by Bruce Webb
Exactly a month ago I put up a post If a Social Security Annual Report Vanishes into the Forest noting that not only was the Report months overdue but that nobody seemed to notice or care that there was no official announcement about the reasons for the delay or a new release date. The date that had been floated back in April was June 30th, then later some were saying ‘July’ and then when July rolled around word around the Capitol was ‘August’. But nobody who knew anything was talking on the record. Then last week of all papers it was the Spokane Spokesman-Review that reported August 5th. But that news was only semi-officially confirmed this week when it was announced that AEI was having a briefing on the Report on Friday the 6th (today) and NASI was having a bigger event on Monday the 9th. But as for any official announcement there was nothing, not at SSA, nor at Treasury or HHS or Labor. Nor was the Report up on the web Thursday morning. It wasn’t until an hour before official Report release that Labor issued a news release with a link to the pdf of the Report. Well I was ready, a live link to it was up here at 11:22 Eastern, beating the official time by 38 minutes. But all of this leaves this question. Why the secrecy? Three Cabinet Secretaries and the Commissioner of Social Security were scheduled to release a public Report that had implications for every worker and retiree in the country and yet no one knew nothing.
Well the Report appeared and proceeded to make about as little noise as it did when in vanished into the woods, as I type a search on ‘2010 Social Security Report’ turns up no MSM links in the top ten, unless you consider HuffPo MSM, and two of the top six results are to my posts here. Now Heritage and the Washington Times (which I don’t consider MSM) had what appear to be canned pieces up claiming that the Report confirmed their gloomy views but didn’t seem to address the actual numbers but for the most part there is very little coverage.
Now you can call me a cynic but some of this secrecy and effective non-coverage may stem from the fact that the Report did not match the current narrative of ‘Crisis’. Instead Trust Fund depletion remained pegged at 2037, the date that cash surpluses vanish moved from 2016 to 2015 while the 75 year actuarial gap actually dropped significantly from 2.00% to 1.92% putting it right back to 2001 levels. Meaning that a decade of ‘Crisis’ has gone by with no action at all and Social Security emerges unchanged. Which leaves all the “we can’t afford to wait!” “delay will only make the cost larger and more abrupt!!” folk with a little egg on their faces. Social Security-still not broke.
More notes and an interesting graph under the fold.
For those joining this party late the ‘Trust Fund Ratio’ is the Trust Fund balance expressed as a percentage of cost in any even year with the offical target being a TF Ratio of 100, meaning one year of reserves. This is called by the Trustees ‘actuarial balance’. Although we generally talk about THE Social Security Trust Fund, there are actually two, the OAS (Old Age/Survivors) and the DI (Disability) Trust Funds. In this figure OAS is the dark line and DI the light one. Additionally though we also tend to talk about Social Security going deplete in some future year or being able to pay out some percentage of benefits at that date in doing so we are generally referring to what the Trustees call the ‘Intermediate Cost Alternative’ in this figure denoted as ‘II’. However they also give us two other Alternatives, a more pessimistic one called ‘High Cost’ here ‘III’ and a more optimistic one called ‘Low Cost’ here ‘I’. Low Cost and High Cost are fairly artificial in construction as each takes each of the variables that together determine solvency and varies them in the same direction, either better for solvency in the case of Low Cost or worse for High Cost. Since in practice it is not likely that every economic and demographic variable will move in the same direction in the same magnitude these two alternatives have to be regarded as being on the extremes of the probability spread. On the other hand this depends crucially on whether Intermediate Cost has in fact captured the true mean for each variable, if Intermediate Cost can be shown to be on the whole too pessimistic then Low Cost outcomes become more probable, and of course the converse is true. But that will have to be the subject of future posts.
A very common claim about Social Security is that there is no way that we can grow out of ‘crisis’. Well this figure puts that claim in doubt, because while Low Cost may not be totally likely it is at least possible and if it comes about OAS projects to never have a TF Ratio lower than 300, and since the target is only 100 can be said to give a result of ‘over-funded’, if it seems to be coming about then the policy question in the year 2020 will begin to revolve around when to cut FICA and by how much to get that tail pointing closer to 100 than to 450 and rising as it leaves the projection period, Because oddly enough an over-funded Trust Fund is in its own way a bigger threat to Social Security long-term than an under-funded one. (I can point to some older posts on this if anyone cares).
Which brings us to an important point. While it may well be that Low Cost is unlikely, it is not an optimal outcome anyway, instead the sweet spot is somewhere between I and II in this figure and to get there we don’t have to hit every number of Low Cost, just enough of them in the right magnitudes to pull II’s tail up so that it intersects 100 at the end of the projection period or at least dips below actuarial balance (the same thing) as far in the future as possible. And many of those numbers are susceptible to deliberate policy choices. For example Social Security outcomes improve with higher immigration and higher fertility, and since immigrants, at least those from developing countries, tend to be more fertile sticking to a policy of closed borders, while maybe appealing to younger Teabaggers in the here and now, plays a certain amount of hell with their future retirement outlook. Equally Social Security solvency is positively correlated with more employment and higher real wage although the effect is offset by the fact that the increased income also results in increased costs in the form of higher benefit checks. But from the perspective of the worker this is all good, it means that any future percentage cut in benefits would be from that much higher a baseline, which means that solvency effects aside a deliberate policy targeting employment and real wage will result in a better Social Security outcome. (Minimum wage increase anyone?). Similarly improvements in productivity, even if they don’t pass through perfectly to Real Wage, increase affordability by holding down the percentage of GDP needing to be devoted to Social Security, or perhaps assisting us to achieve Prof. Jamie Galbraith’s appeal to enhance Social Security benefits rather than cut them.
Which suggests a second prong to the NW Plan. The first prong simply assumes Intermediate Cost numbers and programs in the revenue increases needed to target actuarial balance, the second would be to advocate for policies that make some or all of those tax increments unnecessary. The right answer is not to just passively accept our fate and schedule benefit cuts prematurely, the numbers needed to substantially cut the payroll gap even in the absence of tax increases are by no means out of reach, add a few tenths of a point to productivity and a good deal of ‘crisis’ simply vanishes.