Social security,saving, and macroeconomics

Arguing within the framework of a life-cycle hypothesis of consumption of the individual household, Martin Feldstein has claimed that a pay-as-you-go, unfunded social-security system implies a private-sector perception of wealth which both depresses private saving and raises aggregate consumption. But the effects in a macro-economic context are not the same. With less than full employment, perceived increments to private wealth in social security or any other government obligations should increase current and planned future consumption and saving, raising employment and output. With full employment, as long as monetary policy is appropriately accommodating, such increments to wealth should raise prices but leave all real variables, including capital accumulation, unaffected. Increases in social-security wealth would merely substitute for real private wealth in the form of explicit government bonds. Econometric estimates from corrected U.S. data on social security, public debt, income, and employment are consistent with these hypotheses.