Texas Governor and Presidential candidate Rick Perry recently ignited a fierce debate when he took the stance that social security is nothing more than a Ponzi scheme. While many have drawn parallels between the general nature of a Ponzi scheme and the stated purpose of social security, Bloomberg provides an excellent analysis, noting that most financial experts have dismissed the comparison. A Ponzi scheme is, by definition, fraudulent and operates by promising above-average investment returns to investors that are instead funded through new investor contributions. Usually, none to little investing actually takes place, and instead the Ponzi schemer 'converts' new investment funds into investment returns. On the other hand, according to Larry DeWitt, a program historian, social security
"is and always has been either a ‘pay-as- you-go’ system or one that was partially advance-funded. Its structure, logic and mode of operation have nothing in common with Ponzi schemes or chain letters or pyramid schemes.”
Adds Mitchell Zuckoff, author of a book detailing the scheme of man whose name became forever associated with the term 'Ponzi scheme,' “[w]e can argue about whether it’s a good system. But you can’t call it a fraud.”
Comedian Stephen Colbert recently addressed the controversy on his nightly program, and provides an amusing take on Perry's comments.