The True Cost of Social Security

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Implicit government obligations represent the lion's share of government liabilities in the US and many other countries. Yet these liabilities are rarely measured let alone properly adjusted for their risk. This paper shows, by example, how modern asset pricing can be used to value implicit fiscal debts taking into account their risk properties. The example is the US Social Security System's net liability to working-age Americans. Marking this debt to market makes a big difference. Its market value is 86 percent higher than the Social Security trustees' valuation method suggests.