Social Security Trustees Report

That, of course, was the day's big news. Some minor fiddling allowed them to bring the insolvency date a year closer, from 2042 to 2041. An insignificant change economically, but highly significant politically, as it'll allow them to argue that things are getting worse and, in the worsd of Fafblog!, if we don't do anything Social Security will explode!

If I had time, I'd probably go through the report today and talk about things I don't quite understand. But I have to move down for Spring Break. So here's a cliff notes guide to what you need to know and links to what you need to read.

As mentioned above, they moved the date of the trust fund's exhaustion (but I thought the fund didn't exist!) back a year, from 2042 to 2041. They also pushed back the beginning of the cash deficit (when we start using the trust fund) from 2018 to 2017. They seem to be doing this by revising death rates downward -- at this rate, there'll come a point when no one will ever die -- and by using absurdly low assumptions on immigration. Further, productivity increases, which could bring things back into balance, are assumed to be nonexistent. This despite the fact that they've almost doubled projections for the past few years. I'm going to just quote Matt on this, because it's really important:

The 2002 report projected productivity growth of 1.4 in 2002, 2.7 percent in 2003, 2.1 in 2004, 2.0 in 2005 and a long-term trend of 1.6 percent. By the 2003 report they knew that 2002 growth had actually been 3.6 percent, and short-term projections were accordingly revised upwards to 1.9 percent for 2003, 2.3 percent for 2004, and 2.1 percent for 2005. The long-term trend, however, was left at 1.6 percent. Then came the 2004 report, which revised the '02 historical number upwards to 3.8 percent, and showed that '03 productivity had actually been 3.4 percent. Thus, the projection for '04 was revised upward to 2.7 percent, and the '05 number revised downward to 1.8 percent. The long-term projection was unchanged. Now the 2005 report is out and once again past projections were too low. The actual 2004 number was 3.3 percent, and the '05 projection has been boosted to 2.0 percent.

Nevertheless, the long-term projection is unchanged. Why? Because the method used to generate the long-term projection deliberately excludes all this new data. Instead, they come up with 1.6 percent because "The annual increase in total productivity averaged 1.6 percent over the last four complete economic cycles (measured from peak to peak), covering the 34-year period from 1966 to 2000. The annual increase in total productivity averaged 2.2, 1.2, 1.3, and 1.6 percent over the business cycles 1966-73, 1973-78, 1978-89, 1989-2000, respectively." So far, productivity growth in the current cycle has been much higher than 1.6 percent. As a result, there's every reason to believe that, as long as the methodology is held constant, the long-term number will shoot up once we reach the next economic peak.

What's really amazing here is that, even with the tweaked assumptions and the "see no, hear no, speak no" approach to productivity gains, the long-term balance of the program has actually improved from last year to this year. Despite fiddling with some numbers so the president can yell "Crisis!", Social Security is actually healthier down the road than it was last year. Go look at the graph Brad's got, it's all there.

Despite all this, the LA Times' headline blares "Social Security going broke in 2041". Sigh. The article, interestingly, shows that Social Security is not the problem, it's Medicare that matters. Medicare, after all, started paying out more than it's taking in last year (as opposed to Social Security's date of 2017), and total bankruptcy for the program is projected for 2020. Spending so much time worrying about Social Security is like a doctor worrying about early signs of Parkinson's while his patient has a heart attack on the table. Not so bright. Weird note -- the article calls 2041 the date Social Security goes "broke", but 2020 is when Medicare faces "insolvency". Same meaning, but the sense of urgency is drastically different.

So bottom line, things aren't too bad. Politically, the report helps Bush, but the slight changes should blunt its effectiveness. Moreover, Bush himself has begun admitting that private accounts don't do anything for the program's solvency, and since the report is dealing with Social Security's fiscal condition, it shouldn't give any momentum to privatization. Oh, and Medicare is going to kill us all.

For more on this, see Max Sawicky's report from the press conference, Matt Yglesias's comprehensive coverage at TAPPED, and Brad Plumer's analysis at MoJo.

By the way, two years ago, when I was starting at UC Santa Cruz and spending a great deal of my time intoxicated, I really didn't think I'd ever be disappointed because I couldn't read the latest Social Security Trustees Report in a timely fashion. I mean, Jesus, what's happened to me? I can't even drink yet (well, legally), and yet I'm genuinely fascinated by actuarial assumptions regarding the long-term fiscal health of the state-run pension program? You must be kidding me.

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