Today's taxpayers contribute money that is funneled to today's Social Security recipients, and hope that tomorrow's taxpayers will put in enough money to fund their retirements. Something similar is true of government finance in general: Those who buy Treasury securities and municipal bonds do so on the assumption that future taxpayers (and bond investors) will keep pouring in enough money to allow governments to make good on their commitments.
UPDATE: Holman Jenkins says:
[Bernie Madoff] may have been casual from the start about what money he used to pay withdrawals. It is almost inconceivable, though, that he could have built a true Ponzi scheme to a height of $50 billion, in which there were never any real assets, just his superhuman 40-year juggling act to ensure new investors were recruited as needed to provide funds to meet withdrawal requests from earlier investors.
If so, he is a genius who should immediately be put in charge of the Social Security and Medicare trust funds.
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