11. Social Security

Financial Theory (ECON 251)

This lecture continues the analysis of Social Security started at the end of the last class. We describe the creation of the system in 1938 by Franklin Roosevelt and Frances Perkins and its current financial troubles. For many democrats Social Security is the most successful government program ever devised and for many Republicans Social Security is a bankrupt program that needs to be privatized. Is there any way to reconcile the views of Democrats and Republicans? How did the system get into so much financial trouble? We will see that the mess becomes quite clear when examined with the proper present value approach. Present value analysis reveals the flaws in the three most popular analyses of Social Security, that the financial breakdown is the fault of the baby boomers, that privatization would bring young investors a better return than they anticipate getting from their social security contributions, and that privatization is impossible without compromising today's retired workers.

00:00 - Chapter 1. Introduction
03:53 - Chapter 2. The Development of the U.S. Social Security System
19:16 - Chapter 3. Economic Imbalances in Social Security
38:48 - Chapter 4. Root Causes of Income Transfer in Social Security
01:05:21 - Chapter 5. Privatization of U.S. Social Security

Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses

This course was recorded in Fall 2009.