Economic Objectivity?

Martin Feldstein's Social Security Findings

When Professor of Economics Martin S. Feldstein '61 finished his December coursewide lecture on social insurance in the popular Social Analysis 10. "Principles of Economics," few of the 1000 students in the class realized that Feldstein had presented material that has been the focus of more than a decade of heated debate in the academic community.

But several of Feldstein's section leaders were distressed enough with the lecture that they felt the need to qualify his comments during section.

Feldstein's argument was that individuals' expectations of receiving social security benefits cause them to reduce their personal savings by around 50 cents for each dollar of social security benefits they expect to receive.

Because social security benefits are paid directly from current tax receipts, future benefits do not represent money in the bank, he said. The idea is that while private savings and future social security benefits serve the same function for individuals, they have different effects on the economy.

Private savings accumulate in banks and provide funds, or capital, for investment and economic growth; future benefits do not. As a result, Feldstein has estimated--first in a 1974 paper--that social security had reduced the accumulated wealth of the nation by as much as 38 percent.


Feldstein told students in his December 14 lecture that future social security benefits act as a "clear and direct substitute for private saving" and that the magnitude of this substitution is an "empirical question."

Feldstein said of the 50 cent drop in personal savings supposedly caused by social security: "It is a number that I think is in line with the statistical evidence."

But a number of economists are not so sure, and Feldstein has spent more than a decade defending what critics have called an unjustified conclusion from faulty evidence.

"After that lecture I presented students with the range of evidence and showed Feldstein's estimates to be at the high end of the range," says section leader Perry G. Mehrling.

Hamish C. Stewart, a section leader, says Feldstein "presented a figure as a consensus view and as something that arose out of evidence. I told my class that different people had found different numbers and no hard conclusions could be made from that data."

However, Lawrence B. Lindsey, head of sections for the course, says Feldstein's presentation of his view on social security was not unusual. He notes that professors with a wide variety of views lecture to Soc Anal 10 and that much of the material they present is disputed to a lesser on greater extent.

Lindsey says, "All section leaders pre free to say in class what they think is right," adding, "Critical evaluation of material is a part of the sections."

Feldstein, who is teaching Social Analysis 10 for the first time this fall has already drawn fire from section leaders for his decision to eliminate the radical section, from Social Analysis 10.

Last week, an ad-hoc committee of section leaders--including Mehrling and Stewart--called for fundamental changes in the course's organization. Saying that the reinstatment of radical sections alone would, not ensure balanced presentation of course materials, the group proposed "that the course be governed by a committee of faculty members, representing the different viewpoints and areas as far as possible."

Feldstein has argued that an introductory course should concentrate on the mainstream view and that students can learn alternate economic models later. "I want students to learn what I call the consensus view, where the vast, vast majority of economists are," he said last fall.