Sunday, January 16, 2005


Social Security: Not a Problem

Hi Everyone, sorry I've been away for so long. I want to get back to ecnomics and I'm especially interest in the Social Security debate. The next few posts will concentrate on Social Security:

Roger Lowenstein has an excellent piece on SS in this sunday's NYT Magazine

But is it? After Bush's re-election, I carefully read the 225-page annual report of the Social Security trustees. I also talked to actuaries and economists, inside and outside the agency, who are expert in the peculiar science of long-term Social Security forecasting. The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is.

The projections:
Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, ''The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.'' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. ''The only thing we are sure of is that it won't happen precisely as we project,'' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its ''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away.

So the 'huge liability' amounts to only 30% of benefits. Therefore if nothing is changed 70% of benefits will be paid for by not touching taxes. If current taxes will take care of 70% how exactly is the remaining 30% going to swamp the entire GDP????

Past performance is no indication of future success but:

No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.

Interesting how critics of global warming are so eager to jump on predictions that failed topan out.

BTW, rising wages do push SS more into the black. Contrary to what some critics have said, rising incomes do allow us to 'grow' out of any problems:

Rising wages are also a boon to Social Security's finances. Forecasting wages is difficult, as the trustees' report frankly admits, but it seems undeniable that as society ages, businesses will be harder pressed to find workers, and that should push wages higher. The trustees, however, project that real wages will grow at only 1.1 percent a year -- roughly equal to the level of the last 40 years

This point has been explored by other like Brad DeLong. Basically only the beginning benefit is indexed to wages but after that it is indexed to price. If wages are rising and I retire tomorrow, that will boost my benefit. But if wages continue to rise then the tax revenue coming into the system will increase while my benefits remain constant...adjusted only for inflation.

Putting the cost into perspective:

One way or another, societies with more old people have to devote more resources to them. Right now, benefits amount to 4.3 percent of G.D.P. The trustees' most likely projection assumes that over the next 75 years that figure will rise to 6.6 percent. In the more optimistic case, benefits will rise to 5.2 percent. Given the substantial increase in the elderly population, neither of these figures seems rash or out of proportion. The increased cost would be on a par with that of making Bush's first-term tax cuts permanent, which is projected to be about 2 percent of G.D.P.

"So the 'huge liability' amounts to only 30% of benefits. Therefore if nothing is changed 70% of benefits will be paid for by not touching taxes. If current taxes will take care of 70% how exactly is the remaining 30% going to swamp the entire GDP????"

i'm surprised that somebody who wants to geek this so much can miss the obvious (if that's your writing; wasn't so clear to me who was who). whatever its prior intent, social security is a tax -- a tax that is split in two right now as it enters the federal coffers. part goes out to recipients, and the rest offsets the federal budget. in exchange, scrip (debt) is placed into an account.

the social security apologists focus only on one bucket, ignoring that there are two shortfalls as the chickens come home to roost: 1) the big federal bucket. 2) the social security bucket. two buckets are going to fail at once and they are merely artificial divisions of the same entity (the federal government, the entire food source of which is obtain by force). there will not be some magical influx as the supposed "funds" (scrip) are called in. so there will be, concurrently, the federal budget losing a major source of "income", and that prior source, bled dry, calling in IOUs from its prior beneficiary. you don't see disaster written all over that? how can one speak only of the second bucket, when its relationship to the first is inextricable? one goes, they both go. the shortfall will be dealt with through default on the recipients, or an exponential increase in taxes to not only make up for the ridiculously poo-poo'd shortfall (30%!), but ALL THAT AND MORE AGAIN that is no longer present in the federal budget which, most assuredly, will not be reduced. that is real.

i often wonder what the social security apologists are smoking. they are not objective. they do not treat social security as an accounting reality, but rather as a deity -- one that must not be allowed exposure to the light. numbers do not realign themselves in the presence of quasi-religious, humanitarian blah blah.

for the record, i do not support "privatization", or any other piece of legislative interference in the freedom of people to live their lives as they see fit. please don't ignore the parallel in this quote:

"If it is really necessary for Congress to force (that is what legislation is about) food makers to confess that they use eggs or peanuts or whatever, in order to prevent people from dying who would otherwise croak on a crumb, if it is really essential that the coercive apparatus of the state, which George Washington compared to a fire and the whole liberal intellectual tradition warns is up to no good, be used, if this is really necessary, then there is no case for freedom at all. If government needs to do this, it needs to do everything. If the market fails here, it fails everywhere, and we need the total state."

what is it this country pretends to be? is in the soviet union remade in red white and blue? then let's toss the constitution (which social security violated to the core), and round up dissidents like me for the gulag. at least then we will have an honest enemy we may fight directly, finally, for our very lives.

at one point does taxing become slavery? is it 90% is it 99%. or is it part-time slavery, with a huge, incalculable cost in happiness, distributed so blindly and without care that humanity is enured to it until finally we shatter? that's a real question: at what point does the control of a man's work become slavery?

philosophical questions aside, social security is only a "success" if you work in an accounting/legal department that makes the enron boys look like jesuit priests. the practices that allow social security would NEVER be tolerated by government if it found them in existence at a private company. by what license is this inconsistency allowed to exist?

"Oh, sublime writers! Please remember sometimes that this clay, this sand, and this manure which you so arbitrarily dispose of, are men! They are your equals! They are intelligent and free human beings like yourselves! As you have, they too have received from God the faculty to observe, to plan ahead, to think, and to judge for themselves!"

your fellow man is not your property to manipulate in schemes befitting your majesty. grandiose rhetoric can never truly disguise outright theft.

where do you think the money from the "trust fund" (now depleted) is going to come from? once the "trust fund" is even TOUCHED, the finances of this country will be in rapid decline. the money for the "trust fund" (now depleted!) cannot come from nowhere, except through massive inflation of the money supply (a hidden tax). and you speak of 30%?! that's insane. you are missing the accounting part of the rhetoric -- the most important part.
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