Word: modelling
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Dates: during 1980-1989
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Feldstein says he has statistical backing for his position based on several econometric studies he has made since 1974. The studies in dispute use computer analyses of historical data on private saving to make predictions about the effect of anticipated social security benefits on savings from the "life-cycle" model...
...life-cycle model assumes that individuals make a financial plan for their whole lives based on their estimated present and future wealth and that they save according to this plan and consume all their savings during their lifetimes. Studies by several economists have generated erratic results using the model. According to Aaron, these studies "indicate that the life-cycle model does not correctly describe the behavior of many or most savers...
Feldstein's 1980 defense of his original conclusions prompted new criticisms by Lesnoy, Leimer, and others. Articles by economists from such diverse groups as the liberal Brookings Institution and the conservative American Enterprise Institute questioned several of the assumptions in Feldstein's model. While some criticisms were based on theoretical disagreements and challenges to the life-cycle model, others were based simply on Feldstein's choice of data...
Lesnoy and Leimer also argue that the data from before World War II are of questionable relevance to Feldstein's model to begin with. The first social security taxes were not collected until 1937, and the first benefits were not paid out until...
They note that most saving during the decade before the war was not done with the expectation of receiving benefits upon retirement. These expectations of retirement benefits are a fundamental assumption of Feldstein's "life cycle" model. Moreover, they say, the Great Depression and the war represent abnormal periods for private saving in this country...