We had an interesting discussion in class the other day about Social Security as Ponzi scheme. It very clearly is a Ponzi scheme: money collected now is used to pay beneficiaries now, on the assumption that more money will be available to pay the current payers later.
Some people have argued that we should be investing money now, because the interest on the investment would be the best way to pay for future benefits. The problem with this is that interest rates are generally lower than population and economic growth rates. That's why Social Security was set up the way it was: if you put the money away now, it will grow at the interest rate; but if you just wait, the tax base will get bigger, and at a faster rate than interest.
Obviously the problem with this is that the population doesn't grow at a constant rate, and that lifespans and healthcare costs are changing thanks to technology. But it's worth taking a moment to admire how smart the initial design was: over time, it's a money maker both for the beneficiaries (taken in aggregate) and the government. Notice how it's been running a surplus for most of its history.
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