In his book, and the Republican debates, Rick Perry has made headlines by characterizing Social Security as a Ponzi scheme. This has led to a big uproar about the nature of Social Security, and a debate over whether or not that characterization is a fair one.

Mr. Charles Ponzi has gotten a great deal of attention since the collapse of the massive Maddoff operation, which devolved into what was essentially a Ponzi scheme. For the uninitiated, a Ponzi scheme is a classic confidence scam. The perpetrator of the scheme convinces an initial group of investors to give him/her money, promising unbelievable returns on their investments. However, the money is never invested, no productive returns actually accrue. But the perpetrator tells his investors that they are, in fact, getting those great returns. If any of them ask for the money he gives them the only money that he has – the other investors money. Luckily, if you are convinced you are making 50% returns every year, you generally do not suddenly take out all of your money. Maybe you put more in. You probably also tell your neighbor about the opportunity. Soon enough, more and more people are investing, and the perpetrator has to try to ensure that no one wises up. The obvious problem being that if at any time there is not enough new money coming in the whole scheme falls apart.

Social Security is obviously distinguished from this because it is not technically fraudulent (no one is being outright lied to), and the program is mandatory because the government runs it. Important distinctions to be sure, however, they do not speak to the point that Perry and others are making. Like a Ponzi scheme, Social Security is a pay-as-you-go system. The fundamental problem of both is also similar, but certainly not the same. A Ponzi scheme requires more people to be paying in otherwise it collapses. Social Security has a similar problem, in that it has always operated with many more people paying in than out and as that balance shifts towards less peopling paying in its solvency will disappear.

But does the comparison really matter? No. In the past I’ve compared Social Security to a Ponzi scheme, but I know it is more of an ad hominem attack than anything else. As Friedman points out in the video above, a pay-as-you-go system is not inherently bad. The way this one has been designed does not work. Even an ideally reformed version of Social Security may or may not involve pay-as-you-go.

I’m not totally against Perry’s characterization of Social Security. We need to be critical of Social Security, because it needs to be dramatically reformed. Unfortunately, it has long history of retaining fun Washington idioms as an untouchable “third rail” or “scared cow” (yet for some reason, Perry is apparently not taking much heat). As result we have only been willing to do as little as possible to keep it sustainable. Those non-systemic band-aid (raising retirement age, reducing benefits) reforms need to be jettisoned. The entire system of how we take care of elderly needs to be reevaluated. The sooner the better. This is an issue that domestic policy analysts of all sides can get behind, because the eventual insolvency of social security is not debatable.

Perry’s calling Social Security a Ponzi scheme may be somewhat effective in making people be critical of the program, as we need to be, but it probably distracts from the real problems that the program has.