Assignment 4: Social Insurance Financing and Goals ECN410 Public Finance Prof. H.Grob

Preparation: Read chapters 9 and 10 carefully and take notes.

In-class exercise: Divide into groups of four on Thursday, March 13.

Introduction: The purpose of this workshop is to understand the goals, financing and problems facing social insurance. Try to understand and appreciate different points of view and develop your own opinion about how social insurance programs work. We also want to understand various measures of success. How do we know how well social insurance programs work? What kind of unintended consequences can develop from social insurance rules? This kind of in-depth and critical reading will develop skills necessary to begin economic analysis.

Part I (15 minutes): Discuss each of the subjects below in a free-for-all or round robin manner. Discuss ideas, counter them, and be critical of your reading of the text. Listen to your fellow classmates and help them to understand the key points. Spend about 5-7 minutes on each topic. 1. What are the justifications for social security and unemployment insurance? 2. How is Social Security financed and why was it done this way? 3. Does social security operate fairly or efficiently? (What are the pros and cons of our social security system.) 4. If you were the Commissioner of Social Security, what policies would you advocate and why?

Part II (15 minutes): Summarize the results of your analyses from Part I by discussing the following questions: What methods should be used to evaluate governments’ financial success? If you were running a public agency with the mission of insuring the population against the threat of poverty due to retirement or misfortune, what would you focus on and why?

(Groups report out and seminar discussion: remaining time)

Part III (Homework): Writing individually, write a 1-2 page response to the question in Part II. Refer to the textbook and additional readings as necessary. This part of the assignment is due at the beginning of class on March 27.

Other relevant materials that are available include:

Auerbach, et al. 1997. Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy in Baker and Elliot, eds. Readings in Public Finance: 473-489. Orr, Doug. 2004. “Social Security Isn’t Broken: So Why the Rush to Fix it?” in Real World Macro, 22nd Ed. (pages 30-33) Boston, MA: Dollars and Sense Cooperative.

Spriggs, William E. 2004. “African Americans and Social Security.” in Real World Macro, 22nd Ed. (pages 63-66) Boston, MA: Dollars and Sense Cooperative.

Kotlikoff, Laurence and Scott Burns, 2004. The Coming Generational Storm: What you need to know about America’s Economic Future. Cambridge, MA: MIT Press.