Sunday, March 23, 2008

Social Security Trustees Report Tuesday

This coming Tuesday the Social Security Trustees will release their annual Report on the financial status of the program. When the Report is released it should be available here.

During the almost five years I spent at the Social Security Administration I was involved with the preparation of the Trustees Report. By the time I became Deputy Commissioner I led the SSA staff who took part in the Trustees working group, which is the day-to-day staff level group that effectively prepares the Report. As I left the agency only in February I was involved in the preparation of the 2008 Report, but like current staff will not discuss the results of the Report prior to its release.

However, this might be a good opportunity to briefly discuss the Trustees process, which I never understood particularly well before I became involved with it. Several issues may be of interest.

First, the White House is almost totally insulated from the process of producing the Trustees Report. White House staff are not involved with the Trustees working group in any way and do not attend Trustees meetings. The White House is not told of changes in the Trustees assumptions and does not know the overall results until the Report itself is released. This is designed to limit political influence on the Trustees Report.

Second, there are often questions of whether the Trustees themselves attempt to exaggerate the size of the problem, either to accomplish political goals or simply to push the public toward action. In the time I spent working on the Trustees Report I never witnessed anything at all along those lines. In fact, it is refreshing how professionally the staff, both political appointees and career, go about their business. I have on several occasions witnessed political appointees arguing for changes in assumptions, purely on the merits, that would make the actuarial deficit smaller. Likewise, I have seen career staff arguing for changes in assumptions that would tend to make the measured deficit larger. The are obviously disagreements about both assumptions and methods, and how these disagreements are resolved would tend to affect the size the of deficit. But among the individuals involved, I have found that these disagreements tend to be normally distributed – that is to say, the fact that a given person holds a certain view that would make the measured deficit larger does not mean that all of his/her views would do so. In short, in my experience issues tend to be examined on the merits.

Third, many people don't understand how strong is the role of the SSA actuaries (who are career staff) within the Trustees Report process. Technically, the Trustees and their staff decide on the assumptions while the actuaries run the numbers to determine what outcomes those assumptions would produce. In practice, however, the actuaries have a very strong influence on the assumptions – both the "headline" assumptions as well as numerous sub-assumptions needed to model the Social Security program. The actuaries first present their own preferred assumptions, that the working group takes as a starting point for their own discussions. The actuaries' assumptions can and are changed, but they are not a silent voice in the process. This has both pros and cons. On the pro side, the "political" influence on the Trustees Report is very small compared to reports from any other executive agency. This lends (or should lend) credibility to their findings. On the other hand, it is intended that the Trustees have a strong role in producing the Report, and it can be questioned whether that role is strong enough.


 

5 comments:

Bruce Webb said...

"First, the White House is almost totally insulated from the process of producing the Trustees Report."

Well I guess that depends on your definition of 'almost'.

" White House staff are not involved with the Trustees working group in any way and do not attend Trustees meetings. The White House is not told of changes in the Trustees assumptions and does not know the overall results until the Report itself is released. This is designed to limit political influence on the Trustees Report."

Who actually are the Trustees? Who signed the 2007 Report?
Secretary of Treasury Henry M. Paulson
Secretary of Labor Elaine L. Chao
Secretary of Health and Human Services Michael O. Leavitt
Commissioner of Social Security Michael J. Astrue
'Public' Trustee John L. Palmer
'Public' Trustee Thomas R. Saving

All six are political appointees, three meet regularly with the President at every Cabinet meeting, the idea that there is any particular firewall between the Trustees and the White House is ludicrous. Traditionally the 'Public' Trustees are divided by party with one Democrat and one Republican but there is nothing that would prevent the Democrat from being a devoted privatizer. Which he is. It is also worth noting that both Saving and Palmer were reappointed (against the tradition that had Public Trustees serving only one term) by a recess appointment. This is the President's hand selected team.

"Technically, the Trustees and their staff decide on the assumptions while the actuaries run the numbers to determine what outcomes those assumptions would produce."

What? Everything in this piece tries to sell the idea that there are three groups involved: the Trustees, the Trustees working group, and the actuaries working out of the Office of the Chief Actuary and all working disinterestedly in the public interest. There is not a hint that half of the Trustees are ex officio cabinet members who owe their first loyalty to the President. If there was something embarrassing in tomorrow's Report does anyone doubt that Hank Paulson wouldn't give the President, the President's Press Secretary, and the President's Political Office a heads up? Come on!! If I were a Democratic President and three cabinet members let me be blind-sided and sand-bagged by the release of a government report heads would roll. And rightly so.

The Trustees work for the President, a President who since his first run for Congress in 1978 has been devoted to Social Security privatization. Which makes the following kind of laughable in context.

"On the pro side, the "political" influence on the Trustees Report is very small compared to reports from any other executive agency. This lends (or should lend) credibility to their findings. On the other hand, it is intended that the Trustees have a strong role in producing the Report, and it can be questioned whether that role is strong enough."

How many other executive agency reports are signed off by six political appointees? Is there anyone out there who believes that this Report would even-handedly report that Social Security under realistic economic and demographic assumptions was likely enough to be solvent that the prudent course was inaction, a policy of wait and see? Against the stated views and thirty year record of their Boss? Please. If so I got an unbuilt Bridge to Nowhere I could sell you.

Andrew G. Biggs said...

Bruce, I can only describe it to you as I've seen it. Maybe others involved have seen it differently.

You're of course right that the non-public Trustees are cabinet officials and thus political appointees. The public Trustees are split between political parties, making it harder to distort the process, and the last two public Trustees (John Palmer and Tom Saving) were actually appointed by President Clinton.

All that said, on a day-to-day basis, my experience has been that the WH simply isn't involved in the process of producing the Trustees Report. The fact that the actuarial deficit has declined in recent years, under Trustees appointed by a President who has highlighted the size of the financing gap, speaks to their ability to separate the TR process from the President's policy objectives.

Bruce Webb said...

Well I am on pins and needles. In years past I have commented that Social Security Report release day was like some combination of Christmas and Easter in the Webb household.

From my perspective the decline in the actuarial deficit is just the mathematical product of having a series of years with outcomes beating Intermediate Cost assumptions. That is my case does not require hitting Low Cost numbers in any given year or for that matter any year, any number set north of IC decreases the actuarial gap. This effect can only be offset by cutting growth out of the model in the out years and this does seem to have happened for Reports between 1997 and 2004. We can disagree whether this process was deliberate in the stretch of years in which the apparent adjustment was most obvious, which is to say the Clinton Administration and the 1997 to 2000 Reports, and we can even agree that the Bush years have produced results closer to IC than previously, particularly after productivity fell over the cliff late in 2005 (not a good thing in itself of course), but all in all the IC projections for the next Presidential term are pretty low hanging fruit (Real GDP: 2.8%, 2.6%, 2.6%, 2.4%; Productivity 1.9%, 1.9%, 1.8%, 1.8%; Real Wages: 1.7%, 1.4%, 1.3%, 1.4%). We can beat these numbers, I see no reason to accept that the American economy is going to slide to something close to perma-recession by 2013. And any year we do will tend to reduce the actuarial gap and push depletion back in time.

Leaving aside any issues of motivation or political considerations and taking the number series in the abstract, these numbers can most simply be explained as the result of Intermediate Cost perforce having to come in below Low Cost and Low Cost itself being fitted to a predetermined curve. For the last eleven years Low Cost has consistently returns the same operational output (fully funded Social Security with a flat trust fund ratio through the 75 year window). This perhaps is just a coincidence, the top range of probable expected outcomes just happening to coincide with what I call Baby Bear, Social Security neither overfunded (Papa Bear) or underfunded (Mama Bear) year in and year out. Well I don't believe in fairy tales.

On the other hand we could change the narrative somewhat by making these matters explicit. From a policy perspective it would be perfectly acceptable to establish one model as explicitly Baby Bear (fully funded Trust Fund), another as Papa Bear (better growth than Baby Bear), a third as Mama Bear (less growth), and a fourth as Goldilocks (best median assumption), and then score the results and then track the trend. If you do this retroactively the result is pretty clear, long term the convergence is towards Baby Bear. Not particularly convenient for privatizers, on the other hand these are not my numbers. As I like to point out at Angry Bear, I am not a number cruncher, I am just a number pointer.

Today will be an interesting test. The really weak numbers of Q4 and the rather bleak forecasting by most economists would allow the Trustees to put paid to my model. 2007 came in far below Low Cost projections and nobody I know is expecting the economy to hit the 3.0% projection for 2008 under Intermediate Cost. Simply keeping future numbers static should notably send the tail drooping in Figure II.D7. On the other hand having Low Cost return its traditional result removes some pressure on the IC cost model (I still maintain that 1.7% ultimate productivity seems awfully low to be the median).

In any event the suspense is killing me. (2PM eastern)

Bruce Webb said...

To return to the main point.

I would think it almost inconceivable that any Cabinet Secretary of any party would allow his or her President to be sandbagged by the release of an inconvenient Report without some previous notification, particularly on a signature issue like Social Security is to President Bush. At a minimum it would be horribly unfair to the Press Secretary. Whether or not the President's people had actual input into the shaping of the Report, there is no reason in the world not to give them a heads up as to its contents.

Anonymous said...

well,

i always judge a liar by what he says, not by his friends telling me that he is an honorable man.

the trustees report is probably the best prediction possible, for all i know.

it's the little words written around the report that tend to create a feeling of impending doom that the numbers do not support,

to be fair,even here the innuendo is not strong, just strong enough to let Peter Peterson and his ilk get away with shouting "Fire!" in a crowded theater.