Arnold Kling

Social Security Solvent?

Arnold Kling, Great Questions of Economics
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In an article in the Milken Institute Review, authors Charles J. Zwick, Robert A. Levine, and Peter A. Lewis argue that Social Security is not in crisis.

the trustees [of Social Security] point out that in 40 years there will be only 2.1 workers for each retiree, as compared to 3.3 workers today.

What they do not explain is that this represents an increase in liabilities per worker of only 1.15 percent a year -- far less than...the average of 1.8 percent achieved over the past 40 years.

In other words, the fact that Social Security will eat up almost 2/3 of the increase in productivity for the next 40 years is not a cause of concern. I find it difficult to agree with that point of view. Note that in the past, when the demographics were moving the other way, Social Security did not eat up any of the productivity increase.

Discussion Question. As a higher fraction of national output goes to pay Social Security benefits, what happens to the fraction of output that is available for investment?

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