Social Security’s Investment Shortfall and US Government’s Financial Deficit Reporting = 64 Madoffs?

“The US Government has engaged in deceptive reporting on its financial performance for the last four decades,” writes World Scientific author Professor Nils Hakansson (University of California, Berkeley) in his book Social Security’s Investment Shortfall.

 The concept of the Unified Budget currently employed by the US Government was mooted by President Lyndon Johnson and was adopted from 1970. It implicitly viewed the net inflows from the trust funds as available for current government expenditure and tax cuts even when it was clear that they were not meant for that purpose. In addition, the concept of the trust fund being dedicated to statutory benefits was deemed as meaningless by the government and therefore, deliberately misstated in its accounting practices. Adding up 41 years of trust fund surpluses over the 1970-2010 fiscal period provides for a sum of US$4.149 trillion which is equivalent to 64 times of Madoff’s embezzlement of US$65 billion.

Published by World Scientific, the book documents two costly public policy mistakes of the United States Government:

Firstly, the failure to combine stocks with long-term government bonds in the Social Security Trust Fund, the way other nations do, which has resulted not only in an investment shortfall well into the trillions of dollars, but has also reduced US and global economic growth and increased the national debt.

Secondly, the employment of the Unified Budget concept beginning in 1970, which has since then seen the US Government understating its financial deficits by more than $4 trillion and in doing so it has shielded the increase in the debt owed to the public by roughly half.The book also proposes that the Social Security System be made independent and professionally managed based on the Federal Reserve System model.

Nobel Prize in Economics winner William Sharpe said, “If you are interested in the US Social Security System, you should read this thought-provoking book. You may not accept all of Nils Hakansson’s conclusions, but his carefully presented facts and arguments will almost certainly change the way you view this crucial social issue.”

Emeritus Professor Michael Brennan of University of California, Los Angeles, and London Business School commended Hakansson for revealing how Congress/the government had squandered Social Security contributions on current expenditures instead of “investing them to provide future pensions that are promised.”

Social Security’s Investment Shortfall is available at major bookstores and retails at US$38/£25 for the hardcover. More information about the book can be found at http://www.worldscientific.com/worldscibooks/10.1142/8510.

About the author:

Nils H Hakansson is the Sylvan C Coleman Professor of Finance and Accounting, Emeritus, University of California, Berkeley. He has lectured widely around the world and received an honorary doctorate from the Stockholm School of Economics. He was a trustee of the Laudus Mutual Funds and chair of its audit committee, 1990–2009.

About World Scientific Publishing

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