In the early years of the 20th century, Charles Ponzi, an Italian migrant to North America, had a seemingly brilliant moneymaking idea. He would offer huge returns on worthless investments, thereby convincing a growing number of people to give him their money, which was used, in lieu of profit, to pay off earlier investors. Ponzi's eponymous scheme was essentially a way to enable businesses to rack up debt forever. But, of course, it was ultimately just a scam — and, indeed, it landed Ponzi in prison.

A century later, pyramid schemes like Ponzi's are still regarded as fraud, at least when they are pursued by private businesses. Yet few seem to recognize the role such schemes play in the public sector. In fact, governments in many countries, including the United States and Japan, survive on what are essentially Ponzi schemes.

Of course, there are crucial differences. A traditional private-sector Ponzi scheme, despite its potential short-run returns, always breaks down for a simple reason: The number of potential investors is finite. But in a government-run Ponzi scheme, the investor is the taxpayer. And a stable government, with all the coercive means at its disposal, can reasonably expect to continue collecting taxes, which it can use to repay its earlier debts, for generations to come.