The Great American Pyramid Schemes

Donald Trump has promised to make America great again. He may have a bigger task on his hand than he previously thought. The American social life is plagued by many erroneous policies of the past government. It will take a lot of hard work to get rid of these policies. This is because these policies are detrimental to the general population to the point that they swindle the money of honest taxpayers. However, these policies are immensely popular with the poor. Hence, abandoning these policies is a political necessity but an economic nightmare.

These policies are entitlement schemes that are in place for an average American. The biggest amongst these schemes is social security. Several eminent economists have repeatedly called it a “Ponzi Scheme” or a pyramid scheme. However, the charges have often been refuted. In this article, we will discuss in more detail about social security.

The Argument for Social Security Being a “Ponzi Scheme.”

Several governments in the United States and the world have used handouts strategically to gain power in the country. That is also the case why social security has come into existence. It is a redistribution plan. Even though it appears that the amount of money you put in has a correlation to the amount of money that you get in the future, social security is simply a way to redistribute money. Social security is said to have aspects of the Ponzi game since it allows each generation to take out more money than they have deposited. This may be possible if the demographics remain unchanged. However, any change in demographics will cause this scheme to collapse. Social security, therefore, stands on the unstable economic ground. It needs A to pay money and transfers the same money to B.

The Argument against Social Security Being a “Ponzi Scheme.”

The argument against social security being a Ponzi scheme states that it is a pay-as-you-go scheme. There are differences between Ponzi and pay as you go schemes. Ponzi schemes are inherently unsustainable. They require more and more people to pay into the scheme for the system to continue. On the other hand, pay-as-you-go schemes do take money from one set of people and redistribute it to other. However, that is where the similarity ends. The scheme does not have to grow in a pyramid manner, and more and more people do not have to be included to make the scheme sustainable.

It needs to be noted that social security was launched at a time when the average American age was 61. The scheme was supposed to pay out money to people who were more than 65 years old. Hence, the average American would never see the money the paid towards social security since they wouldn’t be alive to reap the benefits. On the other hand, the lucky few that did survive could be paid a lot more than their contribution and the government would still be left with a sizeable amount of money. Thus, social security was a regressive tax. It collected money from the poorest people and never gave it back to them!

With the advent of better medical technology, the average age of Americans increased. This was when the system went out of whack. More people started surviving till the age of 65 and the number of benefits that had to be paid increased relative to the amount of money that was coming in. To make matters even worse, the demographics of the United States changed abruptly. Baby boomers i.e. an entire generation of people are retiring now. The number of baby boomers is large as compared to millennials i.e. the current generation. This is going to get further skewed with the next generations as cost of living rises and people start having fewer babies to raise them better.

As on date, social security is bankrupt. In the future, one of the three things is going to happen:

  • Social Security will go bankrupt

  • The government will print money to support social security liabilities causing runaway inflation

  • Contributions will have to be increased to make up for the shortfall making it the largest tax

A Shift in Attitude from Individual to Collective Responsibility

The social security is the result of a shift in attitudes. Instead of wanting to be self-sufficient, people now want the government to play big brother and always take care of them. Apparently, this comes with side effects such as loss of freedom and financial losses. Social security uses misleading terminology. It calls the tax a contribution. However, a contribution is always voluntary whereas social security contributions are not making them a tax! Social security isn’t an insurance scheme either. The money is not invested in assets. Instead, it is spent immediately, and then can only be paid if people keep on contributing exceedingly larger sums.

Social security is a tax on the hard working people and is redistributed to an earlier generation. There is no correlation between the amount of money that one puts in and receives as per this system.


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Political Science