Social Security is a Ponzi scheme

Several prominent Republicans have recently made the claim that Social Security is a Ponzi scheme, and while the media has criticized them it hasn't really refuted the claim. I look forward to the opportunity to do so. I agree with my opponent that his four criteria describe a Ponzi scheme. However, one more must be added. The scheme must be fraudulent. [1] I would also clarify point 4 in that in a Ponzi scheme the scheme fails because as a result of new investors it runs out of money. My opponent makes a few mistakes in his argument because it appears his reasoning confuses some important concepts. First, he confuses (or possibly equates) savings with investment. These are not the same thing. Savings is money that is held unspent the portion of one's salary that one puts away in the bank, a CD, or a bond. Interest bearing savings is still savings[2]. Investment on the other hand is the production of goods that are used to produce other goods (like a factory)[3]. In the macroeconomic sense investment is when consumption is forgone to allow greater production (and thus consumption) in the future, whereas savings represent a demand leakage. People have produced more consumables than they consumed, thus the available money supply decreases relative to GDP. Second, my opponent confuses the government with a business. Governments should not act like businesses; their goal is not to make a profit. In fact, a government that does this (makes a profit and buys up assets) is a state-socialist system, not a capitalist one[4]. Thus his argument that social security does not turn a profit is off point. A government program should never be viewed as profit making. Finally, related to the previous point, my opponent confuses a currency issuer with a currency user. Whereas a company or family needs to earn or borrow dollars before it can spend them, the government must spend money into the private sector before it can be taxed back out. All money in a national currency starts from the government thus it cannot be taxed or borrowed until after it has been spent once by the government. The government never "has" nor "doesn't have" dollars. Yes, the government uses internal accounts, but these are for record keeping and are not operational constraints[5]. Thus while family's fiscal constraint is solvency, a government's fiscal constraint is inflation. Logic that applies to one does not necessarily apply to the other.1. Money is transferred from one party to another via the governmentThis does not describe how government payments actually work[6,7]. When the government makes a SS payment, it just increases the amount of money in the recpient's account. The government didn't "get" the money from anywhere because, as described above, the government never has nor doesn't have money. It simply spends it into the private sector or taxes it out[5]. Yes, the government keeps account of the total taxed through FICA and payed out through SS, but the amount of money written down in this account is not an operational constraint. Money is fungible[8] and thus although the government chooses to keep track of transactions this way, it doesn't have to. The government even periodically increases the value in the SS trust fund by pretending to pay itself interest[9]. Clearly, when the fact that the government does not behave like a private individual with respect to the monetary system, SS is not a transfer payment. The government does not take my money and give it to your grandmother. Rather, the government pays money to your grandmother (which it doesn't have to get from anywhere) and then taxes my money to keep a check on inflation.2. Money from new investors is given to old investorsIn point 1 I have shown that the transfer payment is an accounting fiction. The government cannot hold a limited supply of money because it can create or destroy the money in its own accounts at will. Watch the video to see Stephanie Kelton, economics professor at UMKC, explain the difference between a real constraint and a fake (accounting) constraint.3. ProfitI agree that the government does not turn a profit on SS. This is a good thing as the government should not be meddling (as a securities buyer) in the financial market. If the government is turning a profit then something has gone horribly wrong. This does not make SS a Ponzi scheme. In fact, in a Ponzi scheme the originators of the scheme (by my opponent's analogy that would be the government) do make a fraudulent profit by siphoning off funds from the early investors.4. Scam fails because of lack of money from new investorsAs a government program, SS can never fail because of a lack of money. The constraint on government spending is inflation. Now, there is a concern with SS causing inflation, but I will show that this has to do with demographics and not OASI or it's structure. The dependency ratio (DR) is indeed falling, (I'll refer to my opponent's source for this fact). In the future there will be fewer workers supporting more elderly. This is purely demographic -- there is nothing (humane) the government can do to make the population stop getting older. Now, dependency ratio is a problem, but it has nothing to with money or new investors. Let's consider a point in the future where there are (exaggerating to make the point) 300M retirees and only 100 worker. For that society to function, the 100 workers better have lots of robots to grow food and provide medical care for 300M people. They better be super intelligent and well educated to be able to manage all that equipment and to design improvement. They better have the best possible transportation network to get all that food, etc. to all those retired people. Without increasing production per worker, no amount of money will solve the dependency ratio. Now, let's look at inflation in the situation I just described. If there's 1 apple farmer for 300M people, what will happen to the price of apples? It will go through the roof unless he can somehow make millions of apples himself. The problem with the DR is pure demographics, it cannot be fixed nor made worse by OASI. If we want to make SS work into the future, it doesn't need a continuous infusion of new "investors' money;" it needs new more productive workers. To save SS we should be spending on schools and roads and research, not worrying about keeping a positive balance in an imaginary fund. The problems with SS have nothing to do with needing "investors. " The problem is a social not programmatic one. For this reason point 4 fails and SS is not a Ponzi scheme. Counter argument5. FraudMy opponent has not demonstrated that SS is fraudulent. I've addressed this a bit in point 3 above. The government is not turning a profit therefore SS is not a Ponzi scheme. Moreover, it is not commiting fraud. Fraud 1 a : deceit, trickery; specifically : intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right[10]Nobody surrenders a legal right, nor parts with something of value due to a perversion of truth in SS. Social Security is not a Ponzi scheme. References[1] . http://www.sec.gov...[2] . http://www.econlib.org...[3] . http://www.econlib.org...[4] . http://www.merriam-webster.com...[5] . http://papers.ssrn.com...[6] . http://www.fms.treas.gov...[7] . http://ecfr.gpoaccess.gov...[8] . http://www.investopedia.com...[9] . http://www.ssa.gov...[10] . http://www.merriam-webster.com...http://www.youtube.com...