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SOCIAL SECURITY INVESTMENT POLICY AND CAPITAL FORMATION
Author(s) -
THORBECKE WILLEM
Publication year - 1992
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1992.tb00233.x
Subject(s) - economics , investment (military) , monetary economics , sovereign wealth fund , capital formation , investment fund , social security , finance , financial capital , macroeconomics , human capital , foreign direct investment , market economy , market liquidity , politics , political science , law
Large recent surpluses in the social security trust fund accounts provide the potential to increase overall national saving and capital formation. However, these surpluses instead have allowed politicians to increase the non‐social security deficit and government consumption. This paper argues that investing the trust funds in private assets could bring into focus the magnitude of the non‐social security deficit and force Congress to cut it. Evidence presented here indicates that the trade deficit, output, and monetary policy are systematic macroeconomic variables that affect relative asset prices. The evidence also supports arguments of Nordhaus and others that a change in trust fund investment policy could lower the trade deficit, raise output, and produce looser monetary policy, thereby increasing Tobin's a and, thus, capital formation. Investing the trust funds in private assets could increase national investment and give the baby‐bust generation more capital to use in producing goods and services for themselves and for retired baby‐boomers.