Monday, September 05, 2011

Why Entitlements Must Be Reformed

From economic professor Mark Perry's blog:

That's just one entitlement.

1 comment:

MikeAT said...

Darren,

We have fewer and few people paying into a plan that promises more and more to the beneficiaries while not actually having assets to pay for the outlays, just having immediate collections going out instantly.

Gee, what is a good way to describe this?

What is a Ponzi scheme?

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Why do Ponzi schemes collapse?

With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.


To preempt the one of the screeches from your more left of center readers, Social Security has another major feature not covered here. The guys running this scheme are not part of it. The members of the Social Security bureaucracy and more to the point, the Congress, are not in the Social Security system.