SOCIAL SECURITY REFORM

Abstract

The baby boom generation’s entry into retirement early in the next century will place enormous pressure on public spending in the United States. The increase in the percentage of the population that is aged will inevitably drive up the burden of paying for Social Security, Medicare, Medicaid, and other government programs. Concern over the future financing of public retirement programs has stimulated growing interest in reform. Nearly all reform proposals involve scaling back the provision of public retirement benefits. Many also entail creation or expansion of private saving mechanisms to encourage or force workers to save more for their own retirement. As the nation considers reform options, voters and policymakers should recognize that the challenge of population aging is not unique to the United States. The jump in the aged dependency rate is actually smaller and will occur later in the United States than in other rich industrialized countries. As a result, the United States will have an opportunity to learn from the experiences of Germany, Japan, and other aging societies. Even more important, many reforms that attempt to address the problems of population aging will have substantial external repercussions in an increasingly integrated global economy. Any evaluation of reform alternatives must take account of their impact on international capital markets and trade flows. Sensible planning should