Marketwatch’s Irwin Kellner comments on the latest Social Security Trustees Report. You can read the entire column for yourself, but here I’ve pulled some key excerpts followed by commentary.Kellner's comments are indented:
In 2000, the system’s actuaries thought the assets of this fund would be exhausted by 2032. Two years later it was 2037. Now the projected exhaustion date is 2041. Meanwhile, the Congressional Budget Office, which makes these projections as well, recently thought the system will remain solvent until at least 2052.
Two thoughts: First, the trust fund exhaustion date, while important, is also a volatile measure, since even a small change in assumptions can shift it by a year or two. Second, while CBO “recently thought the system will remain solvent until at least 2052,” they more recently amended that projection to 2046. Given that CBO uses slightly more optimistic assumptions and that their model tends to show smaller shortfalls even with constant assumptions, this is a relatively small difference.
Judging by past history, assumptions underlying the intermediate projection are very conservative -- especially when it comes to economic growth…. The intermediate projection assumes that the economy will grow by an annual rate of 2.3% per year between now and 2085… well below the 3.4% that the economy grew on average between 1960 and 2005.
Please, I’m begging you, stop these comparisons of past to projected GDP – they just miss the point. As far as Social Security is concerned, “GDP” doesn’t matter. The closest thing to GDP growth that matters for Social Security is the sum of real wage growth and labor force growth. The Trustees projected rate of real wage growth (1.1% annually) is – cue the music – slightly higher than the average from 1960-2007. What’s lower is the rate of labor force growth, but this makes total sense: from 1960-2007, labor force growth grew rapidly (around 1.7%) principally due to Baby Boom birth rates and rising female labor force participation. But birth rates have fallen significantly, meaning fewer new workers, and female labor force participation isn’t going to get much higher than it is today. As a result, total GDP growth is projected to slow, even if output per worker – a better measure of the economy’s health – continues along just fine.
And as you might imagine, the speed at which the economy grows has a lot to do with the other variables -- including the interest the fund earns from investing its surplus in Treasuries.
Actually, GDP growth is the product of the other variables, not an input to them. Moreover, the correlation between real GDP growth and real interest rates on the trust fund – around 0.18 – while positive, isn’t terribly strong.
You might ask the question why this more realistic [low cost] projection has escaped politicians from both major parties. I don't know why, but I can only theorize that it's because they haven't taken the time to read the entire report.Alternately, it may be because they have read the entire report. The arguments here are typical of those you read in the press and see on the web, not what you hear from people who really spend a lot of time with this material.