In other venues (e.g. Berkeley economist Brad DeLong's weblog) I have called Social Security a "Ponzi scheme"...and have challenged others to admit that fact. Or debate me. So I'm providing a forum here for the debate.
Resolved: "The Social Security System of the U.S., as it is currently operating, is a Ponzi Scheme."
Opening Argument for the Affirmative
First we need a definition of a "Ponzi scheme." I'll get one from Google's cool "web dictionary" (type in "What is a "Ponzi scheme"? into Google):
"A fraudulent scheme. It is a specific form of pyramiding in which money paid by later investors or contributors is used to pay inflated returns to earlier investors — until the funds dry up because no more contributors can be found."
Now, is Social Security a "specific form of pyramiding in which money paid by later investors or contributors is used to pay inflated returns to earlier investors--until the funds dry up because no more contributors can be found?"
Well, duh! Yes, that's exactly what Social Security is!
The initial contributors to Social Security got absolutely astounding returns on their "investments." Here is what happened to Ida May Fuller, the very first person to receive a Social Security payment:
"Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits."
That is an absolutely perfect example of a pyramid scheme: the very first contributor gets a better deal then any other later contributor. But this wasn't just true of Ida May Fuller...the average return on "investment" was tremendously good for the first generation of people to retire on Social Security...because they essentially paid in nothing, and got back payments from the later generations.
But what about the Trust Fund?
Some people who claim that Social Security isn't a Ponzi scheme point to the Social Security "Trust Fund:"
But the "Trust Fund" is a sham. It has no real assets. It contains slips of paper (or electrons) that donate obligations to TAX...not true assets. As a matter of law, Congress does NOT have a legal obligation to actually raise the taxes as necessary to meet the those obligations. The "funds" in the "Trust Fund" essentially have no effect whether people who are paying into Social Security right now will get the money they pay in now out in the future. (Let alone with any "return on 'investment'"!)
Social Security IS a Ponzi scheme.