Thursday, December 16, 2004

The Social Security Trust Fund

We find that there is no empirical evidence supporting the claim that trust fund assets have reduced the level of debt held by the public. In fact, the evidence suggests just the opposite: trust fund assets have probably increased the level of debt held by the public. Moreover, the adoption of a "unified budget" framework in the late 1960s appears to play a statistically significant role in this result. We show how this counterintuitive result can be explained by a simple "split the dollar game" where competition between two political parties exploits the ignorance of voters who don't understand that the government's reported budget surplus actually includes the "offbudget" Social Security surplus. To be sure, this evidence is based on a limited annual time series (1949 – 2002) and so the results should be interpreted with caution. But the empirical tests are, if anything, biased toward finding a reduction in the level of debt held by the public, and not the increase that we find.

This excerpt is from an interesting study about the Social Security Trust Fund by Kent Smetters of the Wharton School. Something which I had not thought of, and which also happens to be another reason to support the personalization [after reading Luskin's use the word I have realized it is the right way to go; unfortunately, we all know that 'privatization' scares people] of accounts, is that the government will no longer have a sure source of capital to buy up Treasury bonds (debt). Wonderful.

1 comment:

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