Minneapolis Fed Vice President Preston Miller suggests that long-term federal budget problems, exacerbated by the needs of an aging population, might be alleviated by a new approach to funding benefits received by that same aging population.

We use a simple model to show why previous empirical studies of budget policy effects are flawed. Due to an identification problem, those studies' findings can be shown to be consistent with policies either mattering or not. We argue that this problem is difficult and not likely to be resolved soon.