conservatives - a widely liked government program, efficiently run, and successful for almost 80 years. Note how in this thread one year of negative cash flow - not surprising during the worst recession in 80 years - is reason to say Social Security is failing. It just goes to show the bankruptcy of conservative economic thought. That is the problem. it is well liked and well run. But like medicare the benefits are too high adn the charge is too low. But unlike medicare, SS can sustain itself with a minor tune up. Medicare requires rebuilding. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 6:56pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/68 "2010-06-15T18:56:50Z")
> [@Voyager](#): > > Oh, Ponzi schemes have been around for a lot longer than 80 years, but no single one has lasted that long - or can by its very nature. Well if I start a Ponzi scheme today and don’t recruit anyone for 80 years i suppose… ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 7:01pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/69 "2010-06-15T19:01:02Z")
> [@Xema](#): > > One candidate could be the “I” in FICA - as run, it little resembles any real form of insurance. Well SS has: a death benefit, classic insurance and annuity benefit, once again classic insurance disability benefits, once again classic insurance Which part of the benefit is not like insurance? What it doesn’t have that most insurance has is a fully funded reserve, it is only patrially funded by a 2 trillion dollar trust fund but probably has a current reserve liability in the tens of trillions. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 7:10pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/70 "2010-06-15T19:10:51Z")
> [@A.Selene](#): > > I was not meaning to neglect fraud, and you are absolutely right on that point. Just to make it clear: SS is not a Ponzi scheme. But in some ways, it is **like** one, which is the point I have been making in this thread. OK, if we stopped calling SS tax the SS tax and just rolled it into the income tax, and we simply paid retirees the exact same money, would you call it a Ponzi scheme? Probably not, you would call it a tradsnfer payment from current income earners to retirees. But once we segregate out the cost of paying for the benefit it becomes a Ponzi scheme? > [@](#): > > This growth of payers has been necessary to pay for the increase in retirees. this is a demographic issue that is fixable with slight adjsutments in pay ins and pay outs, Ponzi schemes cannot be fixed. > [@](#): > > If we look at the demographics of the US, it becomes clear that this trend will continue. The biggest factor in the ss crisis has been the increase in life expectancy, I don’t think this can go on forever (at least not at the same rate as we have seen in teh alst 20 eyars). > [@](#): > > Is it really that hard to see that? I can also see parallels betwen women who engage in pre-marital sex and hookers (they both engege in sex outside of marriage), that doesn’t mean that I can go around calling these women hookers because there is a pretty essential element missing that distinguishes the two. And when you call SS a Ponzi scheme, youa re not just saying that SS is a transfer payment system, you are implying that it is a fraud and the reason people want to use the word ponzi is because they want to demonize SS by using a label that doesn’t accurately describe it. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 7:16pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/71 "2010-06-15T19:16:37Z")
> [@The\_Second\_Stone](#): > > No, it is not sufficiently like a Ponzi scheme to apply that name except for disinformation purposes and riling up the peasants. Well in case you haven’t noticed, that is the point. Were you born yesterday? > [@](#): > > Social security simply is not a good investment because most people get far less in benefits than they put in. Thats not exactly true. Under the current scheme, everyone that lives to their life expectancy earns a positive rate of return. Those who earned about the minimum wage earn rates of return that you can’t get from junk bonds these days. > [@](#): > > People getting benefits get a minimal amount of money each month with which to pay for food and shelter, and it doesn’t really cover that, but for those people, it is the essential nut every month. Social security for those who have contributed the maximum is over $2500/month I believe. You can’t live in NYC for that but you can live in Costa Rica for that much. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 7:20pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/72 "2010-06-15T19:20:32Z")
> [@Voyager](#): > > And the problem with Medicare is rising health care costs in general - exactly the same problem private insurers have. Obama was very clear that without cutting health care costs the federal budget was going to be unsustainable. Republicans shutting up about “death panels” would be helpful too. Reagan did a good job building a bipartisan consensus on this, I wonder if the reason was that he didn’t grow up rich and knew how important Social Security was for people other than fat cats. I think the reason Reagan was able to get so much done was that his opposition was reasonable and did not put party before country. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 15, 2010, 7:22pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/73 "2010-06-15T19:22:32Z")
> [@Xema](#): > > Quite right - but you need to explain that to the SS Administration, which is happy to send you a summary of your “account”. My statement of account doesn’t give me a cash value, it merely informs me of my current ebenfit level. it doesn’t say “you paid $100 and you have earned $27 on that moeny since you gave it to us” ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [June 15, 2010, 7:30pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/74 "2010-06-15T19:30:57Z")
> [@Voyager](#): > > The government issues bonds even when there is a surplus. So, the state of the government deficit has no bearing on what Social Security does with their surplus. > > What do you mean by “put away?” Put in a mattress? Put in a lock box? Put into investments that can’t go down, like mortgage CDOs? If I have a surplus in my life, and I choose to buy T-bills with it, am I not putting the money away? > > Sure I understand that conservatives believe the government has no future - and when in power, they seem to do the best to make that prophecy come to pass. The rest of the world disagrees, as shown by the flight to treasury notes due to the uncertainty in Europe, causing their interest rates to drop. The social security trust loans the money to the treasury to fund general government spending. So the government is loaning itself money. The money has to be paid back…with interest. And, yes, the state of the government deficit is masked by what Social Security does with their surplus. You are correct that, in the end, a surplus here but a deficit there is really no different than just one big deficit. Nonetheless, when the bills need to be paid from the SS fund, that money must come from somewhere. This will mean more borrowing to repay the fund or cuts to other programs. ---
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [June 15, 2010, 7:38pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/75 "2010-06-15T19:38:24Z")
Or by raising tax rates, or income caps (I’d like to see them removed altogether), or making rates progressive (SS taxes are as regressive as any could be), or taxing other sources than payroll (like unearned income, for instance). Or by reducing payouts, either across the board or by adding means tests. Or some combination, of course. There’s lots of ways to do it, all of them relatively easy and not that painful despite inevitable bellyaching, but all of which present opportunities to try to claim it’s all hopeless anyway. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 15, 2010, 7:38pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/76 "2010-06-15T19:38:48Z")
> [@Damuri\_Ajashi](#): > > I think the reason Reagan was able to get so much done was that his opposition was reasonable and did not put party before country. His opposition always supported Social Security, and was not going to offend their base just to be negative. Reagan was the one who might have been ideologically opposed to fixing it - just look at Bush II. But that was back when there was a speck of honesty and decency in the Republican party. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 15, 2010, 7:45pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/77 "2010-06-15T19:45:48Z")
> [@yorick73](#): > > The social security trust loans the money to the treasury to fund general government spending. So the government is loaning itself money. The money has to be paid back…with interest. And, yes, the state of the government deficit is masked by what Social Security does with their surplus. > > You are correct that, in the end, a surplus here but a deficit there is really no different than just one big deficit. Nonetheless, when the bills need to be paid from the SS fund, that money must come from somewhere. This will mean more borrowing to repay the fund or cuts to other programs. So? When any T-bill has to get repaid the money must come from somewhere. If we restructure the program, by raising the cap, for instance, so that we keep running a surplus or at least stay even, then the bonds coming due can be funded by new bonds from the continuing surplus. If the government didn’t borrow the money from Social Security, they’d borrow it from China. Do you think that would be better? Sure a government surplus would be even better, but the very people complaining about Social Security screwed the pooch on that one. You still haven’t answered where the money should go instead. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 15, 2010, 7:51pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/78 "2010-06-15T19:51:16Z")
> [@Damuri\_Ajashi](#): > > Social security for those who have contributed the maximum is over $2500/month I believe. You can’t live in NYC for that but you can live in Costa Rica for that much. I’m getting to the age where I pay attention to these things. While I never have thought SS will go away, I did assume that the payment would be fairly trivial compared to the income I could expect from my investments - kind of like my pension from Lucent, the vestige of the old AT&T that took it over. However, when I actually looked, SS raises my expected income fairly drastically, especially if I wait until 67 or so to start collecting. ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [June 15, 2010, 7:58pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/79 "2010-06-15T19:58:21Z")
> [@ElvisL1ves](#): > > Or by raising tax rates, or income caps (I’d like to see them removed altogether), or making rates progressive (SS taxes are as regressive as any could be), or taxing other sources than payroll (like unearned income, for instance). Or by reducing payouts, either across the board or by adding means tests. Or some combination, of course. > > There’s lots of ways to do it, all of them relatively easy and not that painful despite inevitable bellyaching, but all of which present opportunities to try to claim it’s all hopeless anyway. None of these ideas will be easy. The income caps are there because there is an upper limit in benefits per year. The amount we pay in is related to the amount we receive on a yearly basis. In order to remove the caps you have to re-sell the program as a wealth transfer vehicle as opposed to an insurance policy. ---
**Author:** ![yorick73](https://avatars.discourse-cdn.com/v4/letter/y/b5a626/32.png) [@yorick73](https://boards.straightdope.com/u/yorick73)\ **Post date:** [June 15, 2010, 8:06pm UTC](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249/80 "2010-06-15T20:06:26Z")
> [@Voyager](#): > > So? When any T-bill has to get repaid the money must come from somewhere. If we restructure the program, by raising the cap, for instance, so that we keep running a surplus or at least stay even, then the bonds coming due can be funded by new bonds from the continuing surplus. If the government didn’t borrow the money from Social Security, they’d borrow it from China. Do you think that would be better? Sure a government surplus would be even better, but the very people complaining about Social Security screwed the pooch on that one. > > You still haven’t answered where the money should go instead. I have no idea where you are going with this. We all know that there are no partitions between different “funds” within the government so any surplus in one place will be used to fund deficits in another place. Is there a way to stop the SS surplus from being spent elsewhere? Beats me. But, since we pay a specific tax for a specific program that is supposed to benefit us at a later time, maybe we should stuff any surplus into a big government mattress. [Previous page](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249.md?page=3) [Next page](https://boards.straightdope.com/t/are-social-security-medicare-ponzi-schemes-or-not/543249.md?page=5)