Issues in Privatizing Social Security: Report of an Expert Panel of the National Academy of Social Insurance

Two types of changes to Social Security have been proposed. One would keep thecurrent defined-benefit structure but build and maintain a larger trust fund, to be partiallyinvested in stocks and corporate bonds. The other would set up individual funded accounts, also tobe partially invested in private markets. Both would raise taxes or lower benefits in the near termto increase funds for paying future benefits.This study addresses many important aspects of thesepolitically charged proposals. The questions discussed include: Should Social Security have moreadvance funding? Should Social Security funds be invested in the stock market? If investments areorganized by the government, what independent institutions would shield portfolio decisions andcorporate governance from political pressures? If investments are privately organized, what would bethe regulatory structure? Finally, should Social Security include individual defined-contributionaccounts or stay with traditional defined benefits?The National Academy of Social Insurance is anonprofit, nonpartisan organization whose mission is to conduct research on and enhance publicunderstanding of social insurance, to develop new leaders, and to provide a forum for the exchangeof ideas on issues related to social insurance.

Peter A. Diamond is Institute Professor at the Massachusetts Institute of Technology. He received 2010 the Nobel Prize for Economics.