Soc Sec XXX: 2 Questions Not Asked in 2000; or 2004 Either

Lets take a trip in Mr. Wizard’s Way Back Machine all the way to the year 2000. At that point we see Social Security geek Webb jumping in excitement (being one of the few people in history to get excited over Social Security financials). What is the source of this rather odd behavior? Well it came from an examination of the following number series.
1996—2029
1997—2029
1998—2032
1999—2034
2000—2037
Now when the Report was released in March 2000 it was certainly plausible that the next January would see the swearing in of President Gore. At that point no one had really heard of hanging chads or Diebold. Anyway it was reasonable to consider the long term implications of these dates.

The first column is Report Year, the second column projected Trust Fund Depletion, at that point in time the standard measure for ‘Crisis’. Now you can look at this series as being an improvement of eight years over a four year period (March 1996 to March 2000) which gives you an improvement rate of 2 years per year, or you can push the envelope and date the improvement over three years (March 1997 to March 2000) which gives you a rate of 2 2/3 per year, but it really doesn’t matter for our purposes. Because an event that retreats out on average at even one year per year is an event that never comes, if that rate is doubled that event rapidly recedes over the event horizon. Okay lets imagine President Gore approaching the end of his second term in 2008 having overseen a similar improvement at the 2 year per year rate in Depletion date. This would put depletion in the year 2053. A little calculation and we can see that Boomers would be ranging in age from 89 to 107, a point in time in which the mortality tables suggest more than half of our youngest cohort (the birth class of 64) will be dead. The suggestion that Social Security ‘crisis’, at least as it was defined in 2000, as being caused by Boomer Retirement would be just as dead.

Okay remembering we are still in the year 2000, under a Democratic President committed to ‘Save Social Security First’ and a Presidential Candidate committed to the same goal (though using the ultimately misleading metaphor of ‘Lock Box), what should have been the response to that number series? Well I’ll tell you, two questions should have been asked:

1) What caused the dates to change in the way they did? and
2) Can whatever caused the changes go on?

But I can tell you from experience that hardly anyone in a position of influence was asking that question, if fact if you separate out Dean Baker and Mark Weisbrot that number starts approaching zero. Which is why Baker and Weisbrot called their 1999 book Social Security: the Phony Crisis. If you follow me below the fold I am going to make a stab at answering the question of why these questions were not asked and then offer some answers to both.

Well the kindest answer is that after all those numbers were not in fact in the bag and that we should just defer to the professional judgement of the staff of the Office of the Chief Actuary as signed off by the Trustees of Social Security. After all in 2037 the Boomers would be ranging in age from 73 to 91 and would still be projected to having a major though declining impact on Social Security.

A more cynical answer is that Social Security ‘crisis’ was in 2000 an advantage to both the Democratic Administration and its Republican opposition. For Clinton & Gore ‘crisis’ was largely defensive. Their argument was that tax cuts in the face of this impending crunch were reckless, and that far better would be to maintain budget restraint and pay down debt held by the public (which is what ‘Lock Box’ actually boils down to operationally). On the other hand for the Republicans crisis was an advantage in three ways. One it was a nice poster child for their overall ‘Big Government is the Problem’ narrative. Two its existence allowed them to push their then 64 year dream of killing Social Security in play. The third advantage was a little more subtle. Under their Supply Side theory the only real way to finance Social Security long term was to grow the economy through tax cuts, in their topsy-turvy world cutting taxes for the rich was simply a means to help out future elderly poor. Unfortunately their theory ran into trouble when it encountered our reality.

In the event asking those questions was not particularly convenient for either side at the time. Of course in the end the Republicans won the near term battle, they got to keep ‘crisis’ in play and get their tax cuts anyway. Alright! Back in the Way Back Machine and lets take a trip forward to Nov. 2004. How has our number series held up? Well pretty good.
2000—2037
2001—2038
2002—2041
2003—2042
2004—2042
The rate of improvement certainly had slowed down, but still we had a total of five years of improvement over a four year period, moreover we got those pesky Boomers a little bit older and more out of the way. In 2042 they would be 78 to 96 and generally shuffling off the Buffalo and points beyond.

By 2004 those questions should have been being asked loudly and often:
1) What caused the dates to change in the way they did? and
2) Can whatever caused the changes go on?
Instead BushCo simply maintained the same stance they did back before 2000, they needed Social Security ‘crisis’ in order to achieve their agenda, and their response was to cover their ears and shout “Wah, wah, wah. We can’t hear you!!”. Which didn’t save them during the ‘There is no Crisis’ fight of 2005. But also didn’t make them give up their long term goals.

So what are the answers to the questions? Well lets dispose of the first typical answer, the dates of depletion did not change year over year because of changes in demographic assumptions. Those assumptions remained relatively stable over the period of Report years in question. There is no doubt that demography is hugely important in determining the long term outlook, but it has little impact on year to year reporting because generally speaking the fertility and mortality numbers were already baked into the cake.

Nope in examining the Reports year over year to see what changed from say 1999 to 2000 to cause a three year improvement in a single ear and the answer is clear: the economy did much, much better than projected. Moreover as Prof. Rosser and I have demonstrated in the past, the response in the Reporting was odd. In the face of continual underestimates of current year performance the reaction of the actuaries was to actually lower their projections going forward in what for the world looked like a pure effort to maintain ‘crisis’. This was particularly notable in the 2003 and 2004 Reports (see Tables V.B1 and V.B2). In particular rather inexplicable carving away at second year numbers went along with a milder slicing of current year numbers. The result as I showed in my Nov. 2004 post What is the Low Cost Alternative?, was Low Cost always returning the same operational result, Social Security funded but not over funded, a result which stayed constant through the 2007 Report year. (2008 shows Low Cost actually overfunding Social Security). So much for the first question: what changed? Economic growth numbers.

The answer to the second question is pretty easy, at least taken from when it was asked in 2000. Can this process continue? Absolutely because it did. The outlook for Social Security improved steadily from 2000 to 2003 because numbers on the whole came in better than expected. Now it is true that progress stalled in 2004 and actually went backwards in 2005 and 2006 only to improve again in 2007 and 2008 and we can if you like explore each of those Report years separately to see why that happened, but the general answer is that productivity stalled in such a way as to bring numbers more in line with Intermediate Cost than had been typical of the 1997 to 2003 period when outcomes closer or better than Low Cost.

(But all that goes to show you is that the idea that cutting taxes on the wealthy serves to boost investment and so productivity and so ultimately real wages for workers is not in fact supported by the actual numbers since the actual tax cut. But that would be to cut in on Spencer’s turf.)

Can productivity (or GDP or real wage or whatever interrelated measure you like) improve in ways that come in better than Intermediate Cost and so continue the longer range trend that would have Depletion (and so ‘crisis’) continue to move out in time. Well opinions vary. All I can say is that the people who were dismissive of Low Cost in the 1997 to 2003 period were all by the numbers proved to be wrong. When those same people insist that I just don’t get how ridiculous those assumptions are, I just have to ask “Well where were you when I was asking this question back in 2000?”

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