Is Social Security a Ponzi Scheme?

All the hand twisting about Rick Perry’s comment on Social Security being a “Ponzi scheme” obscures the fact that the system does have the key requirements to qualify as one: it depends on a group of people paying into the system and not collecting benefits with the proceeds going to pay out another group of participants, and most importantly, the fact that eventually the system will collapse is beyond dispute.

Perry critics respond that he is suggesting the system is a fraud, a criminal fraud but those same critics should stop and consider that if this system were not a government entity that it would in fact be a criminal enterprise under existing financial fraud statutes.

Under common law 3 key elements are necessary in a financial crime: a material false statement made with an intent to deceive (scienter), a victim’s reliance on the statement and damages.

Looking at the long term financial consequences for people younger than the Baby Boomer generation who will be left with a far different Social Security system than we have today and it’s easy to find all three elements of fraud being met.

People in retirement or near it resist changes to Social Security on the basis that they paid into the system their working life and deserve the benefits they were promised. It’s a fair statement but one that fails to recognize that they paid into the system in order to sustain the benefits for people who were in retirement while they were working. As life expectancy increases and a large number of people enter retirement, the current ratio of 1.75 working people to support each retired person is untenable. Either we have a radical restructuring of Social Security or we have a surge in employment (it’s an and/or really)… absent of that then Social Security is a fraud and young generations will find a different retirement reality than generations in or near it today.