orb@whuxl.UUCP (SEVENER) (11/18/85)
Dave Olson repeats the old refrain that Social Security is "just a pyramid scheme": > > Tim, you obviously do not understand a pyramid scheme. People who collect > from it (no matter how badly it is needed) are collecting from people at > lower levels of the pyramid, who inturn must collect from still more peopel > at still more levels. The money you put into SS does not grow; it goes > right into somebody else's pocket. Once you have collected the same amount > of money from SS as what you put in (you are actually collecting the > equivalent amount of what someone else put in) on average, you will then > start collecting on what 3 more people placed into the pot. Those 3 no > longer have their hard earned dollars for a pension; you ate it up. For > *each* of them to collect what they were "promised", requires 4 others > (one to replace the money they placed into the pot + 3 others to provide > what is needed once that is gone) to put their money into the system. > And on, and on, and on... > > David Olson Social Security has several important differences from pyramid schemes such as Amway. In a true pyramid scheme like Amway, members are encouraged to suck in more new members because they get a percentage of the profits from every new member, AND every new member that member recruits AND every new member that members recruited by your own new member recruit. For example, if I get a new member to sell Amway products I may get $10 out of every $100 that member sells. If that member gets other members to also sell I *still* get $10 from every $100 sold by every member after me: so if my member recruits 3 new members who each sell $100 apiece, and my original recruit still sells $100 then I can get $40 for doing absolutely nothing. (One sees this is really simply an exaggeratted version of capitalism in the crassest sense). The originators of a scheme such as Amway obviously stand to gain LOTS of money from naive suckers if they can convince hundreds or thousands of them to go for this scheme. Social Security does not work in this fashion - there is no multiplying effect - the receipts from Social Security are divided amongst members of every generation as they become eligible for retirement. Moreover as I have tried to point out (probably hopeless to blind ideologues) payments to Social Security and benefits are time-deferred. This is really not that different than the operation of a bank. When I put money into the bank that money does not just sit there- it immediately goes out in loans to other people. Those loans are almost always *more* than the actual amount of money placed into the bank. These loans then provide immediate benefits of housing, cars, new capital equipment, and other goods to people. If I have a 20 year deposit or timed deposit then I cannot get the benefits of my own money paid in until that period is up. Similarly with Social Security - I pay in for my own retirement which is money used to pay the benefits of people currently retired. I cannot obtain my own benefits until I have worked 10 years and have reached age 62. My own benefits are dependent on those working later paying into the system themselves. But so my deposit in the bank is dependent on those who have already received the benefits of my funds paying them back. If they did not and the bank went bankrupt and there was no federal insurance I would lose my money. In fact this used to happen to people before the Federal Deposit Insurance Corporation was established: which was why mattressess were a frequent store for savings. Of course if *all* the banks in the country went bankrupt so the FDIC had to pay insurance for all those accounts, the FDIC would be unable to do so - just as auto insurance companies would go bankrupt if all cars got in wrecks at one time, or any other insurance company would go bankrupt if *ALL* those insured made claims. Of course this is EXTREMELY UNLIKELY! AS Jeff Myers' article pointed out, the Social Security System should be in good shape for years to come. This also points out Dave's mistake in saying that Social Security requires constant increases in those in the system like an Amway pyramid scheme. Social Security is in good shape *despite* the decline in population growth projected in the next decades. tim sevener whuxn!orb
tw8023@pyuxii.UUCP (T Wheeler) (11/19/85)
Sevener obviously does not know the difference between a Ponzi scheme and a pyramid scheme. They are NOT the same thing Sevener. The Ponzi scheme depends on only taking in money with a promise to pay out more than was paid in. The first group of "investors" are paid a wildly inflated return. This payout generates more interested "investors" until the person running the scheme sees he has made a killing and skips out with everyone's money. In a pyramid scheme, the main ingrediant is getting others to sell shares with a promise that they will collect from the people lower down on the scale as they sell shares (or whatever). A pyramid scheme will eventually run out of steam at the lower levels of sales. The Ponzi scheme will run hot and heavy until the perpetrator absconds with the funds. I'm not saying that SS is going to run off with the money. It is just that the Ponzi principle of paying out more than is taken in applies to SS. Now, with congress looking hungrily at the SS trust fund once more, the fate of future payments from SS is shakey. We can all thank John Kennedy for dipping into the trust fund 20 years ago and setting off the problems that have plagued the system since. So, when Olsen pointed out that the SS system is being run as a giant Ponzi scheme, he is right. T. C. Wheeler
scott@hou2g.UUCP (The Brennan Monster) (11/19/85)
But Tim, even though SS may not be a strict pyramid scheme like Amway or chain letters, your analogy still fails. The bank can pay you benefits because THEY MAKE MONEY ON THE MONEY THEY LEND OUT. In fact, they make more money on these loans than what they need to pay your investment plus interest. (Now *that's* Capitalism :-] ) How would the bank be able to pay you benefits (interest) on your money if they lent out your funds at zero interest? WHERE IS SOCIAL SECURITY CREATING MONEY OUT OF MY INPUT PAYMENTS? It's true that SS doesn't require ever increasing numbers of people paying into the system. But doesn't the continued solvency of the system then depend on INCREASING PER CAPITA "PAY-INS"? Isn't this in fact what has been happening? I certainly pay more into the system now than when I first started working. Scott J. Berry ihnp4!hou2g!scott
mmt@dciem.UUCP (Martin Taylor) (11/28/85)
>Sevener obviously does not know the difference between >a Ponzi scheme and a pyramid scheme. They are NOT the >same thing Sevener. The Ponzi scheme depends on only >taking in money with a promise to pay out more than was >paid in. The first group of "investors" are paid a > >I'm not saying that SS is going to run off with the >money. It is just that the Ponzi principle of paying >out more than is taken in applies to SS. Now, with >T. C. Wheeler Isn't the whole idea of a productive enterprise in the capitalist system to be able to get more out of it than you pay in? Under Wheeler's definitions, all businesses must be Ponzi schemes. Various people have said that you can't consider Social Security as carrying interest because it wasn't invested. That seems very strange. Are all those millions, billions, or trillions of dollars in a hole in the ground? They can't be in banks, because money in banks is used for loans and so forth, that assist capitalistic enterprises. Is it withdrawn from the economy until the person who payed a particular dollar shows up in old age to claim it? How does this non-productive accumulation of capital mature? -- Martin Taylor {allegra,linus,ihnp4,floyd,ubc-vision}!utzoo!dciem!mmt {uw-beaver,qucis,watmath}!utcsri!dciem!mmt