Social Security is a Ponzi Scheme according to Economist Paul Samuelson who wrote the Book on Economics

Posted by PITHOCRATES - August 19th, 2012

Week in Review

While the Europeans, the Japanese and the Americans all struggle with an aging population and pension and health care systems approaching insolvency Singaporeans are enjoying comfortable retirements.  How?  Because they did something crazy.  They acted responsibly and saved for their retirement and their health care.  Instead of depending on the state (see Singapore’s got some good ideas posted 5/17/2012 on ctpost.com).

…Singapore makes no promises but instead requires all citizens to save up to 36 percent of their income for their own retirement and health care. The government invests the savings in stocks and bonds; the money is not used for current expenditures.

The result? Singaporeans have comfortable retirements. Their health-care system delivers better outcomes while costing 80 percent less than ours, according to 2010 findings from the World Health Organization, and all of it is financed without imposing debt on the next generation. Singapore even reported an uptick in medical tourism last year.

Now, compare Singapore’s system to our own. When Medicare was debated and enacted, Paul Samuelson was America’s most influential economist. He was an adviser to presidents Kennedy and Johnson, author of the nation’s best-selling economics textbook and a soon-to-be Nobel laureate. In 1967, Samuelson wrote in Newsweek about the funding mechanism for Medicare and Social Security: “The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. . . . Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired. . . . A growing nation is the greatest Ponzi game ever contrived.”

Samuelson was right about social insurance being a Ponzi scheme even though he was wrong on his economics.  He was a Keynesian.  And it was Keynesian economics that is responsible for so many of our problems today.  Encouraging governments to intervene into the private economy.  And to tax, borrow and print money to spend.  Which has given Japan their Lost Decade.  Gave the U.S. (and the world) the subprime mortgage crisis.  And gave the Europeans their sovereign debt crisis.

So here is one of the Keynesians’ greatest and most admired economists admitting that social spending is what it is.  A Ponzi scheme.  Of course the fatal flaw in the Keynesian model was women’s liberation.  The world changed.  Women stopped having babies.  And when they did we went from having a young population (more people entering the workforce) to having an aging population (more people leaving the workforce).  A baby bust followed the baby boom.  Which smashed apart the Ponzi scheme.  Because there are now more old folks drawing benefits than there are youths entering the workforce to pay for them.  So governments are spending more than they collect in taxes.  And the rate of spending is growing greater than its population growth rate.  Which is a big problem.  As Mr. Samuelson pointed out in Newsweek.

Meanwhile those who are saving for retirement are not having the same problems as they are in Keynesian economies with state pensions and national health care.  Of course a Keynesian would never approve of this.  For savings is to a Keynesian what sunshine is to a vampire.  And they will do everything within their power to prevent people from saving.  Despite their incredible record of failure.  But they keep plugging along.  Why?  Because governments love them.  They keep hiring them.  And they keep listening to their advice.  For they give legitimacy to their irresponsible spending ways.

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