Can Social Security Improve Its Future Solvency Problem by Investing in Private Securities?
Author InfoThomas E. MaCurdy John B. Shoven Abstract This paper examines the economics of investing the central trust fund of Social Security in private securities. We note that switching from a policy of having the trust fund invest solely in special issue Treasury bonds to one where some of the portfolio holds common stocks amounts to an asset swap. Such an asset swap does not increase national saving, wealth or GDP. We also show that it is far from a sure thing in terms of improving the finances of the Social Security system. The asset swap is deemed successful if the stock portfolio generates sufficient cash to pay off the interest and principal of the bonds and still have money left over. It is deemed a failure otherwise. By using historical data and a bootstrap statistical technique, we estimate that the exchange of ten or twenty year bonds for a stock portfolio would worsen social security’s finances roughly twenty to twenty-five percent of the time. Further, failures are autoco
