Social Security Restructuring: Tough Decisions Ahead

1. Define the following terms used in the reading:
   1. pay-as-you-go system
   2. closed-group liability
   3. crowd out capital formation
   4. privatization

2. What determines the rate of return each generation earns under a pay-as-you-go Social Security system? What do the authors estimate this return has been over the long run and why do they consider it too low? What are their predictions for how the rate of return may change in the future?

3. Did earlier generations receive a higher rate of return from Social Security than current generations can expect? Why?

4. What proposals for reforming Social Security have been suggested? How do the authors evaluate these?

5. What is required to allow future generations to earn a market rate of return on their Social Security contributions?

Source: "Social Security Restructuring: Tough Decisions Ahead." Jason L. Saving and Alan D. Viard, Federal Reserve Bank of Dallas Southwest Economy, September/October 2003, pp. 13-17.