The Economics of Social Security: An Old Keynesian Perspective by Thomas I. Palley (2006)
Public policy makers are talking of a looming crisis in public pension arrangements. They emphasize demographic developments combined with the Pay-As-You-Go nature of public pension schemes. Their solution usually involves a reduction in benefits achieved by raising the retirement age, a move to pre-funding, and investing in equities. This paper examines the economic implications of such policies from an old Keynesian perspective. Such policies will not resolve the problem posed by having a large cohort of retirees, and may exacerbate it. Pre-funding could be deflationary and actually retard capital accumulation.
