Much of academic discourse depends on a set of rigorously established “stylized facts.” Providing such facts rely on sound measurement, which is often harder than it seems. I discuss three recent examples that are worth noting.
A paper that challeges the conventional wisdom is not only a delight to read, but it is also one that takes great courage and careful evidence to write. Catherine, Miller, and Sarin (2021)’s “Social Security and Trends in Wealth Inequality” is one such paper.
Their main message is simple: If one takes into account Social Security, top wealth shares have actually not increased in the last three decades. Here are the authors:
When discounted at the risk-free rate, real Social Security wealth increased substantially from $4.9 trillion in 1989 to $52.6 trillion in 2019. When we adjust the discount rate for long-run macroeconomic risk, this increase remains sizable, growing from over $4.0 trillion in 1989 to $41.2 trillion in 2019. Consequently, by 2019, Social Security wealth represents 59% of the wealth of the bottom 90% of the wealth distribution.
While the proposition sounds simple, estimating the Social Security wealth is non-trivial. There are two key decisions to be made: (1) simulating paths of future benefits and payroll taxes and (2) choosing an appropriate discount rate.
The result of their exercise is this figure:
I sympathize with the authors that the Social Security aspect dimension of public wealth is somewhat ignored in these debates. Their analysis begs the question of how the trend changes if we take into account much larger set of policy reforms. Perhaps, this paper by Hendren and Sprung-Keyser (2020) is a good starting point for such extension.