Pension Reform and Economic Theory
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Pension Reform and Economic Theory

A Non-Orthodox Analysis

Sergio Cesaratto

The book is the first of its kind to attempt to deal with the economics of pensions and ageing on the basis of a rigorous theoretical framework alternative to neoclassical economics. Sergio Cesaratto breaks the dominant conformism in the current pension debate and explains that the strength of the various reforms proposed depends on the validity of the economic theories on which they are respectively based. He also illustrates the relevance of the Sraffian criticism to undermine the theoretical core of the mainstream proposals.
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Chapter 5: The Controversy over the Social Security Surplus

Sergio Cesaratto


Thus, an important question for any proposed Social Security reform ... must be: What will the reform do to national saving? (Aaron et al., 2001, p. 17, italics in the original) 5.1 INTRODUCTION In 1983 the American Administration took various measures to bring the Social Security into surplus, for instance by raising the payroll taxes and postponing the legal retirement age. The surpluses are held in Treasury bonds and are accumulated in the so-called ‘trust fund’ (TF). In one decade or so the current surplus will disappear, but the SS is said to be able, by 1 depleting the capitalized value of the TF, to be in balance till the 2030s. In the US much of the debate in more recent years has focused on the nature and possible employment of the SS surplus to meet the alleged forthcoming troubles of PAYG and allow transition to an FF scheme. The present chapter examines the economic nature of the SS surplus. Section 5.2 introduces the notion of SS surplus and the TF in national accounting. Section 5.3 illustrates four positions related to the economic nature of the TF, whether purely ‘notional’ or ‘real’. Section 5.4 presents an appraisal of the controversy. An appendix to the chapter introduces the ongoing debate in Italy over the employment of the existing ‘severance pay fund’ to operate the transition to an FF scheme in this country. 5.2 THE SOCIAL SECURITY SURPLUS IN NATIONAL ACCOUNTS As will be recalled from Chapter 4, The PAYG budget is part...

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