Social Security Trustees' Reports: Crisis?

[Hannah Bell]

http://econospeak.blogspot.com/

The folks at Econospeak have done a public service by charting the GDP growth predicted in 10 years of Social Security Trustees Reports against actual GDP growth in the same years.

If you don't know how the SS Trustees Reports work, here's the short version.

Using economic & demographic data, the trustees make 3 forecasts every year:

1. Low-cost (optimistic about SS's future viability/cost)
2. Intermediate cost
3. High cost (pessimistic about SS's future viability/cost)

The intermediate forecast is the one considered most likely to occur; it's the one all the numbers you hear in the media come from. You know, the headlines like: "Trillion-dollar SS Shortfall!"

GDP growth is a key variable in these forecasts, & is itself aggregated from other data.

However, as it turns out, in 6/10 years, real GDP growth not only exceeded the growth predicted in the intermediate forecast - it exceeded the growth predicted in the "low-cost" (optimistic) forecast.

And in the low-cost forecast, SS chugs along forever, paying rising scheduled benefits, without going into deficit, without additional taxes - while accumulating a growing surplus! That is, current evidence suggests we need to reduce SS collections rather than increase them, & certainly there's no evidence for any radical overhaul or benefit reductions.

In only 2 years did GDP = the intermediate (supposedly most sound) forecast. In one year (the year of 911), reality was worse than the intermediate forecast. In one year, reality was in-between the optimistic & intermediate forecasts.

On average, though, over 10 years, reality turned out better than even the supposed "optimistic" prediction.

That is, the forecasts used to hype the SS crisis in the media are dramatically skewed to the negative.

But I'd bet that for most people reading this, it's the first time you've heard anything about it -- but you've heard A LOT about the coming SS "shortfalls," the "crisis," & the need for "change".

Why the deafening silence on this key point?


Year IC LC Actual

1997 2.5% 3.2% 3.8%
1998 2.5% 3.1% 3.9%
1999 2.6% 3.4% 4.0%
2000 3.5% 3.9% 5.1%
2001 3.1% 3.5% 1.0%
2002 0.7% 1.6% 2.4%
2003 2.9% 3.8% 3.1%
2004 4.4% 4.9% 4.4%
2005 3.6% 3.9% 3.6%
2006 3.4% 3.8% 4.7%

1997-2006 average IC = 2.92% LC = 3.51% Actual = 3.60%
2001-2006 average IC = 3.02% LC = 3.58% Actual = 3.37%

[ursi]

1. this is what Bush has been spending in Iraq and on defense contractors all along

...and the ultimate goal of the conservatives was to bankrupt SS.

[Warpy]

2. The only "crisis" is that Congress won't be able to ROB

40% of the payments from every working person and business to pad the budget shortfall caused by their tax breaks to the rich and corporate.

When boomers retire, all of the OASDI contributions made by working people will be used to pay their Social Security. Congress will then have to deal with the crushing deficits caused by the wealth transfer to the richest plus the exemptions the richest have from paying their taxes.

The only fair system of taxation that actually supplies enough to run a complex and civilized government is the progressive income tax. We will have to return to it eventually, but the sooner, the better.

Congress is reactive, not proactive. They will likely send this country into bankruptcy before they require the sainted rich to pay their fair share.

[Hannah Bell]

3. That's one scenario. But..

the point of the erroneous predictions re GDP is that if the trend continues, even during the BB retirement window SS contributions keep generating surplus.