Is Social Security a Ponzi Scheme?

Governor Perry has made quite a splash with his repeated claim that Social Security is simply a Ponzi scheme. The liberal press has had a field day with this, and even some of his Republican opponents have attacked him on this.

But is he right?  Well, a Ponzi scheme, like the one run by Bernie Madoff, works by taking the money from people who invest later and using some of it to pay "dividends" to people who join earlier, and then diverting the rest of the "investment" to the crook's own use.  It works fine until there are no more new people joining and investing new money, after which the whole scheme collapses and the latecomers all discover that they are going to get nothing back for their investments.

That sure sounds like Social Security.  We older folks put our money in, and theoretically it went into a "lockbox" (the Social Security Trust Fund) not to be used for anything but eventually paying monthly checks out to us. But in fact the money didn't go into a "lockbox" -- it went back out to Congress as fast as it came in to pay for all sorts of pet Congressional programs, replaced by paper IOUs (Treasury Bonds). So all that is really in the "lockbox" is paper IOUs, no "real" money. So where does Social Security get the money to pay out the monthly Social Security checks?  It can't get it from the "lockbox" because there is no real money there, just paper (actually electronic) IOUs. So it gets it from the people paying in the month before.

This system works fine until there aren't enough new people paying in each month to cover the amount that Social Security needs to pay out, and we are just about at the point, as our population ages and we have an increasing number of older people collecting Social Security against a smaller number of workers paying in each month.
 
But what about the Treasury Bonds in the "lockbox"?  Isn't that real money? Fancy as it sounds, a Treasury Bond is nothing more than an IOU that promises to pay back the capital and a little interest at some future date.  These days when a Treasury Bond comes due, the government just sells another Treasury Bond to get the money to pay out the first bond, "rolling over" the debt rather than really paying it back (something the government and banks frown on individuals doing, but seems for some reason to be OK if you are the US Treasury....) .  That works fine so long as someone will buy the new Treasury Bond.  The day there are no new buyers the whole scheme falls apart.

If you or I tried to run a scheme like this, we would be quite properly arrested, tried, convicted and jailed, as was Bernie Madoff.  But when the government does it.............

So it may be offensive to liberals to call Social Security a Ponzi scheme, but if it walks like a duck and looks like a duck and quacks like a duck..........

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Added thought: To say it is a Ponzi scheme now (which it is) is not to say it couldn't be repaired and "un-Ponzied".  In fact, it could with some relatively simple changes, such as slowing raising the eligability age, taking the cap off of earnings taxed for Social Security, and changing the over-generous inflation adjustment to make it track core inflation rather than wages.  The problems with Social Security are much smaller, and much easier to repair, than those for Medicare/Medicaid.