Mandated Saving and the Fallacy of Aggregation

Research Report

Mandated Saving and the Fallacy of Aggregation

December 23, 1996

Abstract

Because Social Security spends tax collections almost immediately, rather than putting them aside to fund future retirement costs, it is believed by many to reduce net national saving at a time when other private and public saving are considered too low. This low savings rate coincides with a matured private pension system that does not provide much in the way of benefits for about half the population. These considerations have led many, including Senior Fellow Eugene Steuerle, to consider whether government ought to mandate that deposits be made to private saving accounts. In this essay, he concludes that there are several good reasons to favor mandated saving, but one should not exaggerate the extent to which it will increase net saving in society.

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