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Social Security Investment Policy And Capital Formation

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  • WILLEM THORBECKE

Abstract

Large recent surpluses in the social security trust fund accounts provide the potential to increase overall national saving and capital formation. However, these surpluses instead have allowed politicians to increase the non‐social security deficit and government consumption. This paper argues that investing the trust funds in private assets could bring into focus the magnitude of the non‐social security deficit and force Congress to cut it. Evidence presented here indicates that the trade deficit, output, and monetary policy are systematic macroeconomic variables that affect relative asset prices. The evidence also supports arguments of Nordhaus and others that a change in trust fund investment policy could lower the trade deficit, raise output, and produce looser monetary policy, thereby increasing Tobin's a and, thus, capital formation. Investing the trust funds in private assets could increase national investment and give the baby‐bust generation more capital to use in producing goods and services for themselves and for retired baby‐boomers.

Suggested Citation

  • Willem Thorbecke, 1992. "Social Security Investment Policy And Capital Formation," Contemporary Economic Policy, Western Economic Association International, vol. 10(3), pages 26-38, July.
  • Handle: RePEc:bla:coecpo:v:10:y:1992:i:3:p:26-38
    DOI: 10.1111/j.1465-7287.1992.tb00233.x
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    References listed on IDEAS

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