Wednesday, April 19, 2006

Market Risk vs. Political Risk

If you haven't been reading Greg Mankiw's blog then I recommend you start right now. He links to a paper that examines the risks associated with Social Security. I am always suprised to hear people say that Social Security is a "sure thing" while the market is risky. Well, Social Security has what's called "political risk". Essentially, it means that the Congress can fiddle with the formula used to make Social Security payments (e.g. raising the retirement age).

Update: Greg also has a great post on time inconsistency which I found to be helpful. It sure beats this wikipedia article.