Abstract
It is often argued in both policy circles and the popular media that faster economic growth could significantly reduce Social Security’s long-term funding imbalance.1 If, as many argue, Social Security Trustees’ projections for economic growth are unduly pessimistic, policy makers may ignore calls for policies to reform the system in the belief that faster economic growth will “bail us out.” However, Social Security’s financial status is normally analyzed under a truncated horizon of 75 years. Does the positive association of faster economic growth with improvement in the system’s actuarial balance survive under longer horizons? If not — that is, if faster economic growth fails to improve or even worsens Social Security’s actuarial balance over very long horizons — failure to enact reforms to make the system sustainable would be a more serious lapse than many policy makers and budget analysts realize.
Andrew Biggs is Deputy Commissioner of the Social Security Administration and Jagadeesh Gokhale is a senior fellow at the Cato Institute. The authors thank Alan Auerbach, Michael Boskin, Jeffery Brown, Edward DeMarco, Stephen Goss, Stephanie Kelton, Liqun Liu, Joyce Manchester, Donald Marron, Scott Muller, David Pattison, Rudolph Penner, Andrew Rettenmaier, Thomas Saving, Kent Smetters, and seminar participants at the Social Security Administration and the Levy Institute at Bard College for helpful comments. The views expressed herein are the author’s and do not necessarily represent the views of the Cato Institute.
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Biggs, A.G., Gokhale, J., Kelton, S.A. (2007). Wage Growth and the Measurement of Social Security’s Financial Condition. In: Papadimitriou, D.B. (eds) Government Spending on the Elderly. Palgrave Macmillan, London. https://doi.org/10.1057/9780230591448_11
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