Among the guidelines the IRS issued yesterday was allowing investors to claim their losses from a Ponzi scheme as a theft loss rather than a capital loss, a personal casualty loss or a personal theft loss.
MIT economist Paul Samuelson added some of the intellectual backing for these policies. "The beauty about social insurance is that it is actuarially [italics Samuelson's] unsound." Samuelson's point was that if real incomes were growing quickly, each generation could get more out of Social Security than it paid in. While its critics attacked Social Security as a Ponzi scheme, Samuelson beat them to the punch in 1967 by blessing it as one. "A growing nation," wrote Samuelson, "is the greatest Ponzi game ever contrived."
(Samuelson quote is from Newsweek, February 13, 1967.)
As I also wrote:
A private citizen who set up such a financial chain letter would go to prison. In fact, he did. His name was Charles Ponzi, and he was arrested in 1920 for promising investors that they could double their money in 90 days and using the proceeds from later participants to keep his commitments to earlier ones. Thus was born the term "Ponzi scheme."
There are two main differences between Ponzi's original scam and the Social Security system. The first difference is that Social Security is run by government and, whatever its constitutionality and its questionable ethics, is legal. The second difference follows from the first: Whereas Ponzi had to rely on suckers, the government can and does use force.