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Social Security

A Fresh Look at Policy Alternatives

Many of us suspect that Social Security faces eventual bankruptcy. But the government projects its future finances using long outdated methods. Employing a more up-to-date approach, Jagadeesh Gokhale here argues that the program faces insolvency far sooner than previously thought.

To assess Social Security’s fate more accurately under current and alternative policies, Gokhale constructs a detailed simulation of the forces shaping American demographics and the economy to project their future evolution. He then uses this simulation to analyze six prominent Social Security reform packages—two liberal, two centrist, and two conservative—to demonstrate how far they would restore the program’s financial health and which population groups would be helped or hurt in the process.

Arguments over Social Security have raged for decades, but they have taken place in a relative informational vacuum; Social Security provides the necessary bedrock of analysis that will prove vital for anyone with a stake in this important debate.

374 pages | 34 line drawings, 25 tables | 6 x 9 | © 2010

Economics and Business: Economics--General Theory and Principles


Social Security is innovative, interesting, and important. Gokhale delivers on the promise in the title, providing a new appraisal of a variety of plans to reform Social Security that will appeal to a wide range of readers, including policy makers in Congress and the White House and economists concerned with retirement income.”

Dale Jorgenson, Harvard University

“Jagadeesh Gokhale once again pushes the state of the art in Social Security analysis, warning us that the largest federal spending program is in far worse financial condition than commonly supposed. Gokhale builds his analysis of Social Security from the ground up, in the process showing how more limited approaches used by government agencies don’t tell the full story. Gokhale’s analysis of Social Security is both technically first-rate and accessibly written, and it should serve as a warning to policymakers and the public not to delay in addressing this important issue.”

Andrew Biggs, American Enterprise Institute

“Let there be no mistake—despite the urgency of the recent financial crisis and recession—the most daunting economic challenge facing our nation remains that of reducing the enormous deficits facing the United States as a result of our entitlement programs. In Social Security, Jagadeesh Gokhale provides a rigorous analysis of options for reforming this important program. His analysis serves both as a ‘call-to-action’ for our nation to take on this problem head-on and as a useful analytical framework for understanding how reform would work. Policy makers should not only read this book, they should act on it.”

Jeffrey R. Brown, University of Illinois at Urbana-Champaign

Table of Contents

List of Tables

List of Figures

I. Issues in Evaluating Social Security’s Finances

Chapter 1. The Simmering Social Security Reform Debate

Chapter 2. Simulating U.S. Demographics and Economics: Beginning in 1970

chapter 3. Forward Motion: Demographic Transition, 1971–2006

Appendix 3.1. Mortality Rate Calculations

Appendix 3.2. Estimating Fertility Rates by Female Race, Age, and Education

Appendix 3.3. Marriage and Divorce

Appendix 3.4. Labor Force Status Transitions

Appendix 3.5. Calibration of Immigrants’ Characteristics

Chapter 4. Peering into the Future

Chapter 5. A Framework for Simulating Annual Nominal Earnings

Appendix 5.1. Method for Simulating "Effective Labor Inputs"

Appendix 5.2. Simulating Workers’ "Effective Labor Inputs" in 1970

Appendix 5.3. Regression for Simulating Life-Cycle "Core Labor Input" Trajectories

Chapter 6. Simulating Social Security’s Finances

Appendix 6.1. The Social Security Tax and Benefit Calculator

Chapter 7. Micromeasures of Social Security’s Financial Condition

II. Issues in Evaluating Social Security Reform Proposals

Chapter 8. Liberal Proposal 1 by Robert M. Ball: "A Golden Opportunity for the New Congress"

Appendix 8.1. Estate Tax Revenue Projections for the Robert M. Ball Reform Proposal

Chapter 9. Liberal Proposal 2 by Peter A. Diamond and Peter R. Orszag: "A Balanced Approach"

Appendix 9.1. Incorporating Diamond-Orszag Reform Elements into DEMSIM

Chapter 10. Centrist Proposal 1 by Representatives Jim Kolbe, Charles Stenholm, and Allen Boyd: "Bipartisan Retirement Security Act"

Chapter 11. Centrist Proposal 2 by Jeffrey Liebman, Maya MacGuineas, and Andrew Samwick: "A Nonpartisan

Approach to Reforming Social Security"

Chapter 12. Conservative Proposal 1 by the President G. W. Bush Commission to Strengthen Social Security: Model 2

Appendix 12.1. Benefit Offset Calculation under G. W. Bush Commission Model 2

Chapter 13. Conservative Proposal 2 by Representative Paul Ryan: "Social Security Personal Savings Guarantee and Prosperity Act"

Appendix 13.1. Progressive CPI Indexing Social Security Benefits under the Ryan Reform Proposal

Chapter 14. Key Conclusions about Social Security’s Financial

Condition and Reform Alternatives





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