During the last debate for the Democratic presidential candidates Senator Clinton was asked about Social Security. In her response she made the obviously true statement that the key to dealing with the problem is to maintain a strong economy. (The issue is supporting retirees, if we have a strong economy we can do this, if the economy is in bad shape, then this is a problem regardless of what we do with Social Security). She also made the somewhat confused assertion that the projected date for the SS Trust Fund's depletion had been pushed back to 2055 under the Clinton I administration. (I think that she may have been referring to the first set of projections for SS put out by CBO, which put the date of depletion at 2052.) While the economy did experience healthy growth in the last four years of the Clinton administration, and the projected date of trust fund depletion actually was pushed back several years by the SS trustees, this was actually due to a cut in benefits, not more rapid economic growth. The benefit cut is due to the fact that the consumer price index (CPI) was changed to show a lower rate of inflation. Most economists estimate the impact of the methodological changes in the CPI at about 0.5 percentage points, meaning that if the economy had the same actual rate of inflation, the current CPI would show a half percentage point lower rate of inflation than the old CPI. Since benefits following retirement are indexed to the CPI, the change in the index amounted to a cut in benefits for retirees that increases at the rate of 0.5 percent each year. The trustees slightly increased their projections for real wage growth and real interest rates in the late 90s, although by less than the 0.5 pp that would have been implied by the changes in the CPI. In other words, the trustees actually lowered their projections for real wage growth in the late 90s. (If anyone wants to have some fun, send a letter to SSA and ask about the changes in projections for real wage growth over this period. You will get a nonsense answer. If you are in the BTP golden circle, you can send the answer to me and I will highlight the nonsense portion of the answer for you.) Anyhow, this is an interesting (to me) piece of Social Security trivia -- strong growth does improve the solvency of the system, but the improvements in the projections in the late nineties were due to hidden benefit cuts, not strong growth.
--Dean Baker