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October 6, 2010

What's the Difference Between Social Security and a Ponzi Scheme?



I was watching the below video last week on Ponzi schemes and I could not help but to ask a critical question.

What is the difference between a Ponzi scheme as a system and our Social Security system.

By doing a basic Google search on the definition of Social Security, I found many definitions all sounding like, "A government program that provides economic assistance to persons faced with unemployment, disability, or agedness, financed by assessment of employers and employees."

Therefore, the payments of Social Security to those of disability, unemployment, and retirement age are paid by the taxes charged to employers and employees.

So how is a Ponzi scheme defined?

According to Securities and Exchange Commission website, a Ponzi scheme is "A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors."

So, besides the fact that a Ponzi scheme architect solicits his funds voluntarily through fraud, what is the difference between a Ponzi scheme and Social Security?


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