Northwest Plan 2012 – Numbers by Request of Commenter BK
I am just beginning an attempt to tranform the Northwest Plan for a Real Social Security Fix into a series of Tables and Figures (and original spreadsheets) that people can review at length. But since the authors were effectively accused of not really having numbers at all here is an advanced peek at some of the future workproduct. This one extracted from Excel and tranformed into a graphic. Click to embiggen.
This is from the 2012 version of NW and shows the first increase in FICA in 2018. Which obviously explains why Revenue stays the same until 2017. Note that Trust Fund balances never decline in nominal dollar terms although the Trust Fund Ratio does. But in this data series never below 1.24 (or 124 in Trustee terms) or 24 points above the 100 level that represents ‘solvency’ as the Trustees define it.
The 2013 version differs in detail as will the 2014 once the Report is released (next week?) and we develop it. But the general outline remains the same, phased in increases in FICA over a 20 year period with adjustments at intervals after.
This snapshot cuts off at 2042 but the spreasheet continues for the full 75 year actuarial period with TF Ratios staying steady state in the 124 to 128 range throughout. I was a little rushed in getting this partial product out.
well, we could send the 2013 numbers in an excel spreadsheet. i think it would be easier to read, and the numbers are taken from the “yearly” tables (without interpolation).
easier to read for everyone but krasting.
Interesting update Coberly. Much clearer than prior versions. I would like to see the years from 2042 to 2090. Also what discount rate did you use for this?
Clearly the NW plan raises a bunch of new taxes, But does it raise taxes fast enough to achieve long-term stability? The answer is no – at least according to the CBO, Steven Goss and Kotlikoff. They have all said that an Immediate and Permanent increase (I&P) of 4% is required.
The following compares a 0.2% NW plan to a 4% I&P plan. This comparison assumes that the NW plan in implemented in 2015 and compares it to a a 4% I&P. Clearly the NW plan does not generate as much revenue as the NW plan.
Coberly has said that his plan requires a 20 year run of .2% increase (max at 4%) AND nothing more. That is not the case. I am using Coberly’s numbers to review this.
All amounts in $s of billions
year Payroll NW plan NW I&P difference
$ in Bs increase $s 4.00%
2015 6625 0.20% 13 265 252
2016 7069 0.40% 28 283 254
2017 7537 0.60% 45 301 256
2018 8004 0.80% 64 320 256
2019 8440 1.00% 84 338 253
2020 8866 1.20% 106 355 248
2021 9295 1.40% 130 372 242
2022 9716 1.60% 155 389 233
2023 10142 1.80% 183 406 223
2024 10589 2.00% 212 424 212
2025 11054 2.20% 243 442 199
2026 11539 2.40% 277 462 185
2027 12046 2.60% 313 482 169
2028 12573 2.80% 352 503 151
2029 13120 3.00% 394 525 131
2030 13692 3.20% 438 548 110
2031 14293 3.40% 486 572 86
2032 14921 3.60% 537 597 60
2033 15578 3.80% 592 623 31
2034 16272 4.00% 651 651 0
5,218 8,006 3,550
68.04% less revenue
with NW plan Vs I&P of 4%
Note #1 These this calculation are only for none interest income. If interest were calculated for both the NW and I&P plans the difference favoring the I&P would be much larger.
Note #2 It’s very possible that the data chart I try to insert here will get all scrambled up when I post this. If that happens I will try to get the data inserted in a PDF form for all to review.
Note #3 In a few days we will get the 2014 TF report. Based on the new info the variables for the NW plan spread sheet will have to amended. I think that the 5.7% long-term interest rate will have to be lowered, Other things, like the cost rate and revenue will be different. We shall see what the TF has to say.
As I feared, the table of numbers I provided lost the pagination, so it’s tough to read. I will attempt to get that PDF up.
Dale the problem with Excel Spreadsheets is that they are difficult to render in a post. Especially when they have as many columns and as little user friendly labeling as your originals.
My goal is to set up some Public and Shared Folders at the Social Security Defender Google+ site. And if anyone wants to get a jump on this they can ask to be included in Circles there.
i have to go fix a pump.
Krasting
it’s not an update. it’s a version of a 2012 (olddate) that Webb thinks will be easier to understand. Since it is not complete I have my doubts.
Your take on Goss is wrong. You could be right about Kotlioff, but he is wrong.
I’ll try to comment much later, but right now I have to go fix a pump.
Just to say again
my numbers do “work”. that has been established beyond all doubt… except to Krasting.
Hedge
it is not impossible….because they can say anything they want about the future…. that when the new numbers come out they will show a 4% “immediate and permanent”… but the new numbers are not out, Krasting is jumping to conclusions and has been wrong about everything he has written on SS.
a 4% “immediate and permanent” would be a 2% tax increase for the worker… about sixteen dollars per week. noticeable, but not a “burden” and a reasonable price to pay to be able to retire when he is 62 with “enough.”
this has always been my bottom line. the gradual approach makes sense… made sense?… while we still have time.
now i really do have to see about that pump.
Krasting there is no much wrong with your post it is hard to know where to start. Plus I want to get some new material prepared.
“Clearly the NW plan does not generate as much revenue as the NW plan.”
Actually makes as much sense as anything else in the post.
“Coberly has said that his plan requires a 20 year run of .2% increase (max at 4%) AND nothing more”
That is simply not true. Coberly has never claimed the fix was closed ended, not when directly discussing the plan. And simple inspectrion of the spreadsheets WHICH YOU HAVE IN HAND would show that.
“at least according to the CBO, Steven Goss and Kotlikoff. They have all said that an Immediate and Permanent increase (I&P) of 4% is required.”
This is a deliberate misreading added to a distortion. If we look at the actual text of the 2013 Social Security Report we get the following language:
“The Trustees estimate that the 75-year actuarial deficit for the combined trust funds is 2.72 percent of taxable payroll — 0.05 percentage point larger than the 2.67 percent deficit in last year’s report. For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.66 percentage points (from its current level of 12.40 percent to 15.06 percent);”
How do YOU and Kotlikoff get to “I&P of 4%” from “immediate and permanent” of “2.66% percentage points”? Simple you just silently ring in a number derived from the “Infinite Future Horizon” projection (added to the Report in 2002 at the insistance of two “reformer” members of the SSAB) instead of the OFFICIAL, mandated BY LAW use of a 75 year actuarial period.
The NW Plan uses the official 75 year actuarial period for good and sufficient reasons, not least because all the data tables are based on it. And also because there are reasons why it is silly from both an analytical and practical politcal purpose to give an immediate shock to a depressed ecnomony to address a secondary gap in the projections which MAY eventuate sometime in the 2090s or 2100’s.
That 4% is just a bullshit propaganda number promulgated by Cato economists in 2002-2003 at a point when the 75 year number was moving strongly against them. Either you have been taken in by this nonsense or you are a willing collaborator. As for Dale and me, we are going to stick with the standard 75 year number. Which at 2.66% over 75 years suggests that a phased in 2% fix over 25 might actually make a sensible start.
Webb – yes a typo, it should have been “NW comparison to E&P”. I’ll be sure to remind you on your next typo….
Coberly’s words on this in the recent discussion:
“The workers will need, if they are wise, to raise their own payroll tax about one tenth of one percent per year in about twenty of the next seventy five years, and that will keep Social Security “solvent” forever.”
In an email to me he said:
if we raise the payroll tax one tenth of one percent whenever the Trustees project short term actuarial insolvency we will entirely avoid the 2030 “shock” of “benefit cuts or 2% tax increase-all-at-once,” and SS will be fully funded through the entire actuarial window and into the “infinite horizon” with an ultimate tax increase no higher than 2% for each the worker and the employer.
So Coberly has said that the infiltrate future could be solved with a max 4% increase spread out over any given years, but not I&P.
We shall see what the Trustees have to say about the I&P number. I don’t expect that they will go up to 4%, that would be too big an increase in a year. I expect 3.4 – 3.6% and 4% in 2015.. Kotlikoff was very clear in his I&P 4% talk, Goss was vague, but what other interpretation could you make of his “33% increase”? Surely he did not mean “4% in the year of exhaustion”.
Krasting “about 20 of the next seventy five years” and “whenever the Trustees project short term actuarial insolvency” is not the same as “20 year run of .2% increase (max at 4%) AND nothing more”
Maybe if you tried to understand the substance rather than continually looking for “gotcha” moments we would get somewhere.
I am sure Kotlikoff was “clear”. Big Lies don’t work if they are obscure. But exactly what term of years was he actually referencing? You don’t give a cite or even an indication that you are speaking about a specific talk or event, for all I knew you were referencing Kotlikoff and Goss’s general record here. And so the same goes for the “what other interpretation” could I make of Goss’s “33% increase”. Well without any pointers as to where and when he may have said that and in what context I can’t say. But given the following quote from the same 2013 Report cited above I can’t really agree with your “Surely he did not mean “4%” in the year of exhaustion” “. Because by all evidence he probably did mean that. Hence:
” In order to maintain solvency throughout the 75-year projection period and finance scheduled benefits fully in every year starting in 2033, it would be necessary to increase revenues by an amount equivalent to a payroll tax rate increase of about 4.1 percentage points (yielding a total payroll tax rate of 16.5 percent) at the point of trust fund reserve depletion, with the total rate reaching about 17.5 percent in 2087.,”
Hmm. In the most recent Report “about 4.1 percentage points”. But surely he did not mean “4% in the year of exhaustion”. And why not?
As to a 3.4 to 3.6% increase in 2014 and then 4% in 2015. That would indeed be a huge jump from 2.66%. And only could happen if there is a massive change in the outlook for each year in the whole 75 year projection period. That is because it is not enough for numbers for this year or next year to have come in bad, they need to have come in or will come in WORSE than projected. Because no matter how shitty they are if they are in line with projections they just have no impact on the 75 year outlook as projected in the last year. That is a one year failure to hit a number doesn’t add trillions of dollars to the actuarial gap over time. Not unless that change proves to be structural. When dealing with a 75 year number it takes quite the wag of the tail (or here the nose) to move the whole dog. While CBO did show a big move in this number, that was mostly because of the huge effect of changing their entire future demographic model away from simple adoption of the OACT one (which they had done for a long time) to introduction of their own in-house and more pessimistic one. Which change I thought was both under-motivated and under-explained.
______________________
Oh and feel free to point out my typos and mock me as needed. Trust me slings and arrows coming from you don’t sting or bruise me in the slightest.
Sorry Webb, I thought you would be up-to-date on who’s saying what about SS.
The Goss Statement:
http://www.finance.senate.gov/imo/media/doc/Goss%205%2021%202014.pdf
And the Kotlkoff statement:
http://www.nasi.org/discuss/2014/05/fixing-social-security
Goss and Kotlkoff spoke at a Senate hearing this week:
http://www.finance.senate.gov/hearings/hearing/?id=cf45de9e-5056-a032-52c0-ec9e83aa3e6a
In the past year CBO has changed its Base Line for SS. The variables that were changed are life expectancy and work force participation.
The CBO provides its case for the changes in mortality here:
http://www.cbo.gov/publication/44598
The issue of the Work Force Participation Rate has most economists confused. The rate today is at 20 year lows, and shows no sign of rising. The raw assumptions used by SS have a high rate – well above what CBO is now using.
There is also the interest rate outlook. SS, in the 2013 report, assumed a very high rate of return in their assumptions. In June of 2013 SS invested $180B of fifteen year money at 1.75%. In 2014 they will again be forced to accept sub 2% returns on long-tem investments. This is very far away from the 5.7% long-term rate of return that SS (and you) rely on when modeling the future.
The SSA investment activity:
http://www.ssa.gov/cgi-bin/transactions.cgi
Net-net I don’t expect big changes in the income side of things this year, but there is a good posibilty that some of the other factors that make up the pie do change in significant ways.
Great, now we are getting somewhere.
I reviewed the Goss statement. When he says “increase revenue 33%” this does not entail raising FICA by 33% tomorrow. Instead it means over the projection period and includes interest earnings. That is a 33% boost in FICA today when Social Security balances are still increasing would mean a whole lot of compounded interest piling up before it is needed which in turn would add up to a lot more than a 33% revenue increase overall.
Methinks you need to review those PV, FV and NPV functions or maybe just the Rule of 12.
As to interest rate outlook.
Social Security holds the vast majority of its Trust Fund in what are essentially 10 year notes (although with a spread of maturities). It holds these Notes to maturity meaning that the interest earnings are locked in and don’t vary according to the most recent issues. Which in turn would account for no more than 10% of all such holdings. So if you look at the actual portfolio as it exists TODAY and figure out the AVERAGE YIELD over the next 10 years you will see that it a lot closer to 5% than 1.75%.
In fact the 5.00% bonds are precisely in the middle of this table which shows FIXED yields ranging from a low of 1.375 to a high of 6.875%
http://www.ssa.gov/oact/tr/2013/VI_A_cyoper_hist.html#250990
As to that 5.75%. Well yes that is the Nominal Rate based on a Real Rate of 2.9%.
http://www.ssa.gov/oact/tr/2013/V_B_econ.html#282052
Note that in the 2013 SSA didn’t project getting back to that 5.7% nominal/2.9% real until 2022. So the question is whether you believe we have really entered a perma-depression that will last more than 10 years and so mean we never get back to even early 2000’s economic numbers? Well if so we are fucked backwards sidewards and upside downs. Because investors won’t be able to squeeze continuing asset returns in a totally no-growth economy.
Is that 5.7% really a mid-range long term estimate? Maybe not. But should be be substituting 1.75% for the next 75 years? Only if you hate America and expect it to self-destruct within a decade. One or two years of 1.75% yields won’t change anything material as it relates to the Trust Funds. While ten years of rates that low will destroy America. Maybe we can get to together and strategize ways of getting this country back on track? Rather than putting on our Henny Penny – the Sky Is Falling!! Chicken Suits?
As to Kotlikoff. After throwing in a gratuitous (and non-comparable in reality) reference to Detroit he goes right back to the same tired point he has been pushing (dare I say) at infinite length for a decade:
“Here’s my take on the Social Security issues we need to own, some well-known, others not. The Social Security system is in grave financial trouble — in worse financial shape now than in 1983 when the Greenspan Commission “fixed” the system’s finances. It’s also in worse shape than Detroit’s two pension systems, taken together. According to the Social Security Trustees (Table IV.B6, “Unfunded OASDI Obligations for 1935 (Program Inception) Through the Infinite Horizon, Based on Intermediate Assumptions,” in the 2013 Trustees Report), the system is 32% underfunded, notwithstanding its $2.7 trillion Trust Fund.
In short, an immediate and permanent 32% hike in the Social Security payroll tax rate (from 12.4% to 16.4%, forever) is needed to pay the existing benefits. Alternatively, an immediate and permanent 23% cut in all OASDI benefits would provide long-term solvency.”
Infinite Future Horizon is Infinite Hooey. See my past posts on this:http://angrybearblog.strategydemo.com/2010/05/social-security-and-infinite-future.html
http://angrybearblog.strategydemo.com/2009/05/infinite-hooey-pv-and-past-participants.html
It is also remarkable that you ridicule me for taking 75 year projections seriously but promote a guy that takes those exact same projections and extends them out to Heat Death of the Sun to get his percentages. After all you can just hoot and laugh at the Trustees long range models or appeal to the old stanby “Even the Trustees say”. But having it both ways is a bit much.
well, the pump is in intensive care, but i have a minute
before i say what needs to be said, i need to say we need to be careful about arguing about mis-statements and misunderstanding. that doesn’t mean we can’t point out that Kotlikoff is insane, or that BK will never understand anything…
but a lot of what i see here is confused and confusing.
my own contribution to it may be this:
i did say at some point for another reason, “and no more…” what i meant at the time was that the “one tenth of one percent per year” does not keep on forever. it essentially stops after twenty years… or perhaps a couple more depending on what the “projections” of the future may be (note that is a prediction of a prediction)… and everything i have seen to date says that the end point will be essentially reached when the payroll tax for workers is raised 2% above where it is today.
i did not mean to say that absolutely in no forseeable future can the payroll tax go a little above that “2% more.” but Krasting has a tendency to see what he wants to see and then start screamng the sky is falling the sky is falling.
and if i may… with the Liars running around screaming about “33% increase in the tax!” (a 2% increase in a 6% tax is “a 33% increase” but that’s not the way they want yo to think about it.) i think it is fair for me to keep pointing out that that 2% increase can be reached one tenth of one percent (per year) at a time, rising to “no more” than 2% each or 4% combined.
if it should go another couple of tenths of a percent in a hundred years, i hope i won’t be tried for perjury.
Webb points us to a SS report and makes a comment about a 6.875% bond. Sorry Webb, that bond matured in 2012.
As of today there are only two bonds with 6+% coupons. The total comes to $117B (4% of total). Both of these issues will mature in 2014/15 – so they are gone and to be replaced with more 1.75% paper.
The current yield is now 3.62%, it has no where to go put lower.
Follows a link to current SS holdings. Note that most of the high yielding bonds run off in the next five years.
http://www.ssa.gov/cgi-bin/investheld.cgi
No one know where % rates will be over the next 75 years. The 5.7% is on the high side given that the last 12 years the yield for the TF has been less than 4%. We’ll have to wait 50 years to see if this is a good assumption.
http://www.ssa.gov/cgi-bin/investseries.cgi
All right Krasting points to you.
Still 3.62% is just about half way between 1.75% and 5.7%.
Plus I don’t know anyone who is betting for at least hoping for 10 years selling at near negative interest rates forever.
And I would point out that the key is Real and not Nominal, a lot of those low yields over the last dozen years have been in large part due to restrained inflation. And inflation in turn is a big cost driver for SocSec (hence the push for a Chained CPI). So a reduced return on the TF (a minor factor in financing benefits BTW) due to lower nominal rates would be offset by cost savings due to lower nominal inflation.
But yes you put points on the board.
Webb comments re the SS TF bond holdings:
“It holds these Notes to maturity meaning that the interest earnings are locked in”
Actually that is not correct. Every month in 2013 the TF redeemed securities years before those bonds came contractually due. The old bonds all have high coupons, so with each monthly redemption there is a dilution in future interest income.
Why is SS hocking its dearly beloved high yielding bonds? Because SS is running a monthly cash deficit most months. The deficit was $71B in 2013. The cash short was covered by the redemption of some short term notes, but SS had to dip into its old bond holdings to cover the nut.
The monthly transaction for 2013 can be found here:
http://www.ssa.gov/cgi-bin/transactions.cgi
The details of the bonds redeemed in 2013 that were not held to maturity:
February – 5 issues from 2016 totaling $2.5b were cashed in.
March – $3B due 2016 went off the sheets
April – $1.5B of 2016 gone
May – Another 1.5B of the 2016s.
June – Bonds due in 2016 and 2017 were hocked
July – $3B of bonds due in 2015/16
August – six different bonds from 2014 – 2017 were redeemed early
September – $3.6b of 2017 – gone! These were old 5.25%ers.
October – Another $3.7B of those sweet bonds due in 2017
November – Bonds totaling $4b due in 2018 and 2017 were sold for cash. These were also high yielding.
December – $3.8B due in 2018 had to be sold. These were 3.5%, about double the 2013 reinvestment rate that SS got (see the details in the month of July for new acquisitions).
Krasting how many of those redemptions were from the DI Trust Fund (which has been cashing out principal on met since 2010) amd how many from OAS?
DI has no choice but to cash bonds in no matter what their yield or how cherished it is.
I have been pointing out DI’s dire straights since my earliest posts at AB (and earlier at my site) The failure of the Bush Administration to do anything about it when it first failed the Short Term Actuarial Test can only be put down to a desire to exaggerate the ‘crisis’ facing the combined program. DI could have been fixed for a quarter a week or so back in 2005 and should have been. But that would have put off the crisis point for OAS and reduced its fix to around half a dollar a week and so undercut privatization. On e other hand DI would have never had to cash in any bond prior to maturity.
So disaggregate those disposal transactions and get back to us.
Dale on your point.
A look at the 2013 NW Plan spreadsheet shows continuing boosts to FICA about every six years after the first sequence ends. Maybe you could talk to the author, perhaps tomorrow while using your bathroom mirror.
Not that those changes are a bad thing, a 0.2% change every six years when real wages are going up more than 1.0% per year is both reasonable and expected given the initial benefits formula.
Krasting thanks for the link. Very informative.
The web tool allows one to examine transactions by fund and sure enough OAS did not redeem ANY bonds with maturities beyond 2014 and at first approximation was a net acquirer of even those. Due I think to the fact that revenues from tax on benefits are credited to the TFs quarterly and interest biannually which requires some churn in short term notes to make monthly numbers.
But from here it seems that every one of your cherry picked examples pertains to the DI Trust Fund. Something the Reports have been showing for years.
Webb – in 2013 the OASI cash deficit was $33.8B. Di cash deficit = 36.9. Total 70.7B
Read the Goss statement again. He made it clear (to me) that when DI goes dry in 2016, the shortfall will be covered by the assets in OASI.
So the thing to look at is the Combined OASDI picture. That’s what’s coming.
Bruce
as to krastings “points on the board..”
yes, he has succeeded in changing the subject. now you two can argue about what interest rates will be in the future. thing is, they won’t matter much to SS.
as to those continuing increses to FICA “every six years”…. look at them again. that’s what you get when you step up the tax whenever the trustees report short term actuarial insolvency. add up the total number of increases in the 75 years, and not that the rate of increases is slowing rather dramatically toward the end of that time.
when you get an increase of one tenth of one percent every ten or twenty years you are not talking about a measurable rate of increase…. when you are guessing about a hundred years in the future.
can we stay somewhere near reality?
Not sure what Webb means when he says that he looked and did not see any early redemption in 2013. Go the link I provided and select option #2 and hit Go. The details come up.
For what it’s worth I have sent an email to Webb with screens saves of the pages of data for transactions in 2013. He probably will not look at them (or go to the we data) as he likes to live in world where everything I say is a lie.
regarding the “continuing” increases in the payroll tax.
note that the first increase is in 2018. after forty years, the tax will have increased 3.6%.
that’s 1.8% for the worker.
that’s an AVERAGE increase of 0.9%
so we are talking… to sane people… of an increase on the order of one percent during their working lifetime. and this is during the period of “steepest increase.”
after 2058 the rate of increase slows to about one tenth of one percent for the worker every about ten years. i think “six years” would be a “correct” guess from the seventy five year numbers unless you notice that the rate is slowing down, so it will be less.
but in any case an increase of about one sixth of one tenth of one percent per year…. are we talking about “as close to nothing” as we can reasonably imagine” looking that far ahead?
it’s about ten cents per week per year.
but hell, get yourself worked up over details you have to guess about, and don’t bother with trying to get a sense of what all this actually amounts to.
Dale you have a lot of damn nerve accusing me of changing the subject on my own post’s comment thread.
You misstated your own position as revealed in the numbers of a spreadsheet put together by you. And yes I understand the nuances of your argument. I can also read the New Payroll Rate column of a spreadsheet.
Krasting LOTS of things are clear to you that are not so.
In the past the standard response to imbalances between the Trust Fund has been a rebalancing between them. But this is not within the powers of the SSA Commissioner or the Chief Actuary it has to be a positive act by Congress. Which if it was going to happen should have happened back in 2005-2006 when DI failed the Short Term Test. When push comes to shove in 2016 (if Congress lets it drift that far) a rebalancing may well be part of the patch. But it isn’t a slam dunk, no matter what takeaway you got from Goss.
And Krasting you insufferable ass.
If you go to your link and “select option 2 and hit Go” the details that come up are for combined OASDI. If like me you take the extra step to select other DI or OAS BEFORE hitting Go you get the details for EACH FUND.
And they show EXACTLY what I predicted before viewing them. And EXACTLY what I reported after observing them. You on the other hand claim I “probably will not look at them” when you show no signs of even reading my responses and so looking at DI and OAS in isolation.
Not everything you say is a lie. You just seem to look at all your data through mud covered glasses. I follow your links and report back. not my fault that they don’t bear the weight you would like to put on them.
In the normal course of events the Trustees hold assets to maturity. But when pressed to the wall mange the advance redemptions in the most optimal way to preserve maximum interest earnings. If you take the time to read the tables beyond grabbing what you think are “gotchas”. DI is legally distinct from OAS and has its holdings being managed differently because of its much different financial position. You just chose to “hit 2 and Go” rather than take time to understand what you were looking at.
Not for the first time. You also pointed us to the Monthly TF reports website maintained by SSA OACT and drew conclusions that were not supported once you took in the timing of payments of interest and tax on benefits into the Trust Fund, this back in 2010. And it took Dale and I a lot of effort to track down all your conceptual errors. But you persist in trying to present new data sources as “Gotchas”. Apparently in hopes that I will just not follow the link and show you up for the poor reader you almost always prove to be.
A Webb comment from above:
“ten years of rates that low (sub 2% – bk) will destroy America. Maybe we can get to together and strategize ways of getting this country back on track?”
Well Webb, we’ve had six years of “rates that low” . This a deliberate policy of the Fed, and the new Fed head, Yellen, has given us every indication that it will continue far into the future. The reason is that low interest rates are actually good for the economy! But yes, they are bad for SS.
Separately, Webb spoke about the SS forecast for interest rates:
“As to that 5.75%. Well yes that is the Nominal Rate based on a Real Rate of 2.9%.”
Webb has this right. For most of the forecast years the Real Rate is 2.9%. But think what this means! To finish the equation you must also say the difference between Real and actual is Inflation.
So what SS is forecasting (and Webb is applauding) is six decades of 2.8% inflation. This would be a very bad outcome for the bottom 20%. It would hurt the middle class too. Only the the top 10% and the rentiers would would welcome this outcome. There is no force greater than inflation to aggravate the already big problems with wealth and income distribution. The group that would be hit hardest by high LT inflation would of course be the seniors who are living on a fixed income. The very people Webb is supposed to be ‘defending’. i can’t see the “joy” that Webb sees in this outcome. What Webb sees as ‘good news’ is actually a very unfair outcome.
Another point on inflation. The Fed heads (including Yellen) have all testified (hundreds of times) that they would not permit inflation to exceed 2% on a long term basis. Yet SSA uses a rate that is 30% higher.
The good advice has always been “don’t fight the Fed”. The actuaries at SS should pay heed to the message the Fed has been, and will continue to send.
Krasting in rereading my response I see the source of your confusion.
I said “OAS”, you read it as “OASDI”, checked the “OASDI” numbers and called me a lazy liar.
On the other hand when I said “OAS” I meant it as “OAS” and took the extra step to make sure I looked at the “OAS” data source.
I will be making my apology on the very next day whose name doesn’t end with a “Y”. AKA “The Day After Never”
Webb – What is YOUR expectation for 2016 when the DI runs dry? Do you think this will be ‘fixed’ in an election year? Goss has this right – the shortfalls at DI will be covered by OASI. Therefore the thing to look at is the combined TF and the combined yield and the combined redemptions.
Now if you think that OASI stands alone for much longer (and DI is separately ‘fixed’) please say so. If you do believe that they remain separate, then the early redemptions in DI might score you points. But to earn those points you have go on the record and say that OASDI will not be combined in the 27 months left before the SHTF.
Want points? Step up on this one.
Krasting you might want to look at inflation rates in boom times for workers. The key for them, and BTW for long term health of Social Security is Real Wage. Which is post inflation.
Very few seniors and even fewer low income seniors are living on “fixed incomes”. Mainly die to the Rights decades long assaults on Defined Benefit Pensions. Instead seniors increasingly depend on Social Security, which benefits adjust with inflation, or for the lucky with non-pension assets that may or not suffer with inflation. For example a senior with a fully paid off house and a typical senior citizen exemption on property tax experiences only positive benefits from increases in housing prices.
Look for anyone who lived through the 70s a 2.9% real inflation rate is nothing and certainly more healthy for the economy than Japanese style deflation. Most seniors are not rentiers, not anymore, and most never were. The stereotypical bond clipping widow generally had a wealthy husband in life.
Bruce
i think i’ll stand by “letting Krasting change the subject” even if my saying it upsets you.
you were presenting, i thought, an analysis, or at least a view, of a spreadsheet I wrote.
That spreadsheet set out to accomplish exactly one thing: show what the Trustees Report of 2012 actually said in terms of an average workers paycheck. I did not make any assumptions or predictions. I just showed what the Trustees said.
The reason for doing that was because the Liars were out there pointing at the Trustees Report and saying “We’re all going to die!” Krasting was one of those shouting, though he claims not to be a liar.
Now that we have shown that the Trustees Report said no such thing… we are not all going to die if we have to pay an extra 80 cents per week per year for twenty years… or even a dollar a week for twenty five years…., Krasting wants to say “but it should have said that, if only the Trustees had used my (Krastings) predictions about interest rates.
And you (Webb) chose to engage him on that basis. Your privilege, but you are still letting him change the subject.
Recap: the liars all point to the Trustees Report and say we are going to die. When you prove that the Trustees Report amounts to eighty cents per week for the average worker, they all point to something else and say “we are all going to die.” That’s what you are letting Krasting do here.
Krasting election year or not there is no mechanism for rebalancing OAS and DI that doesn’t run through Congress. The Commissioner has no such powers nor do the Trustees. There is no dispute about this. I don’t have to step up, the law is the law. And is the same law that prevents the Commissioner from borrowing from the public to make up the gap.
Congress can let DI go smash. Or rebalance the Funds. Or fix DI in isolation. Or put in a comprehensive fix (I will be suggesting the NW Plan). But none of that would necessarily legally combine OAS and DI Trust a Funds and their respective transactions.
That is rebalancing and intra fund borrowings in the past and as recent as 1983-1985 did not legally combine OAS and DI. No matter how convenient it is for all concerned to talk about OASDI. There is no OASDI Trust Fund. Though it is perfectly reasonable to talk about OAS/D insurance under the rubric OASDI. But you are trying to extend this to the mechanics of the two legally distinct Trust Funds in what I consider to be an illegitimate way.
Others views might vary. But frankly since no one but you, me and Dale seem to be following this, excuse me if I move on and only check back in every couple hours.
Webb – your entire spread sheet is the Combined Results, No? If you have spent all of this time and energy building this thing and using the Combined data I don’t really see how you can object to my looking at Combined data on Redemptions.
So I’m withdrawing my points offer (you would not have stood up anyway). The Combind TF are what you, and I are looking at. Stop making a fuss.
Dale maybe you see Northwest as a Refutation. I see it as the major foundation for a Plan.
One that I would happily accommodate to a change in the cap formula. Or conversion of the current two bend point formula into a Basic Income with Soc Sec overlay and a TSP option on top of that.
There is much about your single minded devotion to a Cause that is admirable. But it also gets wearying.
Okay Webb – We finally agree on something. This thread is a dead end. I’ll come back when you post on the 2014 report.
bk
Krasting we were taking about OASDI in combination and in a combination that would have them in a state of sustainable solvency which in turn would mean them holding all bonds to maturities. You then seized on this point to insist that OASDI didn’t hold bonds to maturity. Even though it would if the recommendations of NW were adopted.
Now as it turns out the original version of Northwest treated all of OASDI, OAS, and DI in separate spreadsheets and then summarized the needed fixes into a single plan. But it was always the fact that the allocations of the increase would have to be split up, and I at several points advocated devoting the first three installments, then scheduled to go into effect right away be devoted to DI (which would have restored it to 75 year balance in a stroke) while delaying any changes in OAS until it actually failed its Trigger Test. But this was all deemed to complicated conceptually and the eventual compromise was how you see it. And if this justifies your insistence that my assertion that Social Security hold its Assets to maturity is some sort of bare faced lie the so be it.
Because as I say in many contexts: “Everything is simple. if you ignore the complexities.”
I can’t say I noticed any “compromise” but I certainly agree with Webb that the sensible thing to do would have been, would still be, to restore DI to “actuarial solvency” now, and work on MAINTAINING OASI solvency as it becomes a real issue and not some hysterical we are all going to die “some day.” By the last official prediction (projection) that would occur in about 2018 or 2020 (i forgot what the separate date is. sue me.) and would require an increase in the payroll tax of 80 cents per week that year… and for a few years following that.
sorry that this is all so wearying for some, but it seems to me we need to be clear what we are talking about before we start talking about other things.
the point of, the beauty of, the “northwest plan” is that it fixes in one simple, reasonable, fair, cheap,fix ALL of the things that needed to be fixed: it pays for Social Security… that is, allows the workers to pay for their own basic retirement in advance… without debt, deficit, taxing the rich, turning SS into welfare, means testing, raising the retirement age, or having a socialist revolution which is not currently in the cards.
AFTER you have done this… raised the tax one tenth of one percent per year… you can have nice calm friendly discussions about all the other wonderful things you want Social Security to be and become. And you can argue about the effect of future interest rates.
But I think I’d wait to see what the future actually brings before I’d get too wrapped up in arguing about it.
I’m sorry. I need another few sentences – but no more nit-picking. I want to talk about the Big Picture of Webb/Coberly’s spreadsheet and their ‘solution’ for SS.
I’ve not seen page #2 of the the current version, but I have reviewed a prior version of the spreadsheet. In that one there was a derived assumption that in 2090 the Combined SS TFs would be greater than $35 Trillion!! This is a staggering amount at first look. But this also can be looked at on an NPV basis. When a discount rate of 5% (average of the rates used by Webb) the NPV of the $35T comes to only $433B in today’s dollars. The miracle of interest compounding works both ways. So if $433B “went missing” in the first year of this program, the ultimate size of the TF would also be zero.
What I am trying to say is that a data “error” in the early years of a 90 year review has a material consequence on the ultimate outcome.
Now look again at Webb’s data . Look at the column marked Trust Fund Balance, look down to year 2024. The size of the TF is supposed to be $2.914 Trillion.
Now consider the April 2014 CBO Baseline for the combined OASDI. Go to the year 2024 and you see that CBO reports a raw number of 2.471T ($433b less that the Webb model) – and it get worse. The CBO can’t account for things unless they are law, so it has to assume in the raw number that the DI annual shortfalls are not included. However, if you look at the footnotes you see that CBO does provide the info on the DI losses. They amount to $322B through 2024- so the ‘real’ CBO number for fiscal 24 is $2.150B. The CBO presents Fiscal numbers, Webb uses annual, so knock off another $50b and you get an apples to apples comparison of CBO = 2.1T Webb = 2.9T. This is an $800B change in numbers!!
As I said, ‘misses’ have big consequences over time if they happen in the early years of an analysis. I would ask Webb to re run his numbers using the CBO #s as his baseline. I don’t think he would like the results.
Note: I’m not suggesting Webb is using bad numbers. He’s using stale numbers from the SSA – and let’s face it, SSA has missed on its projection by a country mile over the past six years.
Kotlikoff/Krasting are looking at the CBO view of things, Webb/SSA have those rose colored glasses on.
The CBO SS Baseline:
http://www.cbo.gov/sites/default/files/cbofiles/attachments/43890-2014-04-Social_Security_Trust_Fund.pdf
“Kotlikoff/Krasting are looking at the CBO view of things, Webb/SSA have those rose colored glasses on.”
Kotlikoff: ““Here’s my take on the Social Security issues we need to own, some well-known, others not. The Social Security system is in grave financial trouble — in worse financial shape now than in 1983 when the Greenspan Commission “fixed” the system’s finances. It’s also in worse shape than Detroit’s two pension systems, taken together. According to the Social Security Trustees (Table IV.B6, “Unfunded OASDI Obligations for 1935 (Program Inception) Through the Infinite Horizon, Based on Intermediate Assumptions,” in the 2013 Trustees Report), the system is 32% underfunded, notwithstanding its $2.7 trillion Trust Fund.”
Hmm seems that Kotlikoff has no issue putting SSA rose colored glasses on when it suits his purpose. or Krasting’s in approvingly citing his “4% I&P” which is explicitly based on SSA numbers.
Krasting you can’t use Infinite Future Horizon numbers while rejecting OACTs 75 year model. And then double down by citing the Chief Actuary Goss who by a strange coincidence runs OACT (Office of the Chief Actuary).
Plus it is worth noting that CBO was much more positive about Social Security than SSA was in 2004, at that point putting TF exhaustion in 2048 as compared to SSAs 2042. Both dates of course radically changed under both today.
So your appeal to CBO against SSA is just more special pleading/cherry picking. It is not like you haven’t cheerfully deployed SSA numbers before.
The NW Plan uses SSA Intermediate not because any of it’s authors are committed to the specific numbers, both Arne and I have serious reservations that work in opposite directions. But it is because the MSM and Congress has in the past adopted a general policy of “Even the Trustees Say” and we found it useful to use accepted number sets to prove that their claims were incoherent. You have to start with something, and NW starts from the rhetorical position of “Even assuming the Trustees Intermediate Cost projection—”
We are not quite the kool aid drinkers you take us for. We just found that taking the Krasting Road of producing self sourced data sets and working from there unproductive.
Krasting
if i say you are suffering from some kind of brain damage you will say i am being mean to you. but you have an established pattern of reaching out for any “data” that you like and mashing it all together without any logic or appeal to cause and affect or the meanings of words. it is really not worth anybody’s time to try to explain things to you. and the people who think you are a really bright guy will go on thinking you are whatever i might say.
2090 numbers are from the Trustees Report. they were not “assumed” but calculated bases on a set of assumptions. those are the assumptions that lead to the “9.6 Trillion Dollar Deficit.”
You cannot in any reasonableness tell us you don’t like part of the Trustees Assumptions but accept their “9.6 Trillion Dollar Deficit”
Nor can you accept the 9.6 Trillion Dollar Deficit and not accept the arithmetic that shows this Deficit can be erased entirely by raising the payroll tax one tenth of one percent per year, each, for….24 years in the case of the 2013 Report. “It’s just math.”
Then you want to change to CBO assumptions… which so far I know nothing about… and use them to change the TRUSTEES results…
it’s just a brain damaged way to think. and not much fun to watch. and hopeless to try to fix.
Webb speaks of the:
“Krasting Road of producing self sourced data sets”.
The “Krasting Road” is not producing ‘self sourced’ data’. I used the April 2014 CBO Baseline. You can dismiss the CBO all you wish. But you would be wrong to do so. And you have no right to diss me for bringing this discrepancy up. The CBO is a credible source of information. Period.
I wrote about short-term misses and long term consequences. little things build up to big things. Take 2014 SS numbers for example. They are relying on a 3.5% net GDP for the year. Guess what – the 1st Q of 2014 came in at Minus 1%. This means that the rest of the year has to be at 5% annual to get to the SSA number. That’s not going to happen.
This will translate into a small ‘miss’ for the year, $5 under “plan”. But $5b today is $500B in 90 years time.
oh… you were looking at the 2090 Trust Fund after MY tax “fix.”
Follow the math. That is the number you get based on the TRUSTEES “assumptions”.
The 35 Trillion looks big to you, but look at the “payroll”… you are looking at the effect of 77 years of inflation and wage growth. If you can remember what a dollar bought 77 years ago you might recognize that the change over 77 years is not really surprising.
BAck then five dollars a day was a good wage. Today’s wage is about 120 dollars a day. or 24 times what it was then.
now if you take the 35 Trillion and divide it by 24 you get about 1.5 Trillion… or about half the present Trust Fund.
you gotta do these things or the big numbers will scare you to death.
note than no present values were used in my calculation. didn’t need ’em.
you keep scaring yourself to death with great leaps of “logic.” but your “logic” is worthless. it’s the logic of nightmares.
and you keep at it.
the Trustees are not predicting every single day of the next 75 years. they are projecting something like an “average” good guess. some years will be better, some worse. you can’t just take a bad year and say that’s it. that creates a hole in the program that can never be made up.
you think you are being logical. i think you are being hysterical.
Bkrasting,
You like sitting back and taking potshots. The only problem is you keep missing the target. Don’t think the NW plan works? What is your plan? And give us a spreadsheet that shows it works. Don’t forget to list your assumptions.
Another day, and more ad hominem attacks. I’m “hysterical”, my logic is “worthless”, I’m “brain damaged” etc. This because I raise the point that the Spreadsheet is built on stale numbers.
I do agree with Webb that any analysis of SS has to use TF inputs, but using the 2013 numbers in June of 2014, and then claiming “victory” is a bit over the top. The effort by Webb should have been deferred until after the 2014 TF data is released. Certainly, Webb will have to re-do this effort when that data is available.
Coberly says:
Nor can you accept the 9.6 Trillion Dollar Deficit and not accept the arithmetic that shows this Deficit can be erased entirely by raising the payroll tax one tenth of one percent per year, each, for….24 years in the case of the 2013 Report. “It’s just math.”
Coberly, the NPV in the 2014 report will be closer to 12T. So you will have to redo your math. Like you say, “It’s just math” so do the math.
In the current version of this spreadsheet there is the assumption that between now and 2033 (termination date) payroll taxes have to go up by a cumulative 3.5T and an additional on budget interest $700B will have to paid.
Okay, that outcome would ‘fix’ the 2033 cliff (based on the 2013 numbers), but consider that cost again. A huge increase in taxes are required and more on budget interest is necessary.
Try selling this plan to Congress – you will get no support from either liberals or conservatives and you most certainly will not get any support from progressives. ($3.5T of more regressive taxes is not going to get you anywhere).
Sometime after 2017 there will have to be a Big Fix for SS. It will be another 1983 moment. There will have to be higher payroll taxes, and those tax increase will likely (and should) be phased in ala NW. But the hole at SS can’t be fixed with just tax increases. There has to be a combo approach. So all of the other elements of a fix have to be on the table. A fix will require some means testing of benefits, an increase in the cap, a change in the benefits formula, increased ages for availability, changes to COLA, AND some form of the NW plan where PR taxes move higher over time.
I know you boys like to avoid bad news, but I do urge you to look again at the CBO Baseline. If you use their numbers (and, of course, the adjustment for DI) you will see that CBO is projecting the TF to Top Out at 2.75T in 2017. The CBO numbers result in a change in the End Date to 2029 from 2033. These are very big differences from the data that is used in this spreadsheet. If these assumptions were used to test the NW plan, the plan would fail.
I do applaud Webb for this effort. He has created a model that can be used to test various assumption. I think this model should be made available to guys like me in an unprotected format so that different assumptions can be tested (that is the purpose of any model)
To the extent that Webb is unwilling to provide an unprotected version, then he owes us an update of this exercise using the 2014 Trustee’s assumptions. I’m looking forward to reviewing that when it comes out.
Krasting
I wish I knew how to avoid what you call “ad hominem.” But your relentless attacks on my work… with the occasional “who me?” ad hominem thrown in… wear me out. There is no way I can spend all of my time trying to correct your errors, only to be met by a further barrage of garbage-thinking.
If you were a person I knew, or met at a party I would be polite…even kind… but you are out here in a public debate where you feel free to malign my work… by throwing your garbage at it. What do you expect me to do?
That’s a rhetorical question. I really don’t want to have to read the next episode of “Krasting Thinks.”
Brastling,
Have you asked for an unprotected version?
Alternatively, you can simply turn off the protection as I did and then make any changes you want. You simply uncheck the protection box.
Stale numbers? They are the freshest available now and were the freshest available when the spreadsheet was originally modified from its use of the 2012 numbers.
Krasting as to stale
Not that I answer to you, but I consider this last series of posts practice for a comprehensive effort I plan to launch on release of the 2014 Report.
I hope to put up Public Folders at the Social Security Defender Google+ page that will have all the Tables of the 2014 Report available as Excel files and PDFs for free use by everyone. I will also have massaged versions of the 2013 Northwest Plan in both formats and of course will add 2014 Northwest if and when Dale compiles it or maybe take a stab at my own version.
On the other hand there are good and sufficient reasons not to use some of the alternate and more up to date data tools provided by OACT. For example a view years back you tried to deploy the Monthly Reporting numbers without understanding what was included or excluded in any given month causing you to see yearly deficits a couple of years in advance and of much higher magnitudes. The advantage of the Reports is that you know you are getting like for like and the changes are fully annotated.
We are probably days away from release of the 2014 Report and I am busy perfecting some of my data extraction and Excel formatting and export skills. When that time comes I will be concentrating almost exclusively of the freshly issued Report and it’s Tables and Figures, in the meantime consider these posts as practice.
Or go away and construct your own data presentations for audiences that might be fooled into taking you seriously. But bitching because I am working on the freshest available versions of the material I want to present even though that material seems wilted to you is a waste of everyone’s time. Go to another market or open your own.
Krasting,
Following is a longer reply to your last comment. I won’t avoid entirely what you call ad hominems. But I will try to be more specific about what is wrong with your thinking.
Author: bkrasting
Comment:
Another day, and more ad hominem attacks. I’m “hysterical”, my logic is “worthless”, I’m “brain damaged” etc. This because I raise the point that the Spreadsheet is built on stale numbers.
i don’t like the ad hominem either, but as noted above you leave me the choice of spending my life trying to fix your thinking or just saying your thinking can’t be fixed.
As a start.. I don’t say your thinking is broken because you say the Spreadsheet is built on stale numbers. The spreadsheet in question was written in 2013 as an analysis of the 2012 Trustees Report. That’s all it was. It was not a prediction of the future of Social Security or of the future of Trustees Reports.
I do agree with Webb that any analysis of SS has to use TF inputs, but using the 2013 numbers in June of 2014, and then claiming “victory” is a bit over the top. The effort by Webb should have been deferred until after the 2014 TF data is released. Certainly, Webb will have to re-do this effort when that data is available.
I don’t claim “victory” and won’t until the Liars give up, and people like you are no longer a factor. The 2013 numbers applied to the 2013 Report.
Coberly says:
Nor can you accept the 9.6 Trillion Dollar Deficit and not accept the arithmetic that shows this Deficit can be erased entirely by raising the payroll tax one tenth of one percent per year, each, for….24 years in the case of the 2013 Report. “It’s just math.”
Coberly, the NPV in the 2014 report will be closer to 12T. So you will have to redo your math. Like you say, “It’s just math” so do the math.
Yes. I will “redo” the math when the 2014 Report comes out. It would be silly of me to write an analysis of the 2014 Report before it comes out.
In the current version of this spreadsheet there is the assumption that between now and 2033 (termination date) payroll taxes have to go up by a cumulative 3.5T and an additional on budget interest $700B will have to paid.
Okay, that outcome would ‘fix’ the 2033 cliff (based on the 2013 numbers), but consider that cost again. A huge increase in taxes are required and more on budget interest is necessary.
I showed that the “huge increase in taxes” amounts to 80 cents per week per year. Krasting can’t seem to understand that. As for the interest that “the budget” owes TO Social Security, Krasting seems to be arguing that the Congress should not have to repay money it borrowed, or even pay the interest on money it borrowed. If his numbers are right (I don’t have time to check them)… that interest would be 700B over the next 30 years… or about 20B per year. With income taxes amounting to about 3 Trillion per year this would be about two thirds of one percent of a tax increase to pay the interest, or an additional borrowing of the same amount of money “from the public.” Not exactly a huge burden on anyone.
Try selling this plan to Congress – you will get no support from either liberals or conservatives and you most certainly will not get any support from progressives. ($3.5T of more regressive taxes is not going to get you anywhere).
Social Security is not a “regressive tax”. It is a way for workers to save part of their income to guarantee they can retire when they reach 62. They get the money back with interest. And in about half the cases with a lot more interest than they could get ANYwhere else… plus they get the insurance. I don’t think the plan would be hard to sell to Congress once the workers understand it. People like Krasting spend a lot of time trying to make sure the workers will NOT understand it.
Sometime after 2017 there will have to be a Big Fix for SS. It will be another 1983 moment. There will have to be higher payroll taxes, and those tax increase will likely (and should) be phased in ala NW. But the hole at SS can’t be fixed with just tax increases. There has to be a combo approach. So all of the other elements of a fix have to be on the table. A fix will require some means testing of benefits, an increase in the cap, a change in the benefits formula, increased ages for availability, changes to COLA, AND some form of the NW plan where PR taxes move higher over time.
I have shown every year for the last 7 years that the “big fix” amounts to an eighty cents per week per year increase in the payroll tax. If the economy continues to be very very bad, the “big fix” could amount to as much as a dollar a week or even a dollar and a half. And this is money that the workers will NEED to save (via the payroll tax) if they are going to have any hope of retiring when they get old. Predictions of a bad economy are the LAST reason anyone should cut back on their savings.
I know you boys like to avoid bad news, but I do urge you to look again at the CBO Baseline. If you use their numbers (and, of course, the adjustment for DI) you will see that CBO is projecting the TF to Top Out at 2.75T in 2017. The CBO numbers result in a change in the End Date to 2029 from 2033. These are very big differences from the data that is used in this spreadsheet. If these assumptions were used to test the NW plan, the plan would fail.
Here we have a Krasting “ad hominem”, but “who me?” doesn’t even realize he is doing it. I have used the CBO numbers and calculated that their numbers amount to having to run the “eighty cents per week per year” for 24 years instead of the “about twenty” that the Trustees Report would have required. I have said for the last two years that the first year the tax would have to be increased would be 2018, so I am not sure that the TF topping out in 2017 changes anything. Changing the “end date” from 2033 to 2099 is NOT a “very big difference”. Krasting saying that “If these assumptions… the plan would fail.” Does not amount to an actual calculation showing this. Krasting does not know how to do the calculations. He thinks “Big Number! We’re all going to die!” is a logical proof.
I do applaud Webb for this effort. He has created a model that can be used to test various assumption. I think this model should be made available to guys like me in an unprotected format so that different assumptions can be tested (that is the purpose of any model)
While I appreciate all that Webb has done, it was actually me who “created the model.” You, Krasting, are free to copy the model and test your own assumptions. I am sorry enough that I put the spreadsheet out there where idiots can take pot shots at it without actually, you know, thinking about it.
To the extent that Webb is unwilling to provide an unprotected version, then he owes us an update of this exercise using the 2014 Trustee’s assumptions. I’m looking forward to reviewing that when it comes out.
I am sure that we will have an update when the 2014 Report comes out. But not before.
sorry about the format of the above comment by me.
i thought i had indicated what was Krasting and what was me. But the comment format eliminated the markers.
So the reader, if any, has to be aware that it goes “one paragraph from Krating” then one paragraph from coberly in reply… more or less.
i am really sorry, i know it will be miserably confusing to read, but i don’t have the time to fix it.
Jerry
there is some confusion here. Webb put up the 2012 numbers, then in a subsequent post he put up the 2013 numbers.
Krasting wants us to put up the 2014 numbers before the Trustees do.
oh hell, i couldn’t stand it. here is a version of my reply to krasting above in which it is easier to tell who is talking.
Krasting,
Following is a longer reply to your last comment. I won’t avoid entirely what you call ad hominems. But I will try to be more specific about what is wrong with your thinking.
KRASTING
Author: bkrasting
Comment:
Another day, and more ad hominem attacks. I’m “hysterical”, my logic is “worthless”, I’m “brain damaged” etc. This because I raise the point that the Spreadsheet is built on stale numbers.
COBERLY
i don’t like the ad hominem either, but as noted above you leave me the choice of spending my life trying to fix your thinking or just saying your thinking can’t be fixed.
As a start.. I don’t say your thinking is broken because you say the Spreadsheet is built on stale numbers. The spreadsheet in question was written in 2013 as an analysis of the 2012 Trustees Report. That’s all it was. It was not a prediction of the future of Social Security or of the future of Trustees Reports.
KRASTING
I do agree with Webb that any analysis of SS has to use TF inputs, but using the 2013 numbers in June of 2014, and then claiming “victory” is a bit over the top. The effort by Webb should have been deferred until after the 2014 TF data is released. Certainly, Webb will have to re-do this effort when that data is available.
COBERLY
I don’t claim “victory” and won’t until the Liars give up, and people like you are no longer a factor. The 2013 numbers applied to the 2013 Report.
KRASTING
Coberly says:
Nor can you accept the 9.6 Trillion Dollar Deficit and not accept the arithmetic that shows this Deficit can be erased entirely by raising the payroll tax one tenth of one percent per year, each, for….24 years in the case of the 2013 Report. “It’s just math.”
Coberly, the NPV in the 2014 report will be closer to 12T. So you will have to redo your math. Like you say, “It’s just math” so do the math.
COBERLY
Yes. I will “redo” the math when the 2014 Report comes out. It would be silly of me to write an analysis of the 2014 Report before it comes out.
KRASTING
In the current version of this spreadsheet there is the assumption that between now and 2033 (termination date) payroll taxes have to go up by a cumulative 3.5T and an additional on budget interest $700B will have to paid.
Okay, that outcome would ‘fix’ the 2033 cliff (based on the 2013 numbers), but consider that cost again. A huge increase in taxes are required and more on budget interest is necessary.
COBERLY
I showed that the “huge increase in taxes” amounts to 80 cents per week per year. Krasting can’t seem to understand that. As for the interest that “the budget” owes TO Social Security, Krasting seems to be arguing that the Congress should not have to repay money it borrowed, or even pay the interest on money it borrowed. If his numbers are right (I don’t have time to check them)… that interest would be 700B over the next 30 years… or about 20B per year. With income taxes amounting to about 3 Trillion per year this would be about two thirds of one percent of a tax increase to pay the interest, or an additional borrowing of the same amount of money “from the public.” Not exactly a huge burden on anyone.
KRASTING
Try selling this plan to Congress – you will get no support from either liberals or conservatives and you most certainly will not get any support from progressives. ($3.5T of more regressive taxes is not going to get you anywhere).
COBERLY
Social Security is not a “regressive tax”. It is a way for workers to save part of their income to guarantee they can retire when they reach 62. They get the money back with interest. And in about half the cases with a lot more interest than they could get ANYwhere else… plus they get the insurance. I don’t think the plan would be hard to sell to Congress once the workers understand it. People like Krasting spend a lot of time trying to make sure the workers will NOT understand it.
KRASTING
Sometime after 2017 there will have to be a Big Fix for SS. It will be another 1983 moment. There will have to be higher payroll taxes, and those tax increase will likely (and should) be phased in ala NW. But the hole at SS can’t be fixed with just tax increases. There has to be a combo approach. So all of the other elements of a fix have to be on the table. A fix will require some means testing of benefits, an increase in the cap, a change in the benefits formula, increased ages for availability, changes to COLA, AND some form of the NW plan where PR taxes move higher over time.
COBERLY
I have shown every year for the last 7 years that the “big fix” amounts to an eighty cents per week per year increase in the payroll tax. If the economy continues to be very very bad, the “big fix” could amount to as much as a dollar a week or even a dollar and a half. And this is money that the workers will NEED to save (via the payroll tax) if they are going to have any hope of retiring when they get old. Predictions of a bad economy are the LAST reason anyone should cut back on their savings. RAisng the cap or means testing or cutting benefits or raising the retirement age are all disasters…. to save part of eighty cents per week?
KRASTING
I know you boys like to avoid bad news, but I do urge you to look again at the CBO Baseline. If you use their numbers (and, of course, the adjustment for DI) you will see that CBO is projecting the TF to Top Out at 2.75T in 2017. The CBO numbers result in a change in the End Date to 2029 from 2033. These are very big differences from the data that is used in this spreadsheet. If these assumptions were used to test the NW plan, the plan would fail.
COBERLY
Here we have a Krasting “ad hominem”, but “who me?” doesn’t even realize he is doing it. I have used the CBO numbers and calculated that their numbers amount to having to run the “eighty cents per week per year” for 24 years instead of the “about twenty” that the Trustees Report would have required. I have said for the last two years that the first year the tax would have to be increased would be 2018, so I am not sure that the TF topping out in 2017 changes anything. Changing the “end date” from 2033 to 2029 is NOT a “very big difference”. Krasting saying that “If these assumptions… the plan would fail.” Does not amount to an actual calculation showing this. Krasting does not know how to do the calculations. He thinks “Big Number! We’re all going to die!” is a logical proof.
KRASTING
I do applaud Webb for this effort. He has created a model that can be used to test various assumption. I think this model should be made available to guys like me in an unprotected format so that different assumptions can be tested (that is the purpose of any model)
COBERLY
While I appreciate all that Webb has done, it was actually me who “created the model.” You, Krasting, are free to copy the model and test your own assumptions. I am sorry enough that I put the spreadsheet out there where idiots can take pot shots at it without actually, you know, thinking about it.
KRASTING
To the extent that Webb is unwilling to provide an unprotected version, then he owes us an update of this exercise using the 2014 Trustee’s assumptions. I’m looking forward to reviewing that when it comes out.
COBERLY
I am sure that we will have an update when the 2014 Report comes out. But not before.
Critter – Yes, I’ve asked for an unprotected version. When I try to un-protect the older version a message pops up that I have to supply a password.
In addition, I want the newer version that Webb has built. There is a different set-up to the new one, and there are different data numbers (for example, look at the old version, year 2042 and look at the Taxable Payroll number. In the old version this line was $23.208 Trillion. Now its is $23.009 Trillion. This $200b difference is not material, but it is different, so I wanted to stay with what is the most current version.
It’s all well and good to use year old numbers, but it’s premature to claim success at a SS ‘fix’ using those numbers. There is a significant amount of information/evidence that the new report will have different, and less optimistic assumptions.
For what it is worth, I think the new report will make some adjustments, and the result will be that the SS hole is a bit bigger. To achieve neutrality to a 3.5% I&P (approximately an NPV of 12T) the NW plan would have to start soon and the increases would have to be annual (no interrupted years as in the current version) and extend beyond 20 years. I think a rate of 6% net increase is necessary, This would suggest a 30 year run of increases – That’s a bitter pill to swallow.
I see a near zero chance of any significant changes to SS between now and 2017. The next President will have to tackle this. By then the I&P will be 5% (it has to go up every years unless changes are made) So I believe my pessimism is justified.
Bkrasting,
There are ways to get around the password, but since this is not my spreadsheet, I will not share them with you.
Krasting I am in the process of establishing Public Folders linked at the Social Security Defenders Google+ page that will contain copyable versions of the 2014 Report Tables in both Excel and PDF formats. Additionally I will be putting up versions of the 2013 and 2014 Northwest Plan spreadsheets as I get the former converted to more readable form and Dale and I craft the latter.
There will also be room there for me to publish guest submissions of PDFs and spreadsheets derived from CBO data or anywhere else. I have been planning something like this for years but until now didn’t have the right combination of hardware, software and rudimentary Excel skills to make it all work. For that matter I am still a little shaky on managing a Google+ site and integrating with Public Folders on its associated Google Drive.
Oh and by the way when I talked about “self sourced data sets” I wasnt’ referring to your use of the CBO 2014 baseline but instead your attempt to project Trust Fund Balances etc using an undisclosed methodology of your own back in your first days commenting here. That you are now using CBO and citing people (even Kotlikoff) is a big advance from your “here are my numbers, suck on them” approach in days past.
not much of an advance
Krasting uses CBO numbers like the starting point of a bad dream.
His last reply to Jerry is a case in point. Pure free association and delirium, but because the sentences are arguably “grammatical” people who don’t know more than Krasting knows might assume they mean something.
oh, yes
now i have to go out and put the hopefully fixed pump back in the ground.
this will leave you alone for a few hours.. just like yesterday, when i apparently hijacked the thread on my spreadsheet by leaving you alone for a few hours, and then trying to remind anyone who was still listening that the whole point of the spreadsheet was that “The TRUSTEES numbers amounted to a need for a tax increase of about eighty cents per week per year for about 20 years.
Krasting says
“Coberly, the NPV in the 2014 report will be closer to 12T. So you will have to redo your math. Like you say, “It’s just math” so do the math.”
well, i will do the math when i have the numbers. but meanwhile 12T is about 20% bigger than the 9.6T in the 2013 Report, so you might expect… other things being equal… that if 9.6T can be paid for by 80 cents per week per year, 12 T could be paid for by 1.00 per week… as a first guess. Not exactly something that is going to be a huge burden to anyone… and they get their money back. It’s what lets them retire instead of working for the boss until they die.
as for “other things being equal” Krasting assumes that if you change one number, you will change the bottom line… either linearly or exponentially. The fact is that you CAN’T change just one number. When you change one, all the other ones change, and you can’t even be sure the bottom line will change in the same direction, or much, if at all.
admittedly this is a little hard for him to understand, but it’s one reason why “Oh my god! Look at the BIG NUMBER! We are all going to DIE!”
gets to be such a crushing burden.
Somewhere in this thread Coberly drops a line about Chicken Little – he was referring to me.
A few lines above Webb says of my efforts/style of forecasting what the future will be for SS (versus the upside story from the Trustees:):
“here are my numbers, suck on them” approach in days past.
These comments go back more than 4 years. And yes, I did a bunch of forecasts based on what I was seeing with SS versus what was being reported. This was not rocket science. One need only to have looked at the monthly numbers to see that SS was running way behind on revenue (it was the recession). It also was obvious to me that Fed policy would put a big dent in SS % income over an extended period of time – as long as ten-years (it’s been six already and more to come). The reality of what the Fed’s policy would be, made it easy to conclude that % income would be off by hundreds of billions.
So I looked at all of the pieces. I did days of work. I know how to look at numbers and trends – I’ve been doing it all my life. The numbers did not add up even close to what SS was saying. So I made two predictions. Those got around and Webb and Coberly got involved and wrote that I was Chicken Little and an idiot and a liar, a fraud and a cheat. Webb did his best to smear me with some of the editors in the Emag world. It got public and ugly.
So what were my insane predictions?
1) That SS would run a cash deficit in 2009 and that there would never be another year of cash surpluses for the next 75 years.
2) The combined TFs would top out in 2017 and achieve a maximum value of less that $2.8T
At the time I made these projections the TF was saying that there would be cash surpluses through 2017. That the TF would top out in 2025 and achieve a high value in excess of $4T.
How crazy was I? I was predicting that the cash surplus would end 7 years earlier, and the TF would top out 8 years earlier and come up short by 1.2 Trillion!
So what happened? In 2009 the official cash number came in at +$3b, it was positive only because of an adjustment that was made to the data after January of 2010 when I wrote about this. So I missed by $3B, that’s a rounding error. I was right when I said that from 2010 on there would never again be a cash surplus. The 2010 -2013 deficits have totaled $220B – Webb and SS were saying that it was to be positive for another seven years! The early call of the cash deficits was made by me, and to my knowledge, no one else. Years later it was clear that I was right on the cash. Quite a few who knew of the spat wrote me to say that they remembered this event, and that they saw I was correct. Never heard a word from Webb or Coberly though So as far as I’m concerned I was 98% right on this prediction.
We don’t yet have the information to determine when the SSTFs will actually top out and what the highest value will be. But look at the CBO numbers I provided previously (April 14 Baseline) and you will see that when the DI shortfall is included, CBO thinks the TF will top out in 2017 at a high value of 2.75T. Should time prove the CBO numbers out, then you would have to say that I would be 100% correct in the second prediction. Even if this happened in 2018 with a TF at 2.8T I would still be right on this. At the time Webb was arguing the TF numbers and saying I was off by a mile. But I wasn’t off at all- the TF was wrong, not me.
I find it a musing that Webb and Coberly are using the same tactics today as they did in 2010. Saying I’m Chicken Little and silly things like that. Admit it fellows, I was right and you were wrong.
A write up about this balls up by Andrew Biggs at AEI:
http://www.aei-ideas.org/2010/01/social-security-will-still-require-higher-taxes-or-more-borrowing/
Krastring I am looking at the 2009 Report and it projected cash deficits in 2016 not 2017. (Table IV.B3). And they never predicted cash surpluses over the remainder of the 75 year actuarial period either. In fact under conditions of Sustainable Solvency Social Security would be cash flow negative every year even as it was running surpluses. Feature not a bug.
And CBO in its 2010 Long Term Budget Outlook had Trust Fund exhaustion in 2039 under its standard ‘Extended baseline’ and 2037 under ‘Alternative fiscal’. Meaning that you would have rejected their numbers then.
Now because of a large change in assumptions CBO has flipped from being more optimistic on net than SSA to being more pessimistic, but your claim that this change which only came last year somehow justifies your numbers from 2009 is kind of special pleading.
Plus you ignorel the crux of our criticism then and now. Coberly and I never endorsed Intermediate Cost, although me less so than him, we simply adopted it as an agreed benchmark for discussion. That is we were not making up the numbers. You on the other hand produced your own data series and refused to reveal your methodology and where you gave hints showed that you didn’t understand the basics of the financing, in particular you put way more emphasis on interest rates than was justified.
Now I grant that actual performance of the economy between early 2009 and today delivered numbers not that far off from the ones you presented. Bully for you! But none of that came accompanied by predictions of the extended employment recession that in fact eventuated and which no one at the time, left or right was predicting.
So in my mind this is still a case of a blind pig finding an acorn. But bon appetit.
krasting
i never argued about your predictions. I said they wouldn’t make any significant difference to Social Security. And they still won’t.
I won’t read Biggs, but the title of the article you linked .. SS will need a tax increase or more borrowing… is typical Biggs: strictly true grossly misleading. SS will need a tax increase.. on the order of one tenth of one percent per year for about twenty years. I, even I, have been saying that. That’s my whole point. On the other hand, SS does not borrow, cannot borrow, will not borrow. The Congress will need to raise taxes or borrow money to repay the money it borrowed FROM Social Security.
You don’t believe in paying your bills. Biggs does not believe in telling the whole truth. Your plaint about the way I have been treating you is about as brain damaged as your arguments about Social Security: “Oooh, look at that number! It’s a BIG one! We’re all going to die!”
Webb says that I did not consider the long term implications of the 2009 recession:
“none of that came accompanied by predictions of the extended employment recession that in fact eventuated and which no one at the time, left or right was predicting.”
Actually what I said in 1/2010 was:
I think that the recession of 08 and 09 and the anticipated high unemployment (low employment) in 2010 has crippled the Fund. Nothing short of a major overhaul can turn it around at this point. The damage has been too great.
So I did understand at the time that the employment side of the economy would be a drag on SS for years to come (it still is today). And that expectation led me to conclude that the SS problems were not short term.
By January 2010 there were many economists who understood that recessions triggered by a financial meltdown took much longer to recover from than typical business cycle recessions. The IMF published a paper on this in May of 2009. By January 2010 it was both understood and widely accepted. I guess Webb missed that. The IMF paper:
http://www.voxeu.org/article/imf-recession-research-unusually-severe-followed-weaker-average-recovery
I tried to convey the importance of the dramatically changed interest rate outlook and the consequences to SS to Coberly. His words from 1/15/10:
“krasting can’t seem to understand that i don’t give a damn what interest rates do. it is not a problem with social security.”
Coberly has built a spreed sheet that uses a rate of 5.7% for most of the years in the 90 year review. If that assumption were to be lowered (change in official forecast) then it would have a very material consequence on his model, I think Coberly understands this, maybe Coberly ‘does give a damn about interest rates’ today. As a reminder, SS is now investing at 1.75%, They are locking in this low rate for 15 years. A return on the SSTF of %.7% has not been seen for a decade, it will not be seen again in another decade (SS has too many low yield bonds in portfolio to get back to a 5.7% yield)
Webb was doing his best to blow holes in my predictions, this from January 2010:
“And just to pile on. How the hell do you get an estimate of only $200 billion surplus over four years from 2009-2012 compared to $900b”
The actual result for 2009- 2012 was a surplus of $324B. So I missed on the low side by $124B, Web missed on the high side by $576B.
Webb tried to derail my own estimates by contrasting them to the then existing CBO Baseline numbers. He thinks that CBO is Gospel back in January 2010:
“my economists are those who work for CBO and who produced the August 2009 Social Security Update. They project a payroll gap about half of that of SSA and dates of shortfall or depletion significantly out from those of the Trustees of SS.”
So CBO was more wrong than even SSA as it turns out. Webb liked CBO when they were wildly wrong about their expectations, but he does not like CBO today when they have a forecast that makes his NW plan obsolete.
On Wall Street we called this “Cherry picking”.
Krasting
I surrender.
You are the best predictor since Nostradamus. I am going to recommend that Angry Bear give you your own special room and have your meals brought in so you can devote yourself full time to predicting.
But I still need to say to the people who matter
That the predictions don’t. Whatever happens to interest rates YOU are going to NEED Social Security in its present form. It allows you to put some money aside so you will be able to retire on time. It protects your money by “pay as you go financing.” It protects it from inflation, stock market losses, and whatever happens to interest rates. It also protects you from a lifetime of low wages.
And it won’t cost you more than it’s worth… about an extra 80 cents per week per year for about the next 20 years.
Some new predictions by Our Boy or even by the Trustees may show Newer Bigger Numbers, but when broken down to what YOU have to pay… they won’t be very different from that 80 cents per week per year for about the next 20 years. Could be “worse”, but not enough worse to matter… and remember those are predictions about the next 75 years or “infinite horizon” they are based on nothing much better than pure guesses.
We can pay as we go as long as don’t get stupid about it. A time could come when it would make sense to “not raise” the tax by “not raising” benefits… but that time is not now. And not soon. And we will see it coming in plenty of time IF it happens.
Don’t be stampeded by the lying predictions into letting them change Social Security into welfare or a stock market casino. It was designed to protect you from both of those things. The predictors don’t tell you what those things will be like.