Tuesday, October 22, 2013

AARP's fuzzy math on Social Security

See my recent piece in the Wall Street Journal that looks at AARP’s claims that Social Security benefits are a multi-trillion dollar stimulus to the economy. Maybe so, but you need to think about Social Security taxes as well. Once you do, the net effect isn’t trillions in GDP or millions of jobs, it’s basically about zero.

1 comment:

WilliamLarsen said...

Finally someone who states the basics.

"This isn't just theory. In a research paper published by the Brookings Institution in 1996, economists Jagadeesh Gokhale, Larry Kotlikoff and John Sabelhaus traced the decline in saving rates since World War II to the rise of Social Security and Medicare, which transfer income from savers (workers) to spenders (retirees)."

Wow, 1996. I found this to be the case as early as 1977 and all I had was a couple of years of college. Every time the payroll tax increased, savings decreased. Social Security has disenfrancised low income workers from participating in the American Dream by taking the little they were saving.

"To quote one randomly-chosen macroeconomics textbook, titled "Macroeconomics," by Olivier Blanchard of MIT: "The saving rate determines the level of output per worker in the long run. Other things equal, countries with a higher saving rate will achieve higher output per worker in the long run." In other words, because of Social Security taxes, today's economy is likely smaller than it otherwise would be."

If you tax workers and give it to seniors to spend, you do create economic growth. the problem has always been that without saving now to provide the means to pay our expenses in retirement in the future, future economic growth will be less. You cannot get something from nothing.