So let me explain why I think that Social Security has most of the characteristics of a Ponzi scheme—let’s call it a “Ponzi-like” scheme. Nevertheless, the system of intergenerational transfers—the young supporting the old—is sustainable as long as productivity is rising.
A “Ponzi-like” scheme has three characteristics—transfers, obscurity, and unsustainability.
1) Transfer: Early participants are paid off by the investments of later participants
2) Obscurity: The true nature of the scheme is obscured. so that it looks like early participants are receiving a return on their investments, rather than payments from later participants
3) Unsustainability: The scheme is guaranteed to eventually break down, once the number of participatns rises high enough.