Comment: Social Security and Private Savings

From estimates of a modified life-cycle consumer expenditure function (LCF), Feldstein (1996) concluded that Social Security old age benefits reduced 1992 private saving by more than $400 billion. (1992 net (gross) private saving was $425 ($1,474) billion.) I confirm this finding, and show that it is more than three times its standard error but entirely due to the post-1971 data. However, the LCF tacitly constrains the effects of fiscal flows in ways the data reject. Feldstein also mismeasures private wealth and overlooks structural breaks occurring in 1947 and 1972. Once these specification and data errors are corrected, Social Security reduced 1992 private saving by at most $35 billion, with a standard error of $120-$160 billion.