Social Security Reform in Advanced Countries: Evaluating Pension Finance

By Toshihiro Ihori; Toshiaki Tachibanaki | Go to book overview

3

Five fallacies in the social security debate1
Mats Persson
Abstract
This chapter discusses five examples of the conventional wisdom that has often been expressed in the social security debate, even among academic economists. These are:
1 The major problem in most social security systems is that of demography: people simply live too long.
2 Disregarding the issue of demography, a pay-as-you-go system is inferior to a fully funded system since the former usually has a lower rate of return.
3 Disregarding the portfolio aspect (which might favor a PAYG system), a funded system dominates a PAYG system in a world of certainty.
4 The social security system is a suitable instrument for intergenerational risk-sharing.
5 The government is a safe and reliable provider of insurance.

Social security, dealing with intertemporal and intergenerational issues, is a difficult field. Therefore, the basic economic mechanisms are often obscured by technical complications, and even academic economists might yield to conventional wisdom when those basic mechanisms are concerned. In this chapter, I will discuss five cases where the conventional wisdom, although containing a grain of truth, could be challenged.

These five points are not new. Still, I think it is useful to have them collected in one chapter, instead of seeing them scattered in various publications - sometimes only mentioned implicitly, in quite a different context.


3.1The present problems in the social security systems are due to demography

By demography, this argument usually refers to longevity, people simply live for too long. 2 The argument sounds quite convincing, and almost all

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