Reforming Social Security

In this project, Professors John Geanakoplos (Yale) and Stephen Zeldes (Columbia), will analyze the U.S. Social Security system and develop a set of evidence-based proposals to reform it. The project will include the following:

1. Historical data collection – we have assembled historical data on Social Security cash flows by year and cohort since the founding of the system in 1935. We will continue to refine these data and incorporate new data.
2. Historical analysis – what caused the imbalance? Quantify the financial impact of each of the demographic and structural shifts that have led the system to the brink of bankruptcy. These include changes in the number of children per family, changes in longevity, and most importantly, the “legacy costs” associated with the pay-as-you-go system, whereby early recipients of Social Security received full benefits after making small contributions.
3. Modeling – develop a microsimulation model for forecasting Social Security cash flows into the indefinite future. This model will allow for counterfactual projections under different macroeconomic and demographic scenarios.
4. Empirical analysis – use both individual-level microeconomic data and macroeconomic data to inform the nature and likelihood of future scenarios.
5. Theoretical analysis – examine and develop models of optimal risk-sharing and taxation. Develop asset pricing techniques to value future Social Security cash flows, taking into account contingent future interest rates and wage growth. How should you value your Social Security benefits, and how should society realistically value the Social Security deficit?
6. Policy – design and evaluate potential policies to restore and automatically maintain solvency of the system into the future, taking into account the distributional effects of any proposed reform.