The biggest Ponzi scheme of them all is social security:

Discussion in 'Wall St. News' started by Stok, Dec 18, 2008.

  1. The real trick was to die of old age before the shmucks figured it out.

    Game over.
     
    #31     Dec 19, 2008
  2. Or in the case of that shyster Madoff, Antisemantics.

    Sorry, couldn't help it.
     
    #32     Dec 19, 2008
  3. nicuss

    nicuss

    I think there are some key differences between a Ponzi and Social Security that makes the two not quite the same thing.

    The key treat of a Ponzi scheme is that it always pays a return which is in part or whole coming from later investors (rather than a profit-making activity). From this one can mathematically prove that a such a scheme always requires and exponentially growing number of new investors, and therefore such schemes are always guaranteed to fail because Earth's population is finite (and doesn't grow exponentially nowadays).

    On the other hand, Social Security does not promise a return (other than inflation adjustment I guess) and so it does not require an exponentially increasing number of participants. It can do just fine with a constant number participants, forever. Of course, over time people tend to die and have to be replaced with their offspring for SS to keep running, but offspring has been a fact for as long as there's been life on Earth and is not guaranteed to end like an exponantially increasing investor pool is.

    I could actually run a "Ponzi" scheme with 0% return forever, and it would be perfectly legal. Give me $20 today and I'll give you $20 tomorrow. In fact it wouldn't even be Ponzi at all.

    The current problems with Social Security are caused only by a freak fluctuation in the number of people involved (baby boomers). That doesn't mean SS will implode. It will just have to pay out proportionally lower benefits until the babay boomers die off, and once the demographics are ballanced it'll work just fine again. Unlike a Ponzi scheme.
     
    #33     Dec 20, 2008