I understand that fiscal policy depends on the magnitude of all taxes,
transfers, and expenditures, appropriately weighted (although no one yet
knows just what the right weights are). In that sense, fiscal policy depends
on all operations of government, including Social Security. Few people now
favor the use of fiscal policy for short-run stabilization, however. That job
belongs to the Federal Reserve open market committee. The primary microeconomic influence of fiscal policy is on resource allocations. The primary
macroeconomic use is to influence the U.S. national saving rate. In my view,
budget accounting rules should be seen as utilitarian instruments to be
constructed to help promote good public policy and informed debate, not
as Platonic essences that, once discovered, should be enshrined. Since I
believe that U.S. saving is now lower than optimal, I favor budget accounting rules that would help maintain Trust Fund surpluses as genuine additions to national saving and would help defend them against unneeded
additional spending or tax cuts.
13. Engen and
Gale ( 1996, Table 3-2)
. The fact that there is net borrowing
does not imply the absence of nontax-sheltered saving; it means that borrowing in various forms more than offsets any such saving.
Bayer, Patrick J.,
B. Douglas Bernheim, and
John Karl Scholz. 1996. "The
Effects of Financial Education in the Workplace: Evidence from a Survey
of Employers." NBER working paper no. 5655.
Diamond, Peter. 1997. "Macroeconomic Aspects of Social Security Reform." Brookings Papers on Economic Activity, no. 2, 1-66.
Employee Benefit Research Institute. 1998. "Are Individual Accounts Administratively Feasible?" Washington, D.C., mimeo.
Engen, Eric M., and
William G. Gale. 1996. "The Effects of Fundamental
Tax Reform on Saving." In
Henry J. Aaron and
William G. Gale, eds. Economic Effects of Fundamental Tax Reform. Washington, D.C.: The Brookings
Olivia Mitchell, and
Steven Zeldes. 1998. "Would a
Privatized Social Security System Really Have a Higher Rate of Return?" Paper presented to the tenth annual meeting of the National Academy of
Social Insurance, Washington, D.C., January 29-30.