Social Security: A Ponzi Scheme?

by: Eddy Elfenbein

Jim Cramer says it is.

“To everybody in the press, who’s calling Bernie Madoff’s alleged $50 billion scam the ‘largest Ponzi scheme ever,’ I say give me a break,” Cramer said on his Dec. 17 show.

According to Cramer, the largest Ponzi scheme in history is run by the federal government – Social Security.“We know the truth about Ponzi schemes,” Cramer said. “We all know the name of the biggest Ponzi scheme in history and it’s not even illegal. In fact, it is run by the U.S. government. And the name of it – well they call it Social Security.”

Oh, please. Social Security is not a Ponzi Scheme. I’ll define a Ponzi Scheme as a fraud that has zero investments; it merely pays off initial investors with funds from new victims, I mean, “investors.”

First, the funds from social security do go into Treasury securities, which are real investments. Plus, social security is currently running a very large surplus. How much longer will it continue to run a surplus? Well, that’s a good question. But the system can stay healthy as long as there are adjustments to benefits and how much is paid in. Those choices aren’t easy but that’s a big difference from what Bernie Madoff was doing.

Think of it this way: If no new money was allowed into social security, it would still run. When the same happened to Madoff and Ponzi, their frauds were over.

Social Security has a lot of problems, but this talk of it being a Ponzi Scheme is just silly.