David R. Henderson  

Krugman on Ponzi: I Was Being Cute

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Many people have quoted an article Paul Krugman wrote 15 years ago in which he said that Social Security has a "Ponzi game aspect." So how does Krugman respond? He now claims that he said it because Paul Samuelson had made the same point much earlier. True. In my book, The Joy of Freedom: An Economist's Odyssey, here's what I wrote about Samuelson's famous claim:

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."

But Krugman now says that Samuelson was being "cute" and Krugman "was just emulating him." Really?


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CATEGORIES: Social Security , Taxation



COMMENTS (10 to date)
wintercow20 writes:

Whether or not he was being "cute" is rather beside the point in the post linked to today. As others have argued, the use of the term "Ponzi" in this "debate" has nothing to do with whether Social Security is or is not an actual Ponzi scheme. It is rather a dramatic use of language to emphasize the unsustainability of the scheme. Krugman, in his defense of being cute, to me appears to be attacking an easy to ignite straw man.

I actually find it regrettable that the use of term Ponzi had to be invoked here. A careful reading of the 15 year old piece reveals that it is making the same arguments that fiscal conservatives want to be making right now. And by focusing attention in this debate on the term "Ponzi" it is like a classic chuck a snowball in the air while someone else fires one into your gut. Would it not have made sense from the outset to argue something like, "Professor Krugman also recognizes the problems with Social Security?"

Bob Murphy writes:

The best thing about that Krugman post, was that he linked to the Social Security Administration giving a history lesson on the actual Ponzi. That would be like the Mises Institute having a section in their FAQ devoted to the Nazis and then concluding with, "We're nothing like them."

ivan writes:

Come on!
I agree Krugman was just being "cute". Lets stop talking about semantics, wether we call it Ponzi or not. The real thing of interest is that Krugman is consistent with his point that altough it do has a feature in common with a ponzi scheme, SS is not destined to fail.
Stop spreading gossip or adding layers of camouflage, as economic bloggers, you are supposed to be clarifying stuff.

RGV writes:

This is pretty stupid. Where does PK imply that the social security ponzi scheme is going to go bust in one big spectacular bonfire? Can you please stop playing he said she said games (esp. the Krugman says variety) and actually get back to being informative like you used to be.

Tom Castro writes:

I guess we can wait 15 years for him to tell us he was "just being cute" w/respect to his current writings. Tot1

Kris writes:

The whole Federal Reserve is a scheme. Those who disagree are either blinded by the truth with disbelief or just closed minded with ignorance. Try growing up where the scales are lopsided in this wonderful capital & democracy of a nation.

Travis writes:

@ RGV - you have to love the Kruglodytes that defend Paul no matter the evidence.

Its very hard to read Samuelson's statement and still think he was being "cute". He clearly states that the reason SS works is the ever-growing population, otherwise it is just a ponzi-scheme.

That's not being cute. That's just being wrong (about pop.). Paul should be man enough to admit it.

Michael Stack writes:

The bottom line is that "Social Security is a Ponzi scheme" is considered a right-wing meme. Consequently Krugman is going to try to distance himself as far as possible from any comment like that. It has nothing to do with the extent to which SS is or is not a Ponzi scheme, or in what sense it is, or is not.

It's the same reason otherwise-sensible right-wingers don't like marijuana legalization - they consider it a 'hippie' position, and take issue with the proponents rather than the actual issue's merits.

PrometheeFeu writes:

I find it interesting that SS has a website where it purports to explain that it is not a Ponzi scheme. http://www.ssa.gov/history/ponzi.htm

I love their little diagram of a "pay-as-you-go" scheme with money coming in on one end and coming out of the other. They forgot the part where Congress takes everything and then gives back what it wants to give back.

Floccina writes:

Social security is a welfare program disguised as a Ponzi scheme to make it more palatable to the US public. It is about time that supporters admit that it is a welfare program and pay out the same amount to every recipient to reduce cost.

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