What Bill Murray, Michael J. Fox, and the Social Security Baby Boom Surplus have in common
Here we go again, and here is all you need to know that demonstrates why there is not a Social Security crisis.
Alan Greenspan, usually considered by conservatives to be a pretty smart guy (and a tad bit more knowledgeable than Mr. Tim “Chalkboard-Two-Workers-for-One-Retiree” Russert), had a remarkable flash insight into the fact that someday, all those Baby Boomers, born between 1945 and 1965 or so were going to retire someday. He said to his 1983 Social Security Fix-It Commission, which Ronald Reagan thought was a good idea, “We have to do something about that. We need to plan for the future. We need to build a surplus in the Trust Fund for when that day comes. Think of it like a college fund, built up and then sitting there to be used when the Baby Boomers start to retire (beginning about 2010), and then to be used up someday when they have died off. By about 2030, they will start dropping like flies. Let’s call it the Baby Boom Social Security Surplus.”
After that, the Social Security Trustees began on a consistent basis predicting “Key Dates,” including the year the surplus would stop building – i.e., the year we would have to start using it, which we will call the Start Date – and the year it – the surplus -- would finally be used up, or the End Date. After the End Date, we would have to go back to the original pay-as-you go system that worked for about 50 years before this Baby Boom “bulge” mucked it up (like, according to The Greatest Generation and Generation X, they do to everything else). Back in 1994, for example, the Social Security actuaries fed in their economic and demographic assumptions, and voila, they predicted the Start Date (for the combined retirement and disability funds) would be in 19 years, 2013, and the End Date would be 35 years in the future, or 2029.
Now if this were a perfect science, or for that matter even an imperfect science, those dates would have stayed the same, and each year the Doomsday scenarios would have kept getting closer and closer – with the clock ticking louder and louder each year. In fact, they did for awhile, and in 1998 the Start Date was still 2013, so it would now be only 15 years until we would have to start dipping into that surplus. The End Date was actually moved up a year during that period, to the point where it looked to be only 32 years in the future.
But guess what. The Baby Boom Surplus went into a Super-Groundhog Day time-warp. It was Back-to-the-Future and then some as each year both the Start Date and the End Date moved further and further away. Time moved backwards on the Doomsday Clock, and by 2003 the Start Date was not expected until 2018, still 15 years into the future, and the End Date had been moved all the way out to 2042, or 39 years into the future. For a period of about six years, in other words, the problem kept getting better and better – much, much better and better – simply by doing absolutely nothing.
Since 2003, in years that happen to coincide with (a) Bush having appointed the majority of the Trustees, (b) Bush deciding he wanted to promote his privatization plan in earnest, (c) knowledge of the right wing that privatization talking points would be improved if the Doomsday Clock started back in the right direction, and (d) an unexplained change in the way the critical productivity growth assumptions for the future are made, the Trustees’ projections have, in fact, come back down: to 11 years for the Start Date (2017, which, however, remains several years further out than was expected just 10 years ago). As a special bonus, even with the recent accelerations under Bush, the Start Date has been put off until longer after Boomers start retiring than they said would be the case in 1995. It's like your kid deciding to spend the first two years at the community college instead of Princeton.
It is important to realize that the Trustees actually have used three different sets of assumptions, optimistic, pessimistic, and a higher probability scenario in the middle. All the confident predictions about what “will” happen to Social Security somewhere close to the middle of the 21st century are based on that in-between set of assumptions. Most journalists should appreciate that: isn’t the truth always “somewhere in the middle”?
Now if you think about it, the real problem predicted is not that the Baby Boom Surplus is inadequate. We will not need to even start tapping into it until about 6-7 years after the retirement bulge has begun, and it should last about a full decade after the retirement rate has begun settling back closer to steady ratios in relation to the working population. The real issue is whether the working generations will generate enough revenue to support the steady-state retirement ratio after that.
The moderate scenario (and, of course, the pessimistic one) says probably not, while the optimistic version says yes, no problem. The optimistic version has been closer to reality over the last couple of decades than the supposedly more prudent one. Will that continue to be the case? Who knows? -- and that is the whole point. The experts have barely any more of a clue than you and I do as to what will happen with many of the critical assumptions in 30 or 40 years. They haven’t even been able to get the Start Date right, much less the End Date that's about 25 years later.
The issue is not whether we have a potential problem with Social Security. Yes, you can say we have a potential problem -- one we have been living with for two decades -- because the methodology chosen as a prudent one suggests that a problem will occur. The sole issue for now is whether we have a “crisis” that requires action at this time. Because we do not know whether we have a problem, we can hardly have a crisis. We do know that, despite the models Social Security has chosen to use as an exercise in prudence, actual experience provides significant evidence that we do not have a real problem looming in the future. Without a clearer picture, that is reason enough to merely keep watching, as the Social Security Administration does, and to recognize that changing the formulas right now – and taking money from people to solve a problem that from actual experience probably does not exist -- would be irresponsible. Beyond that, if the Social Security fish are still in the freezer, we have a whole load of fish that have thawed and need to be fried before they start to spoil.
As Reed Hundt at TPM Café says, “Social Security faces a lack of funds to pay its commitments some years after the ice caps will, under current trends, have melted, flooding Florida; after oil hits several hundred dollars a barrel; after income inequality turns America into France of 1788; after rising Asian competition eliminates the American Dream -- see my book "In China's Shadow." So let's get our priorities right.”
Save this table and use it when the pontificators start pontificating. They will.
Alan Greenspan, usually considered by conservatives to be a pretty smart guy (and a tad bit more knowledgeable than Mr. Tim “Chalkboard-Two-Workers-for-One-Retiree” Russert), had a remarkable flash insight into the fact that someday, all those Baby Boomers, born between 1945 and 1965 or so were going to retire someday. He said to his 1983 Social Security Fix-It Commission, which Ronald Reagan thought was a good idea, “We have to do something about that. We need to plan for the future. We need to build a surplus in the Trust Fund for when that day comes. Think of it like a college fund, built up and then sitting there to be used when the Baby Boomers start to retire (beginning about 2010), and then to be used up someday when they have died off. By about 2030, they will start dropping like flies. Let’s call it the Baby Boom Social Security Surplus.”
After that, the Social Security Trustees began on a consistent basis predicting “Key Dates,” including the year the surplus would stop building – i.e., the year we would have to start using it, which we will call the Start Date – and the year it – the surplus -- would finally be used up, or the End Date. After the End Date, we would have to go back to the original pay-as-you go system that worked for about 50 years before this Baby Boom “bulge” mucked it up (like, according to The Greatest Generation and Generation X, they do to everything else). Back in 1994, for example, the Social Security actuaries fed in their economic and demographic assumptions, and voila, they predicted the Start Date (for the combined retirement and disability funds) would be in 19 years, 2013, and the End Date would be 35 years in the future, or 2029.
Now if this were a perfect science, or for that matter even an imperfect science, those dates would have stayed the same, and each year the Doomsday scenarios would have kept getting closer and closer – with the clock ticking louder and louder each year. In fact, they did for awhile, and in 1998 the Start Date was still 2013, so it would now be only 15 years until we would have to start dipping into that surplus. The End Date was actually moved up a year during that period, to the point where it looked to be only 32 years in the future.
But guess what. The Baby Boom Surplus went into a Super-Groundhog Day time-warp. It was Back-to-the-Future and then some as each year both the Start Date and the End Date moved further and further away. Time moved backwards on the Doomsday Clock, and by 2003 the Start Date was not expected until 2018, still 15 years into the future, and the End Date had been moved all the way out to 2042, or 39 years into the future. For a period of about six years, in other words, the problem kept getting better and better – much, much better and better – simply by doing absolutely nothing.
Since 2003, in years that happen to coincide with (a) Bush having appointed the majority of the Trustees, (b) Bush deciding he wanted to promote his privatization plan in earnest, (c) knowledge of the right wing that privatization talking points would be improved if the Doomsday Clock started back in the right direction, and (d) an unexplained change in the way the critical productivity growth assumptions for the future are made, the Trustees’ projections have, in fact, come back down: to 11 years for the Start Date (2017, which, however, remains several years further out than was expected just 10 years ago). As a special bonus, even with the recent accelerations under Bush, the Start Date has been put off until longer after Boomers start retiring than they said would be the case in 1995. It's like your kid deciding to spend the first two years at the community college instead of Princeton.
It is important to realize that the Trustees actually have used three different sets of assumptions, optimistic, pessimistic, and a higher probability scenario in the middle. All the confident predictions about what “will” happen to Social Security somewhere close to the middle of the 21st century are based on that in-between set of assumptions. Most journalists should appreciate that: isn’t the truth always “somewhere in the middle”?
Now if you think about it, the real problem predicted is not that the Baby Boom Surplus is inadequate. We will not need to even start tapping into it until about 6-7 years after the retirement bulge has begun, and it should last about a full decade after the retirement rate has begun settling back closer to steady ratios in relation to the working population. The real issue is whether the working generations will generate enough revenue to support the steady-state retirement ratio after that.
The moderate scenario (and, of course, the pessimistic one) says probably not, while the optimistic version says yes, no problem. The optimistic version has been closer to reality over the last couple of decades than the supposedly more prudent one. Will that continue to be the case? Who knows? -- and that is the whole point. The experts have barely any more of a clue than you and I do as to what will happen with many of the critical assumptions in 30 or 40 years. They haven’t even been able to get the Start Date right, much less the End Date that's about 25 years later.
The issue is not whether we have a potential problem with Social Security. Yes, you can say we have a potential problem -- one we have been living with for two decades -- because the methodology chosen as a prudent one suggests that a problem will occur. The sole issue for now is whether we have a “crisis” that requires action at this time. Because we do not know whether we have a problem, we can hardly have a crisis. We do know that, despite the models Social Security has chosen to use as an exercise in prudence, actual experience provides significant evidence that we do not have a real problem looming in the future. Without a clearer picture, that is reason enough to merely keep watching, as the Social Security Administration does, and to recognize that changing the formulas right now – and taking money from people to solve a problem that from actual experience probably does not exist -- would be irresponsible. Beyond that, if the Social Security fish are still in the freezer, we have a whole load of fish that have thawed and need to be fried before they start to spoil.
As Reed Hundt at TPM Café says, “Social Security faces a lack of funds to pay its commitments some years after the ice caps will, under current trends, have melted, flooding Florida; after oil hits several hundred dollars a barrel; after income inequality turns America into France of 1788; after rising Asian competition eliminates the American Dream -- see my book "In China's Shadow." So let's get our priorities right.”
Save this table and use it when the pontificators start pontificating. They will.
Column 1 is Year of Trustees Report, Column 2 shows how many years into future Baby Boom Surplus stops growing, and Column 3 shows years into future Baby Boom Surplus is exhausted.1994 19 35
1995 18 35
1996 16 33
1997 16 32
1998 15 34
1999 15 35
2000 15 37
2001 15 37
2002 15 39
2003 15 39
2004 14 38
2005 12 36
2006 11 34
posted by KISSWeb | 5:56 PM
1 Comments:
This is a great post, Kissweb. You should send a version of it out to several newspapers as an op-ed.
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