Saturday, September 10, 2011

The liberal's favorite economist said social security based on a "Ponzi" scheme

Is Rick Perry really out in political left field because he called social security a "Ponzi scheme"? That's what many liberal commentators have charged. But Harvard economist Greg Mankiw has dug up a gem of the quote from the most influential liberal economist of the late 20th century, Paul Samuelson, the Keynesian economist who authored of the most popular economics textbook of all time: Economics: An Introductory Analysis.

When I was studying economics at the University of California in the early 1980s, Samuelson's book was reviled by the monetarists--and worshiped by the Kenynesians--who peopled the economics department there. Samuelson was Keynes' bulldog. Here is Samuelson, in a remark that was intended, ironically, as a compliment to social security, using the "P" word:

The beauty of 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 -- exceed his payments by more than ten times (or five times counting employer payments)! 
How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. 
More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired. 
Social Security is squarely based on what has been called the eighth wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived.
Read the rest here.


Art said...

So, Rick Perry is going to think that compound interest is a Ponzi scheme?

I haven't lived in Texas for several decades. Might it be that interest-bearing savings accounts are illegal in that state nowadays?

Compound interest NO. Evolution NO. Global warming NO. I wonder what great new idea the Republicans are going to have for us tomorrow.

KyCobb said...

You understand, don't you, that Perry was saying that Social security is a ponzi scheme, meaning he is claiming the people working now are going to get screwed, while Samuelson was saying a growing nation producing compound interest guarantees no generation will ever get screwed.

Lee said...

Did you mean a growing economy? I guess we'd better get to work on that one.