Outcomes through the intertemporal lens
Viewed through an intertemporal analytic, however, these paired outcomes look very
different. While Thatcher’s radical achievements stand out in distributive terms, it was Reagan
who enacted the far more dramatic reallocation of resources over time. In carrying out this
intertemporal transfer, the U.S. government imposed far greater and more visible losses on
constituents in the near term than did the British, while doing far more to reduce the aggregate
costs of demographic change for future producers and retirees. Moreover, Reagan’s 1983 reform,
while the single most significant act of pension retrenchment in the United States, was in fact the
second major investment in the program’s long-term stability enacted by American politicians
within the space of a few years. Meanwhile, Thatcher failed to realize most of the massive long-
term investment in private pensions that she had initially planned to legislate.
The U.S. 1983 reform did far more than reduce synchronic flows of resources from
workers to retirees. In fact, in the short term, most of the pain of adjustment took the form of tax
increases rather than benefit cuts. Among these near-term revenue measures was an acceleration
of contribution rate increase scheduled for 1990 to a two-stage hike in 1984 and 1988, the
inclusion of all new federal employees in the Social Security system, and a boost in the rates paid
by the self-employed. Moreover, and most important from an intertemporal perspective, the total
costs imposed in the short term – tax increases and benefit cuts combined – would exceed what
was needed to keep the program in balance in those years. By 1988, the systems inflow was
projected to exceed its outlays by about 1 percentage point of taxable income, and these annual
surpluses would continue to grow in size to reach nearly 3 percentage points by the first decade of
the next century. Through a string of annual surpluses, the retirement and disability trust funds
for 20 Oecd Countries," Economics Department Working Papers No. 168. (Paris: Organisation for
Economic Cooperation and Development, 1996).
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Convention