Thursday, September 08, 2011

Let's try this...

What's the difference between a Ponzi scheme, and life insurance?

In both cases, sales people try to get people to put in money. And, some people - the people who "withdraw" early, get huge returns on their investment.

But with life insurance, actuaries figure out how much money must be on hand to pay promised benefits. And, they figure out how to balance the amount paid in versus the amount that will be paid out (barring unexpected calamities).

With a Ponzi scheme, there's no balance. If there was - if people could keep paying in, and taking out, indefinitely - it wouldn't be a Ponzi scheme.

So, which model fits Social Security better?

Do I really have to answer? Okay, I guess I do.

Social Security uses actuaries, and can plan for births, deaths, and the increasing average age of our population. Just as an insurance company has to use careful statistical models to plan for how many plan participants are required to support each beneficiary, Social Security uses similar models to plan how much money is required in Social Security taxes to continue to pay benefits.

So, what does this tell us about people who claim Social Security is a Ponzi scheme?

Well, they can be stupid - so stupid that they open their yaps without learning what a Ponzi scheme actually is.

Or, they can be liars.

(Or, they can be the sort of person who trusts people like Rick Perry. These people aren't exactly stupid, but they are too trusting.)

There's not much middle ground here.

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