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The Social Security System Is Considered Pay-As-You-Go By Peter Diamond

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1. Peter Diamond was awarded the 2010 Nobel Prize in Economic Sciences 2010 for his analysis of markets with search frictions. His speech outlined the definition of search frictions and the role it has in the operation of markets. Among the issues being debated, Dr. Diamond’s analysis on hiring patterns in the U.S economy was important in explaining the rise in unemployment.
2. The maximum taxable earnings base at the time the article was written was $15,300. This article was written in 1976. In addition, the Social Security tax rate in 1976 was 9.9%. According to the Tax Policy Center, the rate in 2014 is 12.4%. In 2014, the maximum amount of taxable earnings is $117,000.
3. The U.S Social Security System is considered “Pay-As-You-Go” for …show more content…

There are four reasons for a government tax-transfer program. Raising revenue is an important aspect of Social Security. The total revenue that is raised for S.S is used to redistribute income across generations. Redistribution of income is used to correct the market from potential failures such as insufficient savings in retirement years. Finally, S.S is used as a paternalistic method.
5. Intra-generational redistribution is concerned with equity between people of the same generation. Intergenerational redistribution is relating to equity between several generations. In this case. Intergenerational redistribution is between the present and future generation.
6. In the article, Social Security analysis, Peter Diamond outlines three market failures that Social Security is designed to alleviate. First, Social Security serves as a safe investment opportunity. The rate of return on Social Security allows for consumers to accumulate funds for retirement in a safe manner. Second, the absence of real annuities indexed to the consumer price index. Finally, the problems in insuring the risk associated with a varying length of working life results in market failures. Workers who experience declining skills due to health issues or other

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