Social security: a Ponzi scheme?

With the economy continuing imploding (drag you down enough?), two of the programs that is constantly being trashed is social security and Medicare. Both of these programs support the seniors in our country for decades, and now many are wondering if the funds to support these programs for future generations will dry up. And many say it is not if they dry up, but when.

Medicare is a huge government program that supports seniors, ages 65 and older, and takes care of their medical expenses. In a word, it is senior health insurance. And with the senior population literally booming (thanks a lot, baby boomers) the need for affordable health insurance. Health insurance can be pricey, especially if seniors get it through an independent source. (Tell that to the seniors in the Golden State, California health insurance can cost a pretty penny.)

So seniors can rely on Medicare to help with their medical expenses. Which can be hefty because seniors have a lot more physical ailments than younger people. (Ever heard of a teenager falling and breaking a hip?) So the need is great.

Many seniors also rely on their social security check every month to pay their bills. Since seniors are not working, they do not have a steady income. Enter in social security. The system is simple. Everyone puts a little money into a big pot of money. When people reach a certain age, they are able to dip into this pot of money. Sounds great, right?

The problem is that social security money is running out, and many are worried that there will not be enough money for them when they reach the tender senior age.

In fact, Charles Krauthammer of the Washington Post compared social security to a Ponzi scheme. For those who do not know, a Ponzi scheme is where people think they are investing money into a program that will add value. But the money is not growing. In fact, it is going to other people instead. And to continue to keep it going, it requires more and more people to pay into it. Well, a Ponzi scheme usually collapses because it is a scheme. A way to bilk people out of their money. Some would argue that Social Security is simiarl.

For example: People pay into social security with the expectation that there will be a pay out at the end. A dividend, if you will. But social security money does not create value on its own. It only survives by people putting in more and more money. So when you are putting in money to social security, you are really paying for all of our grandparents. And for you to enjoy the pay out, it would be on the money from your grandchildren. Make sense?

So how long will it take for this Ponzi scheme to collapse? Krauthammer argues that since Social Security is mandatory to pay (it comes straight out of my paycheck) we will always have money from newer participants. But will that really sustain us all for years to come?