Social Security

Andrew Samwick talks about Social Security reform:

Vox Baby: LMS at AEI: Jeff, Maya, and I will present our Social Security reform plan at noon on Monday, June 19, at the American Enterprise Institute. Here's the lineup:

The three authors of the proposal will present their plan, which will then be discussed by a panel of experts, including Charles P. Blahous, special assistant to the president in charge of Social Security policy at the National Economic Council; Jason Furman, director of economic policy for the Kerry-Edwards 2004 presidential campaign; John C. Rother, director of legislation and public policy for the American Association of Retired Persons (AARP); and Kent Smetters, AEI visiting scholar and an associate professor at the Wharton School. Douglas Holtz-Eakin of the Council on Foreign Relations and former director of the Congressional Budget Office will moderate.

Register for the event and stop by if you are in DC that day. Thanks to Phill Swagel for setting up the panel.

Comments

[Bruce Webb]

I wonder. Will Andrew take table IV.B6 "Unfunded OASDI Obligations for 1935 (Program Inception) Through the Infinite Horizon" (2005 Report p. 59) to front a 3.5% payroll gap like he did on this site in November 2004 (thanks Brad I kept the e-mail) to sell his then solution?

Professor Samwick has shown that he is thoroughly aware of the numbers in play. You don't get to IV.B6 without passing by V.B1. Well technically you could, the latter (Principal Economic Assumptions) occurs on p.87-88 in the 2005 Report and there may be a alternate reality where a professional economist might decide to stop at IV.B6 on page 59 and not examine the numbers of V.A1 (Principal Demographic Assumptions) on pages 75-76 and ignore V.B1. But that would be sloppy at best and thoroughly dishonest at worst.

Professor Samwick is not sloppy. Pretty damn slick in selling privatization, but not sloppy. Which still does not make the graph in Figure II.D7 go away.

http://bruceweb.blogspot.com/2006/02/2006-report-live.html

[Barry]

It's AEI; anybody there is a fraud until proven innocent. Anybody truly innocent there is collaborating with their fraud.

[Andrew Samwick]

Bruce writes:

"Will Andrew take table IV.B6 "Unfunded OASDI Obligations for 1935 (Program Inception) Through the Infinite Horizon" (2005 Report p. 59) to front a 3.5% payroll gap like he did on this site in November 2004 (thanks Brad I kept the e-mail) to sell his then solution?"

Answer: Yes. The 3.5% uses the intermediate assumptions to make a projection of the unfunded obligations that does not set an arbitrary stopping point that is 75 years in the future. A 75-year average is an inadequate summary of a series that has a trend.

Bruce writes:

"... there may be a alternate reality where a professional economist might decide to stop at IV.B6 on page 59 and not examine the numbers of V.A1 (Principal Demographic Assumptions) on pages 75-76 and ignore V.B1. But that would be sloppy at best and thoroughly dishonest at worst."

Answer: Obviously, projections for a less rapidly aging population or higher productivity growth would make Social Security more solvent over the projection period. I have discussed on my blog that I think the demographic assumptions (mortality) are too favorable and the economic assumptions (productivity) too unfavorable for Social Security's projections. See the following posts:

http://voxbaby.blogspot.com/2004/12/more-from-max-on-framing-social.html

http://voxbaby.blogspot.com/2005/01/more-on-life-expectancy-projections.html

http://voxbaby.blogspot.com/2005/01/victor-does-heavy-lifting.html

Bruce writes:

"Professor Samwick is not sloppy. Pretty damn slick in selling privatization, but not sloppy. Which still does not make the graph in Figure II.D7 go away."

Answer: I don't find the assumptions of the "low-cost" scenario reasonable, and so it is of little consequence that the trust fund is not projected to run down to zero in that case.

If I thought of myself as "selling" something, it would be this:

http://voxbaby.blogspot.com/2004/10/how-to-reform-social-security-part-i.html

and this:

http://voxbaby.blogspot.com/2004/10/how-to-reform-social-security-part-ii.html

In the absence of any "buyers," I think it was appropriate to work with Jeff and Maya on the Nonpartisan Plan, something which should have broader appeal, even if it does not appeal to Bruce.

[ilsm]

Andrew,

"A 75-year average is an inadequate summary of a series that has a trend."

"Obviously, projections for a less rapidly aging population or higher productivity growth would make Social Security more solvent over the projection period."

Infinity progfressions and assumptions about demographics and dependent productivity on the same post indeed!

The problem is not social security.

Debating it is fraud, unless you raise the context to a broad discussion of effect of decisions of the past two decades on real or otherwise productivity.

The policies of the past twenty four years is what is wrong with social security.

Supply side has done nothing to secure the future of America.

Monetarism is voodoo economics on life support.

What makes gaps in social security are deeper issues and run toward utter contempt for capitalizing the resources of the nation in a manner that has some semblence of social conscience.

Any "fix" that ignores discretionary waste and abuse, the militarism budget and phony supply side tax cuts is fraud.

The gist of AEI......

[Barkley Rosser]

Andrew,

I have not looked at this year's report, but I looked pretty closely at last year's and have been following this ever since the Trustees first began issuing their goofy projections in the late 1990s. My understanding is that the numbers are not all that different from last year.

So, basically ever since these projections first appeared in the late 1990s, the intermediate projections have been for the economy to start growing at about half its historical rate in the near future. However, that near future never seems to arrive, except for the occasional recession year like 2001. I know this year the year of "bankruptcy" moved forward a year, but in most years these "crisis" dates have kept being pushed off.

I do note that you agree that the economic projections are probably too pessimistic. It may be true that the length of life projections are too "optimistic" (in the sense that people are predicted to die sooner than they will). But my memory is that there was also a projection of a drastic slowdown in immigration that was to occur in the near future, which also has not shown up yet. Well, who knows? Maybe this anti-immigration movement will really kick in, walls will get built, and we'll get the expected demographic crisis after all.

I basically have two observations (aside from noticing that medicare is in far worse shape and that is where the focus should be; it is already running a deficit).

1) There are quite a few countries out there that have the demographic ratios we are forecast to have three decades from now. Many of these countries have earlier retirement ages, longer life expectancies, and in some cases, much larger government paid old age pensions (nearly twice as high as ours in Germany, last time I checked). In none of these countries has the system "gone bankrupt" or are old people not getting their pensions.

Now, I am not suggesting that we should have Germany's system or some other country in Europe (most of those countries are trying to reduce the generosity of their systems and having trouble doing so). But it does seem that those selling "crisis" stories are simply way overexaggerating things.

2) Even if the more pessimistic scenarios do eventually come to pass. I do not see why we should be running out to "do something now." We are at least a decade away from the system even beginning to run a deficit (as medicare is doing right now, not to mention pretty much the entire rest of the US government). Why not wait and see if the more pessimistic trends emerge and then do something?

Given what happened over the last decade, it looks to me like the probability is very high (certainly higher than you think) that we will wake up a decade from now and find out that it has resembled this past one. That if we do nothing, we will find a cottage industry of people like you running around like Chicken Little warning about how the system will be going into deficit in 2027 and will be bust in 2050 and how we need to have a conference at this or that think tank to...

Greenspan and his crew fixed it in 1982, and so far it is very far from being broke.

[elliottg]

Give Professor Samwick a break. Instead of outright lying, he uses (and identifies) his implausible assumptions to sell his snake oil. That's WAY ahead of most Republican shills.

[Bruce Webb]

"Answer: I don't find the assumptions of the "low-cost" scenario reasonable, and so it is of little consequence that the trust fund is not projected to run down to zero in that case."

Which ones are unreasonable? And why?

Low Cost has been a much more reliable predictor than Intermediate Cost in the ten years I have been following the numbers. Blithely waving that away by saying you don't find them "reasonable" buys you nothing. Bring numbers, explain which numeric series of Low Cost is too optimistic.

http://www.epinet.org/content.cfm/issueguides_socialsecurity_changes

Year in and year out the real economy has been outperforming Intermediate Cost, indeed it has been outperforming Low Cost. Why is the assumption that it will continue to do so, particularly when Low Cost calls for productivity growth no greater than 2.2% in any future, unreasonable?

[Bruce Webb]

The 2006 Report presented 2.0% as the productivity number for 2005. The Trustees did not explain why productivity slumped from a reported 3.0% in 2004 or why this mysterious slump occured and yet did not have an effect on any number series that would cause someone to comment on it. They simply present the number.
http://www.ssa.gov/OACT/TR/TR06/V_economic.html#wp159107
And then add this rather peculiar footnote:
"3. Historical data are not available for the full year. Estimated values vary slightly by alternative and are shown for the intermediate alternative."
One is left scratching one's head. Why on earth were "historical data" "not available"? Never seemed to be a problem before. Note that this does not equate to "productivity figures are subject to revision as more data comes in". This has always been true and merits no special recognition now.

What is the real function of footnote '3'? My only explanation is that it is meant to enter some dusty foggo into what should be a rational examination of actual economic numbers.

[Barkley Rosser]

I fully endorse Bruce's questions and comments to Andrew.

For the rest of you, be careful. Note that Brad put this up without snide or critical commentary. He has been part of this cottage industry for some time.

Dean Baker has pointed out that the Monica Lewinsky affair may have saved us from Clinton actually following through in the late 1990s on what we now know were off the wall pessimistic projections. It was people Clinton appointed to the SSA who started this baloney of overly pessimistic projections. This is a bipartisan hysteria, with Dem presidents the real danger. A Dem, especially Bill's wife, might feel the "need to show responsibility" and appeal to Wall Street money by pushing some garbage on this through.

The real irony of Bush's disastrous tour last spring for two months is that he did increase the number of people who agreed with the phoney baloney claim that "social security is in crisis," even as support for his plan, and for him more generally, went down. Dems will oppose any social security change while he is in office. But, if we have Hillary, or Mark, or Al, or John, or Wesley, or Russ, or another "showing responsibility" and backed by Brad DeLong and heavens knows who else from the Dem part of this ridiculous Cottage Industry, Wachet Auf!

[anne]

http://www.nytimes.com/2006/05/14/opinion/l14social.html

Saving Social Security

To the Editor:

We agree with everything in your fine editorial "Social Security Endures" except the last sentence, which advocates benefit cuts, in addition to tax increases.

Social Security benefits are being cut under current law, and a balanced approach requires additional income, not more cuts. Three additional sources of income will do the job.

First, the maximum taxable wage base should gradually be restored so that it once again applies to 90 percent of wages in covered employment, as Congress intended. Second, the federal estate tax should be frozen at its 2009 level (exempting all estates with assets under $3.5 million) and converted into a dedicated Social Security tax. Third, Social Security should be authorized to diversify its portfolio by investing a part of its assets in a broad indexed fund.

These three changes bring Social Security well below "close actuarial balance" (that is, income within plus or minus 5 percent of outgo), a test that the trustees have used historically to determine whether legislative changes are necessary.

Robert M. Ball
Nancy J. Altman
Washington, May 8, 2006
Mr. Ball was commissioner of Social Security under Presidents Kennedy, Johnson and Nixon. Ms. Altman is chairwoman of the board, Pension Rights Center.

[anne]

Please explain how Social Security benefits are being already cut. Could this be a reference to increased age of eligibility? Notice, then, how prevalent the sense still is that Socia Security is troubled.

[ilsm]

"For the rest of you, be careful. Note that Brad put this up without snide or critical commentary. He has been part of this cottage industry for some time."

I would like to investigate the issues with infinite time horizons, productivity skewed by monetarism and supply side and the demographic.

I have lived in a cause and effect real world.

I do not change SS and leave the supply side garbage alone that which trashed this great society.

Samwick should defend himself.

I am sure Brad can delete obnoxious people, I said skewed above.

As to Clinton and Lewinski what's that?

[Barkley Rosser]

ilsm,

The point is that Clinton was talking of "the need to reform social security," but dropped doing anything about it once the Lewinsky affair hit and his political capital was all tied up, so to speak.

Fooling with social security is not something any Dem prez should use any political capital on unless much more time has passed and the more pessimistic projections are clearly coming to pass, and medicare and medical care more generally have been gotten take care of fiscally.

[piotr]

I think that one can make an intelligent case against trying to solve problems more than 10 years in advance unless they are indisputable.

For all we know, the productivy increases can be sustained and eventually followed by growth in wages, or the global competition will depress wages for many years to come, or the global competion will lead to the drop in employement or something yet different. Oil can peak or not, transition to alternative sources of energy can be smooth or not, competition from Far East can be relentless or not, we can reach a technological plateau or not, longevity improvements can be arrested due to increasing obesity (or whatever) or not. Immigration and birth rates can go in different directions than the current trend. We have a very dim idea about these trends.

We have a much better handle on planning the general budget for the next 15 years than on planning Social Security for the next gazillion years. Solve real problems with real data, not dubious problems with imaginary data.

[elliottg]

Keep in mind that the program is less than 75 years old, but a 75-year projection is not good enough for Samwick. To highlight his preferred solution, he wants to go out to infinity. Did he have anything to say about the 70 billion dollar tax cut passed just this last week?

[ilsm]

What exactly was Clinton to reform? How do you know Clinton's thoughts?

He was well along the way to get the debtor nation goals reversed. Before the constitution circus of his impeachment.

And what about a Dem prez?

This what I want Samwick to do talk about:

The real issue which is the terrifying image of the USG actually paying off a debt with cash rather than new debt. Supply side depends on slight of hand and debt growing and leveraging off inflation.

Never pay a debt with cash.

[Lee A. Arnold]

Anne, thanks for the link to the letter by Ball and Nancy Altman. Case closed!