Greg Mankiw, the current top selling economics textbook writer, highlights a 1967 Newsweek column where Samuelson admits that Social Security is Ponzi scheme but thinks it will go on successfully forever, anyways. Samuelson wrote:
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)!Bottom line: Samuelson's mathematical models are proving to be as bad as the models of current day econometricians. These models fail to take into account incentives, how free markets work, how regulation stifles growth and, most significantly, that economics is about human action, which means there are no constants like those that exist in the world of physics, upon which models can be built. Economics is about understanding potential trends, such as growing price inflation during a period of high money growth. It is not about exactitude in the sense of projecting out growth trends. Samuelson's totally absurd forecasts and expectations about the Soviet Union and about Social Security should be evidence enough of the follies of such type forecasts. And it is a warning to econometricians around the globe that they should lay down their mathematical models, as time will eventually make fools of them all.
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.