The Social Security saga, 2007 edition
The Social Security Trustees just issued the 2007 annual report, and the key facts are that nothing much has changed from before. We still do not have much of a clue what’s going to happen to the Social Security system over 30 years from now. The year when we are going to have to start dipping into the surplus created to fund the baby boom generation’s retirements stayed the same, 2017. That means that we are one year closer to that event – really, that non-event, since it was specifically set up to be used that way and was originally expected to be necessary several years before 2017. Now it’s 10 years away, last year it was 11 years away. That’s not quite so far into the future, so we should be closer to reality in that prediction.
Doomsday continues to be held at bay
The year that everyone treats as the predicted Doomsday Year, the year when the Baby Boom surplus is finally used up and we have to revert to funding benefits from current revenues, moved back from 2040 to 2041 this year. In other words, under the assumptions that are used – a midpoint between best case and worst case assumptions, it remains 34 years in the future, and the projected revenues 34 years into the future are only 75% of the projected benefits that would be due 34 years from now.
Dicey stuff, indeed. It was supposed to be only 33 years into the future in 1996 – that is, 11 years ago, the experts applying the same set of presumably reasonable assumptions predicted the surplus would be used up in 2029. Now it’s 2041. If the predictions were decent ones, it should still be 2029, now only 22 years away. Instead, year after year after year, the “crisis” stays just about exactly the same period into a fairly distant future.
That is not anybody’s reasonable definition of a “crisis,” and here is all you need to know that demonstrates why there is not a Social Security crisis – why you should not even listen to the Democrats who either say or imply there is one even when their solutions are a few tweaks instead of privatization.
A little history: Greenspan was not an idiot who needed Tim Russert to explain it all to him
Alan Greenspan, usually considered by conservatives to be a pretty smart guy (and a tad bit more knowledgeable than Mr. Tim “Chalkboard-Two-Worker-for-One-Retiree” Russert), had a flash insight: someday, all those Baby Boomers born between 1945 and 1965 or so were going to retire. He said to his 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 Social Security 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 used up someday when they have died off. (By about 2030, they will start dropping like flies, which means the demand for benefits will begin to moderate then.) Let’s call it the Baby Boom Social Security Surplus.”
After that Greenspan Commission set about building up the Baby Boom Surplus, 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 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 bulge of Baby Boomers mucked it up (like, according to compact between 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.
It’s like waiting for the Cubs to win it all: next year never comes
Now if this were a perfect 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, for awhile they did just that, 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 actually moved backwards, 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 better and better – simply by doing 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 in 2006 for the Start Date (2017, which, however, remains several years further out than was expected just 10 years ago, and, as a special bonus, several years after the retirements of Baby Boomers will have begun), and 34 years for the End Date. In 2007, as we have seen, the Start Date is still 2017 – now only 10 years away as it should be – and the End Date moved out a year to 2041.
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. Lazy journalists appreciate that: isn’t the truth always “somewhere in the middle”? So if it’s somewhere in the middle, it must be the truth. But it’s not.
Zeroing in on the real problem
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 normal ratios. 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, 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 consistently right, much less the End Date about 25 years later.
The issue is not whether we have a potential problem with Social Security. Yes, we have a potential problem because the methodology chosen as a prudent one suggests that one will occur. The sole issue 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. What this means is that, while it is correct that the system is not in perpetual actuarial balance under the projection models adopted, the actual, empirical evidence suggests – very strongly – that the actuarial balance intended is not a valid one. 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 said last year, “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 pooh-bahs start pontificating. If you followed this, you will see it’s not rocket science – certainly not to anyone who ever set up a college fund or even a vacation fund. You build it up, you use it, and then you go on without it. That’s all that’s happening here. The other thing is that the experts have been wrong almost every year. That’s another way it’s not rocket science, because rocket science is a lot more predictable.
Year of Trustees Report / Years into future Baby Boom Surplus stops growing /
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
2007 10 34
Doomsday continues to be held at bay
The year that everyone treats as the predicted Doomsday Year, the year when the Baby Boom surplus is finally used up and we have to revert to funding benefits from current revenues, moved back from 2040 to 2041 this year. In other words, under the assumptions that are used – a midpoint between best case and worst case assumptions, it remains 34 years in the future, and the projected revenues 34 years into the future are only 75% of the projected benefits that would be due 34 years from now.
Dicey stuff, indeed. It was supposed to be only 33 years into the future in 1996 – that is, 11 years ago, the experts applying the same set of presumably reasonable assumptions predicted the surplus would be used up in 2029. Now it’s 2041. If the predictions were decent ones, it should still be 2029, now only 22 years away. Instead, year after year after year, the “crisis” stays just about exactly the same period into a fairly distant future.
That is not anybody’s reasonable definition of a “crisis,” and here is all you need to know that demonstrates why there is not a Social Security crisis – why you should not even listen to the Democrats who either say or imply there is one even when their solutions are a few tweaks instead of privatization.
A little history: Greenspan was not an idiot who needed Tim Russert to explain it all to him
Alan Greenspan, usually considered by conservatives to be a pretty smart guy (and a tad bit more knowledgeable than Mr. Tim “Chalkboard-Two-Worker-for-One-Retiree” Russert), had a flash insight: someday, all those Baby Boomers born between 1945 and 1965 or so were going to retire. He said to his 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 Social Security 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 used up someday when they have died off. (By about 2030, they will start dropping like flies, which means the demand for benefits will begin to moderate then.) Let’s call it the Baby Boom Social Security Surplus.”
After that Greenspan Commission set about building up the Baby Boom Surplus, 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 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 bulge of Baby Boomers mucked it up (like, according to compact between 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.
It’s like waiting for the Cubs to win it all: next year never comes
Now if this were a perfect 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, for awhile they did just that, 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 actually moved backwards, 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 better and better – simply by doing 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 in 2006 for the Start Date (2017, which, however, remains several years further out than was expected just 10 years ago, and, as a special bonus, several years after the retirements of Baby Boomers will have begun), and 34 years for the End Date. In 2007, as we have seen, the Start Date is still 2017 – now only 10 years away as it should be – and the End Date moved out a year to 2041.
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. Lazy journalists appreciate that: isn’t the truth always “somewhere in the middle”? So if it’s somewhere in the middle, it must be the truth. But it’s not.
Zeroing in on the real problem
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 normal ratios. 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, 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 consistently right, much less the End Date about 25 years later.
The issue is not whether we have a potential problem with Social Security. Yes, we have a potential problem because the methodology chosen as a prudent one suggests that one will occur. The sole issue 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. What this means is that, while it is correct that the system is not in perpetual actuarial balance under the projection models adopted, the actual, empirical evidence suggests – very strongly – that the actuarial balance intended is not a valid one. 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 said last year, “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 pooh-bahs start pontificating. If you followed this, you will see it’s not rocket science – certainly not to anyone who ever set up a college fund or even a vacation fund. You build it up, you use it, and then you go on without it. That’s all that’s happening here. The other thing is that the experts have been wrong almost every year. That’s another way it’s not rocket science, because rocket science is a lot more predictable.
Year of Trustees Report / Years into future Baby Boom Surplus stops growing /
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
2007 10 34
posted by KISSWeb | 4:22 PM
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