As has been pointed out to you numerous times, the key, defining characteristic of a Ponzi scheme is that old participants are paid with income from new participants. That's what is happening now with SS, therefore it in fact does resemble a Ponzi scheme.
PolitiFact disagrees that Social Security is a Ponzi scheme:
Mitchell Zuckoff, a Boston University journalism professor who has written a book on Ponzi, noted three critical dissimilarities between Social Security and a Ponzi scheme, which by definition is both fraudulent and unsustainable.
"First, in the case of Social Security, no one is being misled," Zuckoff wrote in a January 2009 article in Fortune. "...Social Security is exactly what it claims to be: A mandatory transfer payment system under which current workers are taxed on their incomes to pay benefits, with no promises of huge returns."
Second, he wrote, "A Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted. That's when the last people to participate are out of luck; the music stops and there's nowhere to sit. It's true that Social Security faces a huge burden — and a significant, long-term financing problem — in light of retiring Baby Boomers. … But Social Security can be, and has been, tweaked and modified to reflect changes in the size of the taxpaying workforce and the number of beneficiaries. It would take great political will, but the government could change benefit formulas or take other steps, like increasing taxes, to keep the system from failing."
Third, Zuckoff wrote, "Social Security is morally the polar opposite of a Ponzi scheme... At the height of the Great Depression, our society (see "Social") resolved to create a safety net (see "Security") in the form of a social insurance policy that would pay modest benefits to retirees, the disabled and the survivors of deceased workers. By design, that means a certain amount of wealth transfer, with richer workers subsidizing poorer ones.That might rankle, but it's not fraud... None of this is to suggest that Social Security is a perfect system or that there aren't sizeable problems facing the incoming administration and Congress. But it's not a Ponzi scheme. And Ponzi himself, who died in a hospital charity ward with only enough money for his burial, would never have recognized it as his own."
The Washington Post Fact Checker disagrees that Social Security is a Ponzi scheme:
Perhaps the governor does not know the dictionary definition of a Ponzi scheme. Here’s what Merriam-Webster says: “An investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.”
This is a frequent mistake politicians make when talking about Social Security. It is not an investment vehicle; it is intended to provide income security as well disability and life insurance. Just more than 60 percent of the 54 million beneficiaries are retired workers; the rest are disabled workers, dependents or survivors.
Social Security is a pay-as-you-go system, which means that payments collected today are immediately used to pay benefits. Until recently, more payments were collected than were needed for benefits. So Social Security loaned the money to the U.S. government, which used it for other things. In exchange, Social Security received interest-bearing Treasury securities. The value of those bonds is now about $2.6 trillion. (We have written about this at length.)
In any case, Perry is wrong to label Social Security a Ponzi scheme. Ponzi schemes ultimately go bust and everyone (except possibly early investors) generally loses their money. Social Security faces a long-term funding issue, but one that most experts say is manageable. After all, the Social Security actuary says that Social Security’s shortfall is 0.7 percent of the gross domestic product over the next 75 years.
FactCheck disagrees that Social Security is a Ponzi scheme:
Opinions differ about whether Perry’s choice of words is politically wise. Factually, however, his statements are gross exaggerations.
The system is certainly in financial trouble and can’t pay all the future benefits it promises without a substantial tax increase. And it does pay current beneficiaries mainly from the taxes paid by current workers (and their employers) who expect to draw benefits in the future. Perry is correct to that extent, and the system’s trustees have warned about that repeatedly over the years. The most recent report states that Social Security is “not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided.”
But the system doesn’t meet the common definition of a “Ponzi,” which is a criminal fraud, relying on deception. The Securities and Exchange Commission, for example, says a Ponzi is “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” Ponzi schemes draw their name from Charles Ponzi, who in the 1920s promised his victims that he could provide a 50 percent return in 90 days by putting their money into a speculation scheme involving postage stamps. In reality, Ponzi simply paid early “investors” big returns with the money eagerly offered by others who came later — pocketing millions for himself — until the bubble inevitably collapsed. Bernard Madoff’s more recent fraud — while much larger — was another example of a Ponzi scheme. Madoff and Ponzi lied to their victims about where their money was going, while Social Security’s finances — while troubled — are an open book.
CNN disagrees that Social Security is a Ponzi scheme:
Perry is incorrect when he indicates that Social Security won't "be there" for today's younger workers. Contribution levels will have to be raised in order to avoid future benefit cuts, but it is not a "monstrous lie" to say the program will continue even if nothing is done.
As for Perry's characterization of Social Security as a "Ponzi scheme," the Securities and Exchange Commission defines such a scheme as "an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors."
It is true that benefits to current Social Security recipients are paid for in part by new members of the workforce. But Social Security is not a fraudulent criminal enterprise designed only to benefit current participants in the program. It is a legitimate government program meant to serve both current and future generations of retirees.
Finally, your own source (Wikipedia) does not say that Social Security is a Ponzi scheme. Rather it points out that some people have called it a Ponzi scheme, while others have criticized the analogy:
One criticism of the analogy is that while Ponzi schemes and Social Security have similar structures (in particular, a sustainability problem when the number of new people paying in is declining), they have different transparencies. In a Ponzi scheme the fact there is no return generating mechanism beyond just contributions from new entrants is obscured whereas Social Security payouts have always been openly underwritten by incoming tax revenue. Private sector Ponzi schemes cannot be sustained indefinitely, whereas Social Security's benefits can theoretically always be sustained by raising taxes on new participants and reducing promised payouts. Because of these and other issues, Robert E. Wright calls Social Security a "quasi" pyramid scheme in his book, Fubarnomics.
-Bri
