This is the Cato Daily Podcast for Thursday, December 27th, 2007. I'm Caleb Brown.

A conventional view is that faster wage growth would improve Social Security's financial

condition.

But is that true?

Jagadish Goklay, author of a new Cato policy analysis that studies the connection

between Social Security's financial condition and wage growth offers his assessment.

What are the commonly held beliefs about the impact of wage growth on the financial

condition of Social Security? Well I think the general consensus in the

economics profession as well as in the public debates over Social Security reform tends to be that

faster economic or more specifically faster wage growth in the future will improve Social Security's financial

condition. And that view is widely held, was also evident in the presidential debates from the last presidential elections

when they were asked what reforms they would emphasize for program for Social Security.

The candidate John Kerry said that we don't really have to do anything about

reforming Social Security because economic growth, faster economic growth

will bail us out. So generally I think there is a consensus that if we are somehow able to

improve or increase the rate of growth, economic rate of growth in the country, then Social Security's financial

condition would be improved and therefore there's no urgency to undertake

reforms. Another reason why people believe that faster growth would be desirable from Social

Securities, from the perspective of Social Security's financial condition, is because the Social Security Administration is viewed as

adopting rather pessimistic projections on future economic growth.

Now if they are indeed pessimistic and future economic growth is expected to be much

faster perhaps because historically we have been growing faster especially after the mid-90s.

...