Friday, July 31, 2015

Graham: Social Security Trustees Overstate Economic Growth

The headline of Jed Graham's Investors Business Daily piece -- "Why The Social Security Trustees Can't Be Trusted" -- is over the top, but he hits at an interesting question: Do the Trustees' projections for Social Security's financing health rely on excessively optimistic assumptions regarding economic growth?

In the past they've been accused of being excessively pessimistic, a charge I defended them against at the time, but I believe there may be something to Graham's case -- and that has repercussions beyond merely how long we expect Social Security's trust fund to last. I'll be writing on that in the near future, but in the meantime check out Jed's piece and join the argument here.


Arne said...

Since I have been paying attention it seems the economy has been driven by booms and busts. Booms have made projections seem pessimistic and busts have made projections seem optimistic. That is inherent in a process of giving more weight to recent years, but I also observe that the CBO has swung more wildly than the SSA.

I will bet 10 cents, heck even a whole dollar, that the CBO has swung too far negative this time. Because second guessing someone else's extrapolation is gambling.

JoeTheEconomist said...

Who has accused the SSA of excessive pessimism? Last May the research from Harvard and Dartmouth questioned the estimates on a couple of variables. The real wage figures expect wage growth every year for the next 75 that is larger than the average of the last 50. Since 1983, the solvency of the Trust Funds has declined 50% faster than predicted.

I don't think that pessimism explains much here.

WilliamLarsen said...

I like to use a 20 year moving average when modeling SS-OASI for wages, cpi and wage growth. Twenty years is long enough to cover booms and busts. My model's result has not changed more than a +/-6 months. I did make a change to the labor participation rate by decreasing it to see what happens. The date moved to 2027-2028.

Anyone who thinks they can predict a year by year wage growth, cpi, us treasury rate and could actually do it would own the world.

These three variables have highs, lows and they tend to have relative values to each other. Therefor the law of averages I think is the best method and keeps politics out of it.