Ponzi schemes have historically related to financial investments whereby the funds deposited by the most recent entrants are used to pay the returns of those who contributed earlier. Typically higher than normal investment returns are used to entice entry.  Little, if any, of the money received is actually invested as promised. All goes well so long as an ever growing stream of new entrants can be enticed. When that is no longer the case the scheme falls over. But it would appear that Ponzi schemes, though never named as such, may have emerged in other domains.  To give three possible examples. 

At the present time the European Central Bank is the principal purchaser of sovereign debt. When that debt is due to be repaid it is instead largely reissued in ever greater quantities (looks familiar: new entrants paying out earlier ones). This has worked so far given there is excessive financial liquidity chasing limited investment opportunities. But will it fall over some day? Possibly given that only a small part of the debt is actually being used to try and generate a return capable of really paying back the debt (again looks familiar). 

A second example relates to a country’s economic growth. Growth is seen as a good thing. Increasing consumption and production, and the money flows and taxes associated with them, is held by many to facilitate an improved standard of living. Several countries though seem to have largely achieved growth simply by increasing their population. Australia is a stand out example… But it is really increases in economic activity per person that boost living standards – by developing new ways of doing things or new things to do. Population growth alone by contrast represents new citizens helping boost the economic wellbeing of existing residents – funding pensions, boosting property values etc (seem familiar?). Sustaining this approach over time requires ever increasing numbers of immigrants. Will this approach be sustainable indefinitely?  

The final example has a slightly different flavour and relates to University education. Certain jobs have historically required a minimum level of education – say a Bachelor’s degree.   However the role of University education has recently become more significant.  Firstly, some careers that previously did not require a Bachelor’s degree now do. Secondly, in other professions the number of students with such degrees has grown meaning the requirement to enter has increased to the level of a Master’s or Doctoral degree. The result has been a pot of gold for Universities. But can it last? A possible Ponzi aspect in this is that newcomers to the workforce require increasing levels of University education to enter the workforce. And naturally they would like this situation to persist or be extended for later entrants to secure a return on their education investment. The result is that Universities require ever increasing numbers of Bachelor students to ensure increasing demand for the higher level degrees, a continual increase in the number of careers requiring a Bachelor degree for entry, and ever higher degree levels (for example the habilitation as already offered by German Universities).  

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s