Bruce Webb Reads the Social Security Trustee’s Report

Bruce Webb looks at the Trustee’s Report…

One of my very first posts at my Social Security website was What is the Low Cost Alternative which I put up on November 20th, 2004. In it I made the observation that since 1997 Low Cost, purportedly the upper end of a possible range of economic outcomes, in fact always gave the same result: fully funded Social Security through the 75 year actuarial window with a steady reserve. It consistently returned what I call Baby Bear results, the porridge never being too hot or too cold. I discussed the implications of this in my 2006 Post Goldilocks and the Three Social Security Bears. Well this held up excellently through the 2005, 2006, and 2007 Reports each of which gave the same basic Baby Bear outcome. Which made 2008 kind of a shock. For the first time the Trustees present a Low Cost model that would officially have Social Security over funded after mid century. Low Cost is outcome I in the following figure Figure II.D6.—Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions [Assets as a percentage of annual cost] A constantly rising Trust Fund is a long range menace to Social Security, there is a point when having too much in reserve becomes a bad thing, something I expand on some in Interest on Interest: a Threat. There is only one way to flatten the tail after 2041 to get Social Security back to long term Baby Bear status. And that is some combination of cutting revenues or increasing future benefits. Which is to say exactly 180 degrees reversed from pretty much universal policy positions. To say the least, not at all the kind of crisis people are envisioning.

The policy implications are quite interesting. While of course Low Cost outcomes are not guaranteed, outcomes better than the standard Intermediate Cost model are more likely than not. People who insist that sooner is better than later may well have a point. If you delay those revenue cuts through reduction in FICA or diversion of interest into other asset classes for too long things spiral out of hand.

This one is by Bruce Webb.