Has the current Stock Market turned into a Ponzi racket?

["Steven H. Johnson" <info@sscommonsense.org>]

References to Charles Ponzi has become a popular passtime for 
critics of the Social Security system.  

In a Ponzi swindle, each round of suckers makes a killing only
if the next round of suckers buy in at an even higher price.

Does this concept legitimately apply to an inter-generational
transfer program like Social Security?

I'm not sure it's fair to narrow the issue of inter-generational
equity down to any single point, such as retirement financing.  

What about the school taxes that were paid by today's retirees 
in years gone by, taxes that helped the younger generation
get an education?  What about the highway taxes paid by older
Americans that helped give younger Americans roads to drive on?
And so on.  If equity is the issue, the whole ledger must be
examined, not just individual pieces of it.

If Ponzi's example is to be invoked, it might be appropriate to do 
so in the context of today's stock market.  For roughly a decade
and a half, the market has been growing in value at a rate that
substantially exceeds the growth rate of the GDP.

The impression has gotten around, therefore, that the market is
capable of growing indefinitely at six or seven or eight percent
a year.  An entire generation of younger brokers has come of age
in a market that seems to teach everyone exactly that lesson.

Historically, stock returns of seven percent a year have been
derived primarily from reinvested dividends, not from price growth.
The real growth rate of the S&P 500 has been 2.3% a year, a full
percentage point lower than the real growth rate of the GDP.  

Only because S&P 500 dividends have been up in the 4.6% range 
has it been possible for an S&P 500 index fund portfolio investor 
to average seven percent real returns a year.

Now, though, everyone seems to think that seven percent returns
are supposed to be derived purely from price growth.

Buy in now, and next year's stock prices will be at least seven 
percent higher.  [Earnings will not be 7% higher.  Over time, corporate
earnings aren't going to grow any faster than GDP grows, since
corporate earnings are nested within GDP.]

Is this not the classic definition of a Ponzi swindle?  The only
way for this year's investors to make a killing is for next
year's investors to buy in at even more inflated prices?

If one is interested in finding a home for the Ponzi analogy, perhaps 
the current stock market affords a better home for the analogy 
than does our current Social Security system.

-Steve Johnson.