SOCIAL SECURITY AND THE SAVINGS RATE IN THE UNITED STATES
To pose the question of whether the existence of social security in the United States has led to a reduction in the rate of personal savings in this country is like asking if the apple one ate after dinner last night caused one's stomach ache, considering that one had also consumed a whole pizza and a six pack of beer just prior to eating the apple. In the latter instance, the apple probably contributed to the overall level of discomfort, but whether the apple would have had any undesirable effect at all in the absence of the pizza and beer is quite another question. The same phenomenon occurs with respect to the relationship between social security and the personal savings rate. Social security, within the economic environment in which it exists, likely has contributed to the lower personal savings rate in the United States. Whether the effect of social security on the personal savings rate would be of any consequence in the absence federal income tax, cycles of unemployment, consumer installment debt, and an American penchant (actively promoted by the federal government and the country's major corporations) to spend heavily on current consumption (each of which dwarfs social security as a proportion of total personal income) is, again, quite another question.
The argument of the public choice economists who contend that the existence of social security is the cause of a lower personal savings rate in the United States is based on an assumption that, because people know that social security will provide them a retirement pension, they no longer have the incentive to save. These same public choice economists, out of the other side of their mouths, contend that most Americans have lost confidence in the ability of the social security system to pay a pension when it comes time for them to retire. It would appear to the naive observer that such a loss of confidence in ...