Volume 13, Number 3, 2005
With such issues as tax reform and an overhaul of the Social Security system increasingly the subjects of headlines and debate, Ken Lewis’ work with econometrics is particularly timely.
But, the Chaplin Tyler Professor of Business in the Lerner College’s Department of Economics has been conducting research in the field for years, publishing frequently with Larry Seidman, also a Chaplin Tyler Professor of Business.
“Our underlying strategy is to bring modern tools of analysis to bear on interesting policy issues,” Lewis says.
On the issue of revamping Social Security, for example, Lewis and Seidman use complex mathematical techniques to simulate the U.S. economy under various growth models. Their goal is to determine what policies would be most effective in making a transition from the current, pay-as-you-go Social Security system to a fully funded approach.
As a result of their work, Lewis cautions against attempting a quick fix. He says the research indicates that any substantial change in the national retirement system will have to be decided at least a decade before it’s implemented and then phased in over two or three generations.
“Under the current system of Social Security, payroll taxes don’t really go into a fund; they go directly to retirees,” Lewis says. “This works in theory as long as there are enough workers paying into the system and not too many retirees. But, people are living longer and the baby boomers—a demographic bulge—are nearing retirement age.”
He says the current system can survive in a robust economy, but many experts believe a change is needed to allow for periods in which the economy slows. They point out that if the United States could move to a system in which a cohort (age group) of workers pays into a fund reserved exclusively for its own retirement, the returns would be substantially higher.
“One of our published papers shows that in the very long run, under this kind of alternative system, the population would be 20-25 percent better off than under the current approach,” Lewis says, adding that the difficulty is in how to make the transition.
“The working cohorts are paying into a fund for their own future retirement, but they also have to pay for the current retirees, who can’t simply be cut off. How can we minimize the inevitable losses?” he asks.
Any new system should be delayed 10-15 years after it’s announced, he says, “to protect the people near retirement who have put all their money into funding the previous generation.” At the end of that time, if changes are phased in over two or three generations, he says losses will be less than 2 percent.
“That is our recommendation,” Lewis says.
He and Seidman also conduct empirical studies of tax reform proposals and the implications for growth of the economy. This research looks at such automatic stabilizers in the U.S. economy as unemployment insurance and progressive tax codes and explores how they are used in current fiscal policy to combat economic problems.
“When the economy goes into a downturn, an automatic provision kicks in that reduces income taxes as people move down the brackets and increases unemployment insurance to those who are unemployed,” Lewis says. “These stabilizers are triggered automatically to provide relief, promote spending and keep the economy moving forward.”
In their research, Lewis and Seidman examine how the automatic stabilizers might be expanded in times of serious economic trouble.
In addition to his extensive research and writing, Lewis is associate chair of the economics department and director of UD’s graduate program in economics, which was one of the first such programs to focus on applied economics. Although the job of director has many facets, Lewis says he sees his primary responsibility as helping students succeed.
“A lot of attrition occurs in Ph.D. programs nationally, so we work hard to make sure it doesn’t happen here,” he says. “The real pleasure of my work comes in watching these students take the first steps to becoming independent scholars. Many of them go on to become economics professors in their own right. We are very proud of our Ph.D. students and what they accomplish.”
Lewis also teaches undergraduate courses in econometrics and an honors course in monetary economics, and he is an active promoter of UD’s study abroad programs.
“One of the things the University can say in its advertisements is, ‘Come to Delaware and see the world.’ There are a wide range of international programs that do a great job in providing specialized training while helping make well-rounded individuals,” he says.
Lewis, who in 1992 was named the first Chaplin Tyler Professor in the Lerner College, has been a member of the UD faculty since 1973. He says his multiple roles as teacher, adviser, scholar and writer are nothing out of the ordinary.
“I’m like the rest of the faculty in the Lerner College,” he says. “We work hard. It’s not unusual to see lights on in the building until late in the evening.”
—Mary Jane Pahls