What Solvency Crisis?

James Pethokoukis at U.S. News & World Report's blog Capital Commerce emails:

Bush's Secret Plan to Save Social Security, by James Pethokoukis: Is the Social Security solvency "crisis" really not a crisis at all? Maybe not, if Edward Lazear, chairman of President Bush's Council of Economic Advisers, has his numbers correct. Yesterday, Lazear held a media briefing about the 2007 Economic Report of the President. During the press conference, Lazear said the following about the future rate of productivity growth:

I wouldn't necessarily say 3 percent. But I would expect that we could expect to see high rates, perhaps not quite at the 3 percent level, but somewhere higher than 2 percent. I would expect somewhere closer to 3 percent...

...Now here is why Lazear's prediction is important: Higher productivity growth–and the stronger economy and higher wages that it implies–would completely solve Social Security budget woes for the next 75 years. Right now, the Social Security Administration is assuming that long-term productivity growth is 1.7 percent. An alternative, rosier forecast has it at 2 percent. If the rosier forecast were correct, the 75-year shortfall would be 25 percent less. But if Lazear's even more optimistic prediction is right, the 75-year shortfall would be eliminated.

Here is what economist Brad DeLong ... wrote in his popular blog on the topic: "Each 0.1 percentage point increase in the growth rate of productivity reduces the long-horizon Social Security deficit by approximately 0.1 percent of taxable payroll. Elementary. Obvious to everyone who has even a surface knowledge of how our current system works. Real wage and productivity growth of 3 percent per year ... would wipe out the 75-year deficit."

Now DeLong doubts such growth is possible. But Lazear thinks it is doable with the right policies: "And I think we do have that kind of an economy, because, again we have a relatively low-tax economy, we have an economy that's open to trade for the most part, we've encouraged foreign investment, all of which have been important and instrumental in creating our economic growth."

Those on the left might also add other factors that they think are necessary for growth, such as greater public investment in basic scientific research or a modified social insurance system–improved healthcare, wage insurance–to make worried workers more willing to take entrepreneurial risks like starting their own business. ...

Here's what I've noticed. Some of the same people who argue there's too much uncertainty about the climate 75 years in the future to justify drastic action now use the so-called crisis in Social Security funding 75 years from now (which is far more uncertain than climate change) to argue for drastic change today.

Comments

[ilsm]

The crisis is cash flow, SS is the neocon culprit.

When I retire and collect in a few years two hurts occur.

They cannot use my excess payment to OASDI to cover the tax cuts.

And the outlay spring up.

The problem is the SS surpluses decling and the deficit rising without raising taxes or cutting spending elsewhere.

The bait is lying about the trends the switch is from general fund excess to meeting their obligations

[evagrius]

Very funny observations. It all boils down to money, ( theirs, of course).

[Noni Mausa]

Question for all you economists -- is there anyone who seriously studies steady-state economics? that is, economics which don't insist that growth has to be part of the equation?

Just curious,

Noni

[dogfacegeorge]

Who would believe it? Lazear is a follower of Bruce Webb: He can't say that tax cuts will lead to high productivity gains while simultaneously arguing that low productivity gains will doom SS.

[William Smith]

Why doesn't the SSA use a variable rate of productivity growth that reflects past trends to help predict future growth? For example, take average productivity growth from the last 50 years and use that, recalculated each year, as the average expected growth over the lifetime of Social Security...

[Lee A. Arnold]

They are not really double binds, which I guess are emotional... You have to learn a lot about the intellectual topics, but then you find these people contradict themselves, at a profounder conceptual level. Calling climate models "uncertain" and then depending upon a model of one-equation economics to do the the cost-benefit! There is also a similar loop-de-loop going-on in the rhetorical structure of US foreign policy. ...A wise person once told me, you can BE angry, just don't write angry... Good advice, because it ends up being insanely funny. You can twist this crap into so many pretzels!

[anne]

Mark Thoma:

"Here's what I've noticed. Some of the same people who argue there's too much uncertainty about the climate 75 years in the future to justify drastic action now use the so-called crisis in Social Security funding 75 years from now (which is far more uncertain than climate change) to argue for drastic change today."

Brilliant.

[anne]

What Paul Krugman would argue when the dismal growth assumptions were being made for the economy to justify turning Social Security private, was that dismal growth would insure a disaster for private accounts. So, do we have fine growth and no problem or poor growth and a problem whether accounts are private or public?

What currently is happily and possibly surprisingly happening is a Federal Reserve cycle nearing a close with growth still significant even with continually rising energy prices through the cycle and a slowing of housing. But, since this has happened internationally why should we be all that surprised. Why is the international economy so resilient?

[Bruce Webb]

To answer William's question.

That kind of averaging would have been a pretty reasonable description of Intermediate Cost. At least up until about a decade ago. At that point Low Cost started squeezing the models. The 1997 Report revealed that if growth in the relatively short run (ten years) came in at more or less the 1996 rate they system would be fully funded.

Now 1996 was a pretty good year, it was no slam dunk certainty that subsequent years would match it. Low Cost could fairly be described as 'optmistic'in 1997 But growth continue and even improved. 2002-2004 showed 3% productivity (in the 2006 Report). (As did Q4 2006 per the BLS press release last week.)

The result was to squeeze Intermediate Cost to keep it below fully funded Low Cost which in turn required ever lower levels of future growth. If you read the reports in sequence year by year since 2001 you can see a series of increasingly desperate manipulations of the assumptions to keep Intermediate and Low Cost from touching and crossing. Because at that point 'crisis' is officially over, and you have to start wondering what you are going to do now that Cost never totally consumes Income projected forwards.

We know the economy can grow at rates better than 2.5%, because they have regularly done so for most of the last decade.

The problem is that if they had used that moving average by about 2001 it would have been showing a fully funded Social Security system with no changes in benefits or retirement age needed. Which would not have fit well in Bush's narrative.

But they are cracking, and Lazear's slip here is revealing. They are trying to tell two stories, to sell two narratives, which in turn rely on totally opposite projections of future productivity. The miracle of tax cuts runs right over their gloomy depiction of Social Security.

It would be funny if the consequences were not so potentially serious. The Economic Right's karma ran right over its dogma. And the poor beast doesn't even know it is dead.

[Peter Schaeffer]

From 1970 to 2006, per-worker productivity grew by 1.4254% per year. How anyone can even suggest future productivity growth “closer to 3%” amazes me. This strikes me as just propaganda for Bush’s failed tax and trade policies. Note the quote

“And I think we do have that kind of an economy, because, again we have a relatively low-tax economy, we have an economy that's open to trade for the most part, we've encouraged foreign investment, all of which have been important and instrumental in creating our economic growth”

Given that this is coming from the same people, who profess to believe in self-financing tax cuts, I wouldn’t take it very seriously.

[anne]

Brad DeLong has for years been suggesting that a productivity growth rate above 2.5% is reasonable and I would agree. Productivity from 1970 to the early 1990s was relatively low from an historical perspective for reasons that are not clear, but there were significant gains in the 1990s that we would attribute to application of information technology development that promises to continue for ecades to come. As though Moore's Law finally allowed for application. Productivity growth will be variable, but I suggest long term growth above 2.5% is quite reasonable and economic growth at the historical level of 3.4% is even more easily accomplished.

[anne]

There are structural problems that we must confront, such as insuring 47 million Americans with gold-plated health care policies, but I am finding international growth that is happily startling and promising to continue. Brad DeLong is optimistic, as I am.

[Peter Schaeffer]

The 1970 – 2006 period includes the dismal 1970s and the booming 1990s. It is by no means unrepresentative. Over the 1929 – 2006 period, per-worker GDP grew by 1.9538%. Still well below 2.5%, much less 3.0%.

The gains from Moore’s law were material, but mostly behind us. Note that IT spending is no longer growing as a fraction of corporate budgets. Worse, an every growing fraction of IT dollars are being spent on security and compliance. Neither is likely to be a source of future productivity.

Beyond that, the U.S. faces various headwinds that will tend to diminish future productivity gains. The costs of Global Warming (prevention and remediation) are not likely to be trivial. However, the declining future quality of the U.S. labor force is probably an ever larger factor. See Coming US challenge: a less literate workforce. Of course, Open Borders are the reason for declining U.S. skills. With immigration reform, this unhappy future might be avoided. So far it isn’t clear when this will happen, if ever. A useful quote

"We have the possibility of transforming the American dream into the American tragedy"

Note that from 1929 to 1970, per-worker GDP grew by 2.42%. However, immigration was tightly restricted in that period.

[Mark Thoma]

We don't measure productivity that way - it's not a very good estimate.

E.g. see here.

[anne]

Economic growth these last 75 years has averaged 3.4%. Emphasize infrastructure development, soft and hard, education and research to energy efficiency and conservation and construction that allows for efficiency and conservation, infrastructure development that allows for a continuation of economic growth.

Imagine minimal tuition at public colleges-universities through America, and remember what public education accomplished for us a century ago. Enough of the insane squandering of resources for the some colonialist fantasy, and look to what we can accomplish otherwise. Can we understand what it means to have squandered $2 trillion dollars on a tragic fantasy of Iraq?

[Peter Schaeffer]

Mr. Thoma,

I understand that economists focus on total factor productivity, rather than per-worker GDP. However, several parties use more straightforward measures of productivity. For example, it would appear that both Lazear and DeLong are using more conventional metrics. Notably, the Trustees of the Social Security system are using output per-hour to measure/project productivity.

A footnote states the following

“Historical total hours worked is an unpublished series provided by the Bureau of Labor Statistics (BLS), and is for all civilian and military wage and salary workers and the self-employed.”

Since I don’t have access to their series, I have used output per-worker instead.

[ken melvin]

http://angrybear.blogspot.com/2007/02/stormys-post-on-ipcc-report-and-wto.html

What will the WTO do here?

And what is our projected course on CO2 emissions? Again, I offer a small sample of where we are going. The Energy Bulletin notes that three countries are planning to build 850 new coal plants by 2012—India, the U.S., and China.

“The magnitude of that imbalance is staggering. Environmentalists have long called the [Kyoto] treaty a symbolic rather than practical victory in the fight against global warming. But even many of them do not appear aware of the coming tidal wave of greenhouse-gas emissions by nations not under Kyoto restrictions.”

The report continues:

“By 2012, the plants in three key countries - China, India, and the United States - are expected to emit as much as an extra 2.7 billion tons of carbon dioxide, according to a Monitor analysis of power-plant construction data. In contrast, Kyoto countries by that year are supposed to have cut their CO2 emissions by some 483 million tons.”

By 2012, China is expected to add 562; India, 213; and the U.S., 72. As for the Integrated Gasification Combined Cycle (IGCC),

“funding for a key billion-dollar [U.S.-based] federal IGCC experimental program called FutureGen is lagging. And unless the US sets a limit on CO2 emissions that creates a market for carbon-reducing technology, there is little financial incentive to invest in such technology, experts say. As a result, the technology appears unlikely to be deployed in time to make much difference in the coming surge of power-plant construction.”

Unless we change the way we do business, there is little hope. Business and trade are the twin epicenters of the coming earthquake. That earthquake will challenge traditional thinking about economics as nothing has before. The “externalities” of which economists speak will no longer be appendages to the discussion, or afterthoughts to be consider only by politicians. They will come marching to center stage, dominating and modifying even the principles of comparative advantage.

[evagrius]

"The “externalities” of which economists speak will no longer be appendages to the discussion, or afterthoughts to be consider only by politicians. They will come marching to center stage, dominating and modifying even the principles of comparative advantage"

Yes. They'll be known as internalities by then, cough, cough, gee, it's warm in here, it's cold out there.

[anne]

http://www.economagic.com/

Economagic has a wealth of statistical time series, most government but some private. Productivity must be there somewhere, but I do not find it at once. In any event, an excellent data-statistical source.

[T.S.]

The point of the matter is that government cannot forecast future events, while individuals can more efficiently plan for them. Any partial privatization would be voluntary and government would inevitably pick up the tab for people anyway.

[Cyrille]

Yes, of course, every single person is just so brilliant at making reasonable assumptions about an uncertain future. That's been seen so clearly in the whole of human history.
Just as clearly, no party in the USA starting with an 'R' would ever consider not bailing out someone who voluntarily decided to put everything into a risky gamble. For example, a gamble such as, maybe, living in New Orleans because you were born there. Ah, sorry, that didn't apply: in that case, the government had a DUTY to take action, promised to do so, and therefore, did not, since compassionate conservatism only operates when not bound to do so. But then, rest easy, you will always be safe. Duh.

[bakho]

Senator Conrad has some very nice charts on this issue:

Senate charts

[Bruce Webb]

Peter S "The gains from Moore’s law were material, but mostly behind us. Note that IT spending is no longer growing as a fraction of corporate budgets."

The first sentence is simply an assertion based on nothing. As an example we are only in the earliest stages of getting returns from the immense sunk costs of GIS (Geographic Information Systems)over the last couple of decades. Google Earth only begins to tap the possibilities. And this is just one technology. Real time video conferencing using wide-screen HDTV could, should and probably will replace a great deal of business travel. We could multiply examples, but the idea that tech has hit some limit to contributing to productivity is something that needs to be demonstrated, preferably with some real world data. A simple toss off comment isn't particularly convincing here.

That IT spending is declining as a percentage of corporate spending kind of ignores the fact that unit costs for IT hardware are shrinking at a rapid rate. Compare the costs of supplying 200 employees with 19" LCD monitors and individual color printers today with five years ago. Or you can compare the cost of storage. I have a 512mb flash drive built into my watch. I paid $80 about a year ago, that same model ranges from $47-58 today, the 1gb version is $62-67. We have not even tapped the possibilities of having almost unlimited storage combined with high speed downloads. This combined with advances in information retrieval have transformational opportunities in expediting R&D.

Scientests used to have to schedule time on mainframes, and only the very few had access to supercomputers. Now you can and firms do supply the equivalent of supercomputers to individual researchers. The combination of the sunk costs and the ever dropping cost of new hardware probably goes pretty far towards explaining that drop in IT investment.

My former position was in permitting and planning. Now I am in real estate. The combination of online permitting and online mapping is stripping huge productivity overhead out of our industry. Government is going online at a rapid pace, in a lot of places the pure tedium and 100% loss of productivity from waiting in line for information at a government agency is no longer an issue. In my Planning Department 2-3 hour wait times to get a question answered in person, or 4-5 days to get a phone query returned were and are not uncommon at all. Now I can get 99% of my needs met online. Only when I need an employee to make a judgement call do I typically go to the County.

Real estate is just one sector where the sheer friction of physically dealing with government historically has been a huge cost sink. And government is just a piece of the puzzle. I lost the manual to my new phone. I downloaded a PDF of the whole thing in seconds.

Anyone who thinks the golden days of tech contributing to productivity gains being over is working over the mental equivalent of a 26kb modem. Productivity from 2002-2004 was 3% per the Trustees. Productivity in Q4 2007 was 3% per the BLS. Frankly I don't see that 1970 is particularly relevant in guaging growth going forward. 3% productivity is not only possible, it is present.

[Bruce Webb]

Try Q4 2006.

[anne]

http://www.economagic.com/em-cgi/data.exe/fedstl/mfgprod+1

Ah, I almost forgot, here is an economagic productivity series for manufacturing. There are a number of series. The point is Economagic is a fine data-statistical analysis resource.

[John H. Morrison]

Increased productivity does not translate directly to increased funding of the Social Security Fund. It depends on how much of that productivity is actually paid as wages to workers. If (say) 90% of the productivity increase appears as wages for those making over $1,000,000 per year and to stock dividends, that 90% will not appear in the payroll taxes that fund Social Security.

There is a definite reason why conservatives want to "fix" social security, while not doing anything to fix the real problems and crises that we have. Simply, their desired "fix" of social security is ultimately to destroy it. Fixing the real problems requires government action and possible restrictions on corporate behavior.

[Bruce Webb]

John H.

Exactly right. But then again real wage assumptions are built into the models and so can be tested. Moreover the fact that the Trust Fund ended the year with $13.9 billion more than Intermediate cost projected suggests that considering the level of productivity reported wages are being passed through.

Which doesn't of course mean workers are necessarily getting their proper due, just that they are getting enough of it that their 12.4% is funding their retirement benefit.

[mrrunangun]

The seventies were a time of low productivity growth and were also characterized by high inflation and, largely thru the inflation, liquidation of exccesive debt built up by gov't and the private sector during the boom years of the 50s and 60s. It felt like one long recession and many of my well-educated friends experienced employment difficulties then. It is not inconceivable that another such period of debt liquidation will become necessary following the governmental and private party debt extravaganza of recent years. To postulate that the productivity growth rates of recent years are permanent seems a trifle optimistic.

[Anon]

"Some of the same people who argue there's too much uncertainty about the climate 75 years in the future to justify drastic action now use the so-called crisis in Social Security funding 75 years from now (which is far more uncertain than climate change) to argue for drastic change today."

Sure, but the same people who say global warming is an immediate crisis say we shouldn't worry about Social Security. Both sides should try to be more consistent on this.

It's VERY hard to quantify uncertainty and put a price to it in either case. It's particularly hard to compare costs, because global warming would reduce future GDP (versus baseline growth) while Social Security and other entitlements are really financial imbalances, which if we fix in bad ways could hurt GDP and cause other harm. So they're not exactly apples and oranges.

That said, most stochastic analyses of Social Security financing (SSA, CBO, Mountain View research) find very small probabilities of the system remaining solvent over the long term (SSA's is less than 1% for 75 year solvency, and far lower for sustainable solvency), but significant probabilities of large shortfalls.

Re global warming (CBO has a good literature summary here: http://www.cbo.gov/showdoc.cfm?index=6061&sequence=0), there is also great uncertainty, but probably a somewhat larger possibility that the net effects could be positive, particularly for the US. (Check the literature before immediately dismissing this.)

Probably a more important difference is the discount rate used in measuring the long term costs. Social Security costs are usually discounted at the government bond rate (around 3% real) while environmental analysts often use much lower discount rates; the UK Stern commission discounted at a bit over 1%. While there are arguments for each, they should be used consistently. If future Social Security shortfalls were discounted at 1% they would appear several times larger than most people currently think.

[Peter Schaeffer]

Mrrunangun,

A quick check of The National Debt as % of GDP shows that the National Debt fell much faster in the 1960s than in the 1970s. See also National Debt Graph (2007 Budget data). Note that this is a chart of gross debt rather then net debt. However, either way the National Debt fell more in the 1950s and 1960s than later.

[Peter Schaeffer]

Bruce Webb,

I have checked the SSTR productivity data a bit more and I do not believe it supports your position on productivity growth, past, present, or future. Before going into the data, I would like to reproduce a quote from the Status of the Social Security and Medicare Programs

“In consequence, even though the Trustees assume the continuation of relatively robust rates of fertility and immigration, this year's report-like last year's-shows the annual growth rate of the labor force declining to 0.5 percent in less than a decade and to only 0.3 percent within two decades and thereafter. The result is a long-term rate of real economic growth not much above 2 percent, unless prospective increases in productivity far exceed any historic norms and the most optimistic expert projections. The Trustees currently assume 1.7 percent for the ultimate growth rate of productivity, and we know of no expert forecast that would place it significantly above 2 percent.”

The bolding is mine.

A quick check of the SSTR 2006 report tables does show that productivity per-hour rose by 3.0, 3.1, and 3.0 percent in 2002 – 2004. However, the same table also shows that hours worked fell by a total of -2.2% in 2002 – 2004. This is important because the SS wage indexing formula appear to be based on earnings per-year, not earnings per-hour. See Average Wage Indexing Series for a chart of the actual numbers.

To demonstrate the significance of this point, let me use a hypothetical example. Say productivity per-hour rose by 3% for the next 75 years. Assume that hours worked fell by 3% per year for the same time period. This would mean that output per-worker would remain unchanged and the (roughly) eightfold gain in productivity would contribute nothing to improving the finances of Social Security.

Now it can be argued that hours worked could remain constant, and actual output could have increased by 3% per year from 2002 to 2004. However, this misses the apparent significance of hours worked in the data. At least since 1990, periods of high productivity (per-hour) growth are associated with declining hours and vice versa (R squared is 0.3876). Take a look at the early Clinton years. From 1993 to 1995 hours worked rose by 1%, 0.9%, and 1%. However, productivity per-hour growth averaged only 0.43%. In 1996, productivity per-hour jumped 2.4%. However, hours worked fell by -0.2%. For the entire Clinton period productivity per-hour grew by 1.5% per year. Hours worked grew by 0.425%.

Note that from 1960 to 1989 hours worked and productivity per-hour are positively associated although the correlation is quite weak (R squared is 0.009). It appear that hours worked and productivity per-hour are in some general sense negatively linked, but that strong upturns and downturns push both metrics in the same direction.

Overall, there is nothing in the data to support sustainable productivity gains per-worker of 2.5%, much less 3%. Taking the Clinton years as a high point, per-worker output growth of 1.5% would appear more realistic. Once again, I would emphasize that per-worker, not per-hour productivity growth appears to be material to future Social Security finances.

[anne]

There is no problem until there is a problem. When economic growth has been 3.4% on average for 75 years, I could care less what Republican appointees project as growth for the coming 75 years. Guess what; 3.4% would be a fine guess though I could argue for more with enough attention to infrastructure development including education. But, 3.4% is a fine projection and Republicans will just have to moan and groan while we grow so.

[Bruce Webb]

Social Security balances at 2.0% productivity.

You can run assumptions all you want. All I know is what I read in the Reports. The Reports have a projection called Low Cost that produces a fully funded trust fund with flat trust fund ratio. It has assumptions about hours worked figured in.

If you would like to challenge those figures and show that certain ones are so optimistic that they offset what are by all historic measures pretty low productivity numbers going forward then be my guest.

Both series are found in Table V.B1
http://www.ssa.gov/OACT/TR/TR06/V_economic.html#wp188118

This isn't a static analysis. If you read the Reports in sequence you see depletion and shortfall consistently being pushed back in time even as assumptions are adjusted to be more pessimistic.

Low Cost always returns the same result, at least for the last decade. It always returns a fully funded trust fund with a flat trust fund ratio. It is quite a stretch to think that this is a pure coincidence, that each and every year the top end of the range of possible economic outcomes always gives the same result. Particularly when the economy has consistently performed at or above the projected "optimistic" model.

If in 1997 I predicted that depletion would be moved out in time from 2029 to 2042 by the 2004 Report you probably would have been equally dismissive. Yet that is exactly the result.

http://www.epi.org/content.cfm/issueguides_socialsecurity_changes

I am not an economist, I don't calculate anything. I just read a Report every year on the health on the system put out by the official Trustees of the Social Security Trust Fund. In the course of that reading I have examined the way assumptions are changed. In so doing I have come to the conclusion that Low Cost is being fitted to a curve and Intermediate Cost fixed at some point below that.

Maybe I am wrong, maybe I am just some sort of nut. But I posted my thoughts on all this in November of 2004 over at my blog and sure enough the 2005 and 2006 Reports showed exactly the same result: Low Cost returning fully funded Trust Fund with flat trust fund ratio.

I have been posting for years now that Social Security was not in as bad of shape as Intermediate Cost projected. This is my tenth year of being a Social Security nut in full 'crisis' denial. Well for a nut I seem to have gotten a lot more right than wrong over the last decade.

[Bruce Webb]

"It is not inconceivable that another such period of debt liquidation will become necessary following the governmental and private party debt extravaganza of recent years. To postulate that the productivity growth rates of recent years are permanent seems a trifle optimistic."

Certainly it is conceivable. It is even modeled a little in the third alternative which is called High Cost and has the Trust Fund going to depletion in 2030. Good luck with your private account portfolio in that scenario.

And I don't have to postulate that productivity growth rates are permanent. I just have to postulate that they will very likely be above 1.7% and have an excellent chance of being at or above 2.0%. That is the point: the economy could slow in pretty dramatic fashion and not perform down to the levels of even Low Cost.

To present a permanent 33% slowing of the growth rate as your officially optimistic model just seems odd. What is the mechanism at work that is going to slow the economy some dramatically so quickly? And what would happen to returns on equities?

To repeat. Private accounts can work. They just can't work under Intermediate Cost assumptions. Know it or not that is the challenge privatizers are facing.

Use one set of numbers. That doesn't seem too much to ask.

[Bruce Webb]

"The Trustees currently assume 1.7 percent for the ultimate growth rate of productivity, and we know of no expert forecast that would place it significantly above 2 percent.”

Low Cost doesn't require productivity "significantly above 2%", it doesn't even require ultimate productivity "fractionally above 2%", It requires ultimate productivity of 2%. The Trustees are being a little weasely here. What does 'significantly' mean in this context?

[anne]

The impossible trick about private accounts if we are to have slower growth from now, is that investment returns will then have to be lower which will make private accounts a dreadful substitute for Social Security as we now have it.

[Peter Schaeffer]

Anne,

From the 2000 SSTR report (written by the Democrats) states.

"The projected rate of growth for real GDP falls toward the ultimate assumed productivity growth rate because of the Trustees’ projected decline in labor force growth over the long term. With productivity
growth assumed at 1.5 percent, labor force growth projected to slow to 0.2 percent, and average hours worked assumed to decline by about 0.1 percent per year, projected GDP growth slows to about 1.5 percent
by the end of the long-range projection period."

By contrast, the 2006 SSTR report (written by the Republicans) states

"By 2080, the growth in real GDP slows to about 1.9 percent, due to the assumed ultimate percent changes of about 0.3, 1.7, and 0.0 for total employment, productivity, and average hours worked, respectively. These projected growth rates are higher than those assumed for the 2005 report, due to the higher (more optimistic) assumptions for the fertility and total productivity growth rates."

Perhaps you have confused the two parties. Let me try to help. The Democrats were in office until 2000 under Clinton. Since then the Republicans under Bush have been office.

[anne]

Yes; there are some Democrats, really pretend Democrats, who are fools or who wish to destroy the New Deal legacy as well. But, they are of no account and now the only problem is Republicans who wish to destroy Social Security but who cannot. I am not the least bit worried about Social Security.

Notice the lunatics who in 2000, when the only fear was they all the national debt of America would be paid in the decade; notice the lunatics worrying about Social Security. Republican rubbish, no matter where from.

[anne]

Amazing how death and destruction at a $2 trillion price never worry Republicans but Social Security with a monster surplus scares the little fiends senseless.

[Peter Schaeffer]

Anne,
Experience shows that you resort to the "lunatic" word when you post something demonstrably false. You wrote
"I could care less what Republican appointees project as growth for the coming 75 years"
The implication being that the Republicans were understating future growth to promote privatization. However, we know that the Republicans are using MORE optimistic assumptions than the Democrats were when they left office. Of course, the Clintons were really pretend Democrats and the Republicans (with their more optimistic growth assumptions) are actually truer Democrats than the Clintons. Live and learn.
Why not just admit you were wrong?

[Peter Schaeffer]

Bruce Webb,
Let’s straighten out one point at the outset. You appear to assume that I have a privatization agenda. Wrong. I don’t care if higher/lower productivity makes Social Security more or less solvent and/or privatization better or worse. Indeed, in the past I have emphasized that Social Security is sufficiently near actuarial balance that no major changes are needed.
My goal has been, and remains, to make sure that this debate is based on what can be established about the economy’s medium and long-term performance.
You wrote
“Social Security balances at 2.0% productivity”
Did you mean this literally or something more like
“Social Security balances at 2.0% productivity along with the other assumptions in the low cost scenario”
The 2006 SSTR report does not include a sensitivity analysis for productivity growth. However, it does include the following text
“In addition to changes in the assumed interest rates, the ultimate assumed annual rate of change in labor productivity is increased in this year’s report, from 1.6 percent to 1.7 percent. The effect of increased productivity growth, alone, tends to raise the real-wage differential thus increasing (improving) the long range actuarial balance by about 0.11 percent of taxable payroll.”
This implies that raising productivity to 2.0% would improve the actuarial balance by 0.33%. This is far below the deficit in the intermediate cost scenario.
For the record, I regard the overall performance of the U.S. economy over the last 10 – 15 years as the illusion of real prosperity sustained by the relentless accumulation of debt, both foreign and domestic. Many countries have attained high growth rates for periods of time financed by the accumulation of foreign debt. When the debt bubble finally explodes the results aren’t pretty. Years of slow growth are a likely consequence.
Krugman has written extensively about this. See WILL THERE BE A DOLLAR CRISIS? for a full paper on this subject. See Debt and Denial for the short version.
It is worth noting that the “foreign debt doesn’t matter”, “budget deficits don’t matter”, “trade deficits don’t matter”, “the current account doesn’t matter”, etc. crowd is made up more or less exclusively of right-wing “supply-siders” (Malpass, Kudlow, Gilder, etc.) and the likes of “Anne”. Sensible conservatives (Hubbard, Peterson, Volcker, etc.) and liberal economists (Krugman and others) disagree.
Stated differently, unless you buy into the “supply-sider” worldview, the U.S. is facing inevitable economic hardships in the future with lower growth as a consequence. For the record, I don’t.

[anne]

Yes; the whole being of Republicans is centered on destroying the New Deal legacy and Social Security in particular. No; they will not succeed and I am not the least bit worried by lunatic growth projections by Republicans trying to destroy Social Security.

We have grown 3.4% for 75 years. I suggest that will continue. The fear-mongering is rubblish. "Hasta la vista, Baby."

[Lafayette]

noni: "economics which don't insist that growth has to be part of the equation?"

Start thowing three or every four children born into the dustbin so as to maintain a constant population level, and, yes, we can discuss the matter.

[Lafayette]

noni: "... economics which don't insist that growth has to be part of the equation?"

Start throwing three or every four children born into the dustbin so as to maintain a constant population level, and, yes, we can discuss the matter.

Or, is population growth a given you hadn't thought about?

[Bruce Webb]

Schaeffer I have admitted over and over that I am not an economist. That the Trustees suggest that changing productivity to 1.7% from 1.6% will result in a change in payroll gap of 0.11% may or may not imply that an increase to 2.0% will result in an increase of only 0.33%. Maybe you can tell me. But it seems that you are ignoring the possibility of compounding. x times 1.7% x 1.7% x 1.7% gives you a different result than x times 2.0% x 2.0% x 2.0% and that difference is not exactly linear.

Compound interest. If you take a model that predicts the economy will grow by 3.0% this year and 1.7% after as opposed to a model that predicts the economy will grow by 2.0% this year and 1.7% after then over time you get a whole different output. Even a single year of extra growth raises the base. And a series of years of extra growth ends up, yes, compounding that effect.

I may not be an economist, but I did pretty well in arithmetic, and I don't see that yours is holding up particularly well here.

[Bruce Webb]

It is not rocket science. Take an economy of x trillion. Apply a growth rate of y percent. Then take an economy of x - z trillion. Apply y. Compare.

That is why Intermediate Cost projects a Trust Fund of zero in 2041 and Low Cost projects a Trust Fund of $60 trillion in 2080, Tiny changes in input assumptions have huge effects when carried out over the 75 year window.

[Bruce Webb]

"Years of slow growth are a likely consequence."

Yep. And doom private accounts as an alternative. I don't know how many times I need to repeat this. Certainly private accounts could work. Just not under Intermediate Cost assumptions. If you really believe the Intermediate Cost overstates the likely outcome and that we should be embracing the consequences of High Cost which has ultimate productivity at 1.4% and depletion in 2030 well we can deal with that. Just don't pretend that you can simply divorce that from the economics of privatization.

If a comet hits the earth tomorrow then all sorts of unfortunate effects will occur. The odd belief that the way to hedge against this is to have a balanced portfolio of stock is baffling.

If you think the US economy is going to stagnate forever then buy gold. Just don't try to make that an argument for privatization. Yes Intermediate Cost may well be proven to be the right economic model, certainly Low Cost is not a dead cinch, But please don't pretend that that result wouldn't have an adverse effect on returns on stocks.

Use one set of books. Privatizers are simply unwilling to face up to the logical consequences of insisting on Intermediate Cost to project crisis. Their investment models simply fail under those assumptions.

[Bruce Webb]

"The implication being that the Republicans were understating future growth to promote privatization. However, we know that the Republicans are using MORE optimistic assumptions than the Democrats were when they left office."

No we don't know that. Show me how the 2000 Report is less optimistic than the 2006 Report.
http://www.ssa.gov/OACT/TR/TR00/tr00.pdf

Don't forget to adjust for the changes assumed for teen and senior employment in the 2005 Report and the change in assumed interest in the 2006 Report.

Schaeffer frankly you seem to be just making it up as you go along. Bring some numbers.

[anne]

Bruce, I simply do not bother to fact check lunacy but thank you for asking the precise question. How could assumptions on Social Security possibly have been more pessimistic in 2000 than in recent years? Were the Social Security worriers incapable of noticing that there was a budget surplus in 2000, a large and growing surplus? Thank you, for this is all Republican Franklin-Roosevelt-was-a-fiend rubbish.

[anne]

Alan Greenspan was posing the rhetorical question in 2000, what would happen to the bond market when there was no more American debt, and an aspect of the early tax cut was that neither the surplus nor Social Security would be unduly effected.

[Bruce Webb]

Anne in geek speak since 1997 Low Cost has been fit to a specific curve and Intermediate Cost has been manipulated to fit under that. Specific assumptions move different directions but the overall effect has been to deliver an ever more pessimistic model. I am leaving for the evening but it will be interesting to see what Shaeffer can deliver here. He seems much more adept at insults than numeracy.

We love you. And shoot I am not even invested in Vanguard.

[anne]

Bruce Webb:

"[I]n geek speak since 1997 Low Cost has been fit to a specific curve and Intermediate Cost has been manipulated to fit under that."

Ah, finally I understand the strangeness; the projection must fit the initial model no matter the data changes. Tell me something enough times, and I may finally get it, and I always read Bruce and Lee thoroughly. Same here, Bruce and Lee. A fine evening for you, while I sniffle and cough away an evening. Humph.

[Movie Guy]

Bruce,

I have never understood why you bother with the SSTR productivity data. It really doesn't matter. The bottom line is simple. When the inbound revenue flows to the Social Security Administration no longer cover the outgoing flows to recipients, the Congress will have to cover the difference. Period. Unless they intend to default. That's not going to happen.

Now, the Congress can bump up the individual and business contribution levels, but not enough to push the zero cash balance out very many years. That's really the issue from a cash balance perspective. Or the Congress can reduce benefits and/or add qualifiers, but again the level of impact will be minor based on the total beneficiary demand obligations.

The principal and interest owed by the Congress to the SSA looks good on paper...about as good as Monopoly money...but it doesn't matter what the balance is as the issue boils down to Congress' responsibility to cover mandatory program obligations under law and Social Security payments to beneficiaries is one of those obligations.

When that SSA cash balance goes to zero, Congress will have to cover the cash difference due to beneficiaries. The situation, absent any meaningful levels of adjustment and various changes, is just that. It's not more complex. Period. Pure and simple.

[Movie Guy]

Bruce Webb - "I am leaving for the evening but it will be interesting to see what Shaeffer can deliver here. He seems much more adept at insults than numeracy."

I've read all of Peter Schaffer's exchanges with you on two different threads as pertain to this subject.

I find your statement to be dishonest overall.

Peter did quite a bit of work on this subject and I checked some of his data links.

You can suck up to your anne with such nonsense statements and love letters all day, but you're only making her happy as opposed to being honest.

I have always counted on you to be honest. Guess I was wrong. But I expect you will bounce back.

As for future labor productivity, I would recommend that you look at some of the actual economic forecasts beyond the SSTR assumptions. Productivity appears to be headed into a flat period, at best. I don't expect that the U.S. will recover for some time.

[anne]

Period, there is no problem with Social Security and will be no problem with Social Security. Republicans have lost. Pure and simple.

[Movie Guy]

Who cares? It doesn't matter.

[Bruce Webb]

MG my love letter to Anne aside you bring no substance to the debate.

Productivity may well flatline. In which case private accounts bring no relief. That is the issue.

"Peter did quite a bit of work on this subject and I checked some of his data links."

Those were not "data links" those were rhetoric links. MG if you really want to argue for 1.7% ultimate as opposed to 2.0% ultimate. And for what it is worth this simply concedes the case for solvency:

"Stated differently, unless you buy into the “supply-sider” worldview, the U.S. is facing inevitable economic hardships in the future with lower growth as a consequence. For the record, I don’t."

Okay Pete. You don't. Meaning Anne and I am right. I am not sure that unwinds all the incoherencies built into that sentence.

Low Cost is out There.

[Bruce Webb]

I left out some pieces. A little indignation factor crept in. But this is just idiocy:

MG: "I have never understood why you bother with the SSTR productivity data. It really doesn't matter. The bottom line is simple. When the inbound revenue flows to the Social Security Administration no longer cover the outgoing flows to recipients, the Congress will have to cover the difference."

You are trying to disconnect productivity with income. They don't disconnect. That you don't understand that is neither my problem or Anne's. You are trying to put into evidence a contingent result without addressing the contingency. I know you are not stupid, you are pretty damn brilliant. So are you just ignorant here? Or deliberately lying? Examine productivity and measure that against Low Cost. It is not that damn hard.

[Movie Guy]

Bruce Webb,

You responded with quite a few moving targets - most of are not keyed to the main point I raised.

I studied the SSA and SSTR data in detail for a long time. In a discussion with a former Member of Congress, he looked at me and said, "We're not worried about that. We're worried about how much money we have to put on table when the well runs dry." And he is right.

Members of Congress don't walk the halls of Congress discussing the SSTR productivity output measures. "Bob, what do you think about the SSTR productivity?" "Jim, what have you been drinking? The only that matters is how much money we have to pony up when the receipts fall short of the benefit cost demands."

You and I can say that the surplus monies loaned to the U.S. Treasury along with the interest payment obligations are real. But they are treated like Monopoly money. And that is probably no accident. Either way, the issue boils down to cough up the cash balance difference or try to reduce program expenditures. Either way, the Congress will still have to pony up the cash outflow difference. And the level of program cuts or increased revenue flows to eliminate Congressional payback are not realistic, so the Congress is stuck. Congress will have to go with cash contributions whenever the SS funds go negative. That is the simple bottom line.

Bruce - "Productivity may well flatline. In which case private accounts bring no relief. That is the issue."

That's not necessarily true, depending on the investment pool mix. This has been made clear with outsourcing and import trends. IBM might a good investment vehicle, but it wouldn't have anything to do with U.S. productivity. IBM blew town.

Bruce - "You are trying to disconnect productivity with income. They don't disconnect. That you don't understand that is neither my problem or Anne's. You are trying to put into evidence a contingent result without addressing the contingency. I know you are not stupid, you are pretty damn brilliant. So are you just ignorant here? Or deliberately lying?"

I don't believe that I am trying to disconnect so-called productivity (so-called because of the way it is measured) and income. I am just pointing out that it doesn't matter, quite frankly, how short the SSA fund becomes at whatever point in time as Congress will have no choice but step up to the plate.

Now, if the SSA has been established as a quasi-government organization and if the SSA had invested all of its surplus funds independently as opposed to playing the Monopoly Game with the U.S. Treasury, then the importance of SSTR data would take on more importance. At least that's my opinion. As it stands now, it's clear that individuals are having to contribute too money monthly funding to the SSA with nothing but a guarantee that Congress will repay monies owed by the U.S. Treasury when the surpluses go negative. If the SSA had operated independently, the level of real world investment returns might have been adequate to allow for a reduction in SSA "billing rates" or allowed for no further increases for a few more decades. As it stands now, Congress will likely try to rein in program "costs", thereby reducing benefits. This, of course, has nothing to do with the viability of the SSA programs, but rather Congress' unlikely desire to honor the full value of the principal and interest earned on loans from the SSA to the U.S. Treasury.

I want the SSA reestablished as a quasi-government organization and I want the remaining surpluses invested in real world investments, including as necessary hard bond 30-year U.S. Treasuries. Whatever it takes to help improve the long term well being of the SSA trust fund.

[anne]

Imagine what, there is a Democratic Congress, more importantly a very Democratic House of Representatives. The idea that Democrats, the sort of Democrats in the House will betray the legacy of Franklin Roosevelt and destroy Social Security by in any way cutting benefits is comically absurd.

Social Security is fine and will only become finer with no benefit cuts. Republicans running for president however are always welcome and even invited to suggest destroying Social Security.

All those frustrated Republicans, the chance came and went.

[anne]

Still, we could always leave Iraq immediately and free budget enough to expand Medicaid and Medicare. There's a nice thought.

[Bruce Webb]

MG.

"At least that's my opinion. As it stands now, it's clear that individuals are having to contribute too money monthly funding to the SSA with nothing but a guarantee that Congress will repay monies owed by the U.S. Treasury when the surpluses go negative."

It's called Full Faith and Credit of the United States. Which is exactly what backs up the value in that hundred dollar bill in your wallet. If you think that future Congresses will be made up by thieves and liars then say so. But if you could explain in detail why a multi-year military contract is more protected than a promise to a few dozen million voters I would appreciate it.

"including as necessary hard bond 30-year U.S. Treasuries"

I hate to break it to you, but once you assume "crooks and liars" there is no such thing as "hard bond 30-year US Treasuries". If you think that holders of Regular Treasuries will have some standing that tens of millions of proxy holders of Special Treasuries lack then you might want to spell out how that political mechanism works.

Personally I don't see it.

But in the long run the Trust Fund is a non-issue, it all comes down to Income Ratio. Fixed pool of Boomers, bigger economy, less strain. God isn't making more Boomers, on the other hand an economy growing at 1.7% per year looks a lot different than an economy growing 2.0% per year, which in turn looks a lot different than an economy growing 2.3% a year.

It's called compound interest.

Bring income vs cost ratios given your chosen level of growth. And then compare that to Low Cost. But in any event bring numbers.

[Bruce Webb]

"As it stands now, Congress will likely try to rein in program "costs", thereby reducing benefits."

No they won't. There is exactly zero traction to cutting back costs. I can spell 'Rangel', can you? I could put my cynic hat on and predict that even in the face of real crisis a Democratic Congress would do zip, zilch, nada to cut back on Social Security benefits. And even if they did they would not touch current beneficiaries, that was an integral part of Bush's plan and built into the original Butler/Germanis scheme.

And by 2008 it is too late. The models diverge. And the early dollar numbers are positive.

[Movie Guy]

Bruce,

I stick with what I said.

The Congress may have many considerations on its plate during the period, 2015-2025. There is no way that I know what efforts they will undertake to rein all kinds of budget costs. We are already seeing changes in existing mandatory spending obligations for other programs. More will follow if the Congress is willing to change existing public laws governing elements of such mandatory programs.

The Monopoly money discussion including Monopoly interest obligations is fine, but the issue will still boil down to covering the inbound SSA cash shortfall. That's the nut that Congress will ultimately have to address, probably some time before 2025 and thereafter.

The most significant issue going forward, absent a major economic collapse, will be the impact of inflation on the Social Security beneficiary payments. And it will be interesting to see what Congress does do about that issue.

[dale]

Monopoly money, monopoly interest. All of Bruce's efforts in vain.

[anne]

"Monopoly money, monopoly interest." The parody of self-parody is parody indeed.

[Bruce Webb]

"inbound SSA cash shortfall."

There is no particular evidence that we have a cash shortfall inbound.

People have had 'crisis' driven so deep that they now fail to understand that those dates, those outcomes are contingent on Intermediate Cost. If it doesn't happen they don't happen. And if Low Cost happens then Low Cost's outcome happens.

Low Cost is not my work product. It is the work product of the exact group of demographers, actuaries and trusees that produce Intermediate Cost. It appears side by side in almost every figure and table with Intermediate Cost. Low Cost does not result in very much of a cash shortfall at all. It does require the general fund to start paying back about 12% of the interest it owes starting in 2023.

You don't have to accept that Low Cost will occur. You can challenge its numbers and assumptions, though I notice that throughout this thread no one has particurlarly attempted that, what you need to do is ackowledge its outcome: fully funded Trust Fund with flat trust fund ratio.

Privatizers stubbornly insist on keeping this debate at a high level of generality, they simply refuse to take it to the granularity of the numbers in the tables and figures. Sorry Table V.B1 and Figure II.D7 are not going away and anyone who continues to insist that they don't need to engage at the granular level of evaluating the various assumptions of the three alternatives is either lazy or lying.

Defend Intermediate Cost numbers or abandon projections deriving from it. Identify and quantify the shortfall. Then if you dare compare it to Iraqi War outlays.

Bring numbers, leave the hot air at home.

[Bruce Webb]

From 1997 to 2004 despite inaction the payroll gap shrank. It would have shrank again in 2005 and 2006 absent some arbitrary changes in teen employment and then in assumed interest.

There is a word for a problem that left unaddressed gets small and smaller going forward. There is a word for an event that has been retreating out in time at a rate of more than a year per year. The word for the unaddressed problem is not 'crisis'. And the word for that event is 'never'.

These aren't my numbers.

[Peter Schaeffer]

Bruce Webb,

Let’s try to determine (very roughly) how linear the relationship is. 1.016 to the 75 power is 3.289. 1.017 ** 75 is 3.541. 1.018 ** 75 is 3.811. 1.019 ** 75 is 4.103. 1.020 ** 75 is 4.416. The deltas are 0.252, 0.270, 0.292, and 0.313. As you can see, the numbers go up, but not by very much. The total delta from 1.017 to 1.020 is 0.875 or 3.47 times the delta from 1.016 to 1.017.

Using a multiplier of 3.47 rather than 3 times 0.11% gives 0.382% rather 0.33%. An improvement of course, but still far from sufficient.

“Just don't pretend that you can simply divorce that from the economics of privatization.”

This may well be true. However, as best I can tell neither I nor MG are arguing in favor of privatization

From the 2006 report (intermediate case)

Total fertility rate 2.0
Average annual reduction in death rates .70
Annual net immigration 900,000
Productivity (total U.S. economy) 1.7%
Average wage in covered employment 3.9%
Consumer Price Index (CPI) 2.8%
Real-wage differential (percent) 1.1%
Unemployment rate (percent) 5.5%
Annual trust fund real interest rate (percent) 2.9%
Ultimate labor force growth 0.3%
Average hours 0.0%
Long-term GDP growth 1.90 - 2.0 (2.0 except for 2060 and 2080)

From the 2000 report (intermediate case)

Total fertility rate 1.95
Average annual reduction in death rates .70
Annual net immigration 900,000
Productivity (total U.S. economy) 1.5%
Average wage in covered employment 4.3%
Consumer Price Index (CPI) 3.3%
Real-wage differential (percent) 1.0%
Unemployment rate (percent) 5.5%
Annual trust fund real interest rate (percent) 3.0%
Ultimate labor force growth 0.2%
Average hours -0.1%
Long-term GDP growth 1.5%

As best I can tell, every assumption I checked in the 2006 report is either more optimistic or unchanged, except for CPI inflation and long-term real interest rates. Some (productivity, real-wage growth, GDP) went up significantly.

[anne]

Always the theater of the absurd. The growth projections are complete rubbish and will make not the slightest difference since, say hey, Republicans lost Congress. The only purpose of projections of growth below 3.4% is to intimidate, but too late for that. Republicans have lost Congress; Social Security will not be touched. Who lost?

[Movie Guy]

Bruce and others,

What is your opinion of the following charts?

This is what I have been discussing with regard to Social Security revenue stream shortfalls that must be covered by the U.S. Congress. The point is well illustrated by the charts.

Chart C - Income and Cost Rates
[Percentage of taxable payroll]

More info here

Figure II.D5.-OASDI Cost and Scheduled Tax Revenue as a Percentage of GDP

Figure IV.B1.-Long-Range OASI and DI Annual Income Rates and Cost Rates"

Chart abbreviations:

OASI - Social Security, Old-Age and Survivors Insurance (OASI) Trust Fund

DI - Social Security, Disability Insurance (DI) Trust Fund

OASDI - Social Security, Old-Age and Survivors Insurance (OASI) Trust Fund and Disability Insurance (DI) Trust Fund

HI - Medicare, Hospital Insurance (HI) Trust Fund, Medicare Part A

SMI - Medicare, Supplementary Medical Insurance (SMI) Trust Fund, Medicare Part B and Part D

[Peter Schaeffer]

Anne,

Why don't you just admit you were wrong?

[Peter Schaeffer]

Bruce Webb,

As you probably know, the 2000 SSTR report shows an actual balance of -1.89 percent over the planning horizon. The 2006 SSTR report shows an actuarial balance of -2.02 percent. However, between 2000 and 2006 six years obviously elapsed. Each of those years had a positive SS balance. However, six years highly negative years were added to the end of the planning period.

Stated differently, six changes in “valuation period” occurred between 2000 and 2006. I checked each of the reports for the impact of each “valuation period” change. They total to -0.41%. Given that the actuarial balance only declined by -0.13%, this shows that the economic/demographic/other assumptions improved by +0.28%.

[anne]

Republicans have lost, and in losing the desperation grows and I am much amused. Lose on, lose on but Social Security is safe from all fear-mongers mongering. "Hasta la vista, Baby."

[Movie Guy]

I acknowledge Peter's point that my comments above haven't focused on private accounts. I was focused on the outcomes of the existing program from the operational cost support perspective of Congress.

I could have discussed private accounts, but it appears to me that that discussion should have occurred about thirty to fifty years ago. If the SSA transition to 401(k) or Defined Benefit Plan retirement style accounts had occurred back then, we wouldn't be having this discussion on matters other than disability insurance, children's SSI coverage, Medicare, Medicaid, SCHIP, and other such programs.

The forthcoming net cash shortages will happen, and the Congress will have to bite the bullet and start paying the SSA interest obligations plus look elsewhere for monies to cover Medicare and Medicaid shortfalls as well as identify new sources for discretionary programs' support. It won't be pretty around 2015-2030. Some existing programs will be hammered, deficits will soar, or taxes will increase significantly. Pretending and lalaland dream state remarks won't make it go away. It is coming.

[anne]

It is comming, coming, I tell you, coming it is; watch them come because when I say they're coming, you know they are, well, coming. Me, well, "I must be going." Hello, then, I must be going. La, la.

[Peter Schaeffer]

Anne,

Please turn your random sentence generator off

[anne]

American economic growth will be fine if we can avoid any more insane wars and occupation, and Social Security is and will be fine but Republican bashers will bash on.

Well, I was coming before I was going but now I must be going. Hello, I must be going.

[Bruce Webb]

Peter you manage to combine some rather impressive number generation with some gratuitous insults toward Anne. I am not amused.

And this is just insulting to our intelligence:
"This may well be true. However, as best I can tell neither I nor MG are arguing in favor of privatization"

Then what the hell is the context here? I am perfectly willing to concede that if the US economy flatlines or if a comet hits the planet tomorrow the results will not be necessarily positive for the economy.

Anyone is perfectly free to defend Intermediate Cost assumptions. Grind out those numbers. Make the case for buying gold. If Peter and MG are hell bent on arguing that future productivity is going to go in the toilet and stay there forever then fine.

But the other side is indeed insisting that the alternative to 'crisis' is private accounts. That is the issue.

"If Privatization is Necessary it won't be Possible. If Privatization is Possible it won't be Necessary"

Defending the internals of Intermediate Cost don't get you past that central conundrum.

[Bruce Webb]

"As you probably know, the 2000 SSTR report shows an actual balance of -1.89 percent over the planning horizon. The 2006 SSTR report shows an actuarial balance of -2.02 percent."

Yes I do know. I also know that that figure is contingent and not absolute. Which is the issue you seem to be insistant on dodging.

"except for CPI inflation and long-term real interest rates. Some (productivity, real-wage growth, GDP) went up significantly."

Which is to laugh. A point that Sawicky picked up on back in June. If you simply take "long-term real interest rates" from 3.0% to 2.9% the numbers move all over the board and let you take a 1.6% ultimate productivity number and move it to 1.7%. When you are examining the effect of compounding then "inflation and long-term real interest rates" are exactly the places to focus.

Peter you have an odd tendency to confuse me with the guy that just bounced off the back of the turnip truck. Yes they were able to adjust future productivity up. By throwing in a totally undermotivated change in assumed interest. And you could quantify "significantly"

[Bruce Webb]

Numbers matter. Who knew?

[Peter Schaeffer]

Bruce Webb,

“Then what the hell is the context here?”

In my opinion, the context is derived from the original theme of this thread “What Solvency Crisis?” The initial post contains the following quote from Edward Lazear, chairman of President Bush's Council of Economic Advisers.

“I wouldn't necessarily say 3 percent. But I would expect that we could expect to see high rates, perhaps not quite at the 3 percent level, but somewhere higher than 2 percent. I would expect somewhere closer to 3 percent...”

My point has always been that these numbers are far too high based on historical experience and reasonable (in my opinion) expectorations about the future. My first post in this thread states.

“From 1970 to 2006, per-worker productivity grew by 1.4254% per year. How anyone can even suggest future productivity growth “closer to 3%” amazes me. This strikes me as just propaganda for Bush’s failed tax and trade policies. Note the quote

“And I think we do have that kind of an economy, because, again we have a relatively low-tax economy, we have an economy that's open to trade for the most part, we've encouraged foreign investment, all of which have been important and instrumental in creating our economic growth”

Given that this is coming from the same people, who profess to believe in self-financing tax cuts, I wouldn’t take it very seriously.”

I bolded the text I wrote to distinguish it from what I copied.

I checked the impact of reducing long-term real interest rates (from 3.0% to 2.9%) on the 75 year actuarial balance. It is -0.0671. By contrast, raising the productivity assumption from 1.6% to 1.7% improves the balance by 0.11%.

As you know the overall balance declined from -1.92% in 2005 to -2.02% in 2006. Two thirds of this decline was due to the valuation period. Only -0.03 was due to do changes in assumptions.

By contrast, between 2004 and 2005 the balance changed by -0.03%. Since the impact of valuation period was -0.07%, other assumption changes raised the balance by +0.04%. Using the same approach between 2003 and 2004 shows that the impact of changes in the other assumption was +0.10%. Indeed, in every year as far back as 2001 the impact of changes in the other assumptions has been positive.

As for “Anne”, would you post comments like those below?

“Me; I always thought bachelors rather dense, though rather accomodating, imagine not knowing that all this time the roses were not roses but the makings of insidious mind-control devices meant to mask hideous bachelor bombs.”

“Be afraid, be very afriad; there is a report, I have read; read from the highest of authorities, I have heard that there is work going on and possibly nearing a finish on a, oh my, oh dear, a bachelor bomb. Run for your lives. Bachelors bombing.”

“No question; there are even now tens of millions, hundreds of millions, billions of Canadians on the way to San Francisco. What we must do is leave Iraq immediately and set 150,000 troops along the closed Canadian border to make it cloaed-er. I love it, for we could solve 2 problems then. Leave Iraq immediately, and send the troops to Canada. Heck, we could occupy Toronto for all I care for those fearsome Canadians.”

“Yes; there are some Democrats, really pretend Democrats, who are fools or who wish to destroy the New Deal legacy as well. But, they are of no account and now the only problem is Republicans who wish to destroy Social Security but who cannot. I am not the least bit worried about Social Security.”

“Open Borders, we have the lunacy of open borders as opposed to closed borders because open borders are bad bad bad when they are open and closed borders are good good good unless they are open and then they are bad bad bad. Open borders or is it OPEN BORDERS. Imagine the lunacy.”

“Yes; that and frogs, frogs are a terrible problem but no matter what I say I just can't get people interested enough in frogs to take the proper anti-frog action. We need public discourse, if not talk, about frogs before they take control. Frogs, I say.”

[Movie Guy]

Bruce,

I've gone back over this thread. I see no reason to get bent out of shape over the fact that Peter nor I were focused on private accounts.

I've explained where my focus is.

As for the anne situation, give me a break. She is a clown poster more often than not. Spam is more like it. Anything to disrupt a conversation.

[Bruce Webb]

MG, it doesn't take a lot of effort to scroll.

If you don't like numbers from Vanguard, extensive postings from the NYT, pictures of birds, or reminders that thousands of lives and billions of dollars have been wasted in Iraq you can just click on the down arrow.

I love Anne. You don't. Just don't pretend you don't care. If you think that she is just the equivalent of a car wreck just pass by and stop gawking.

But the fact is that Anne is scoring points and you don't like it. Well tough.

[Bruce Webb]

"reasonable (in my opinion) expectorations"

We'll just leave it at that. Because God knows I have no desire to spit on your "expectorations"

[Bruce Webb]

"I checked the impact of reducing long-term real interest rates (from 3.0% to 2.9%) on the 75 year actuarial balance. It is -0.0671. By contrast, raising the productivity assumption from 1.6% to 1.7% improves the balance by 0.11%.

As you know the overall balance declined from -1.92% in 2005 to -2.02% in 2006. Two thirds of this decline was due to the valuation period. Only -0.03 was due to do changes in assumptions"

Peter I am quite aware that you have a better understanding of the math in question but taking equations out to four decimal points don't change the fact the depletion moved out in time from 2026 to 2041. Privatizers need to deal with that. I am no mathematical Einstein, I have never claimed to be an economist, but the facts are that the numbers are running. Over the period of 1997 to 2006 the outlook for Social Security has improved enough that rational people can conclude that "Nothing is a Plan" as opposed to any kind of an attempt to save the system through private accounts.

I mean what is your point here? Are you attempting to validate Intermediate Cost? Are you trying to show that we will not beat Low Cost? Or do you want to attempt to show that Low Cost does not return the results it ostensibly does? What?

[Bruce Webb]

"Two thirds of this decline was due to the valuation period. Only -0.03 was due to do changes in assumptions"

If I were an mathematical Einstein I would concede that plugging in 1.7% ultimate into the year 2081 as opposed to 2.0% or some point higher and then projecting the result out a year longer was what caused the decline. Or maybe not.

But you are straining at gnats here. Defend Intermediate Cost short term or just give it up. If people understood that privatizers were arguing about results 75 years out or God help us over the "Infinite Future Horizon" they would be laughing in your face.

[Movie Guy]

Bruce Webb - "But the fact is that Anne is scoring points and you don't like it. Well tough."

You're full of shit. She's a thread wrecker and she did again this morning on a good thread. Just rolled and started with the normal childish babble.

Fools don't score points. She's a troll and a spam artist. Nothing more on many, many posts.

[anne]

Notice the language, because intimidators must use such language because that is what intimidators do intimidating. Intimidators must intimidate in any way possible, so notice the language and structure of the intimidation. Notice the language of intimidation.

[Movie Guy]

Bruce,

Peter gave you quite a few heads up on the numbers. And you got snotty.

I pointed out the timeline that Congress will have to support in putting cash on the table. I went so far as to post links for charts that address that matter and you didn't bother to say a word.

Let me repeat the question:

Bruce and others,

What is your opinion of the following charts?

This is what I have been discussing with regard to Social Security revenue stream shortfalls that must be covered by the U.S. Congress. The point is well illustrated by the charts.

Chart C - Income and Cost Rates
[Percentage of taxable payroll]

More info here

Figure II.D5.-OASDI Cost and Scheduled Tax Revenue as a Percentage of GDP

Figure IV.B1.-Long-Range OASI and DI Annual Income Rates and Cost Rates"

Chart abbreviations:

OASI - Social Security, Old-Age and Survivors Insurance (OASI) Trust Fund

DI - Social Security, Disability Insurance (DI) Trust Fund

OASDI - Social Security, Old-Age and Survivors Insurance (OASI) Trust Fund and Disability Insurance (DI) Trust Fund

HI - Medicare, Hospital Insurance (HI) Trust Fund, Medicare Part A

SMI - Medicare, Supplementary Medical Insurance (SMI) Trust Fund, Medicare Part B and Part D

Deficits matter. Who knew...

[anne]

Oh dear, oh darn, imagine Sweet Bruce has dared to dare, Sweet Bruce has dared to wonder why California is threated by the dread NASDAQ monster; the NASDAQ monster that is threatening to devour California even through the almost as dread Terminator.

Run for your lives...NASDAQ monsters are coming and they want our women. NASDAQ bachelor bombs, really.

[Movie Guy]

The sum total of anne's so-called contributions to this thread:

http://economistsview.typepad.com/economistsview/2007/02/the_globally_in.html#c61076766

There we have the same hateful hatefulness, always knowing the language to use to call forth the spirit of intolerance, the spirit of prejudice. Imagine my surprise. Always prejudice, all the time.
Posted by: anne | Feb 19, 2007 6:41:54 PM
Well, we could say leave Iraq immediately and attend to domestic needs such as for health care and college-university tuition and infrastructure development. We could allow for strrengthened unions; oh dear, imagine that. But, we prefer to spend $14 billion a month in Iraq. for tragic lunatic reasons. Go figure.
Posted by: anne | Feb 20, 2007 4:24:30 AM
"As for endless university degrees, true, a Phd in Ebonics... or some BS Social Studies diploma won't get you far."
A little innuendo of racism and more idiocy on education. Amazing how far fine Social Studies majors go.
Posted by: anne | Feb 21, 2007 2:11:47 AM
"As for endless university degrees, true, a Phd in Ebonics... or some BS Social Studies diploma won't get you far."
Yes; there is the innuendo of racism. And, yes, a social studies diploma takes students ever so far. Yes; an English or a history or a fine arts diploma happily takes students ever so far. Let us have ever so many more social studies majors.
Posted by: anne | Feb 21, 2007 4:04:56 AM
"The CIA published a report a few years that forecast that advanced educational needs in the USA would decline in the future."
Imagine how much more secure we can feel, knowing the intelligence services are working hard to discourgage American education. Idiocy on idiocy on idiocy.
Posted by: anne | Feb 21, 2007 4:08:15 AM
Ah, if only we might have a less educated America, there would be security of security. We could, say, begin to burn campus copies of Moby-Dick and intern English majors. (Can I too now become an intelligence agent?)
Posted by: anne | Feb 21, 2007 4:13:47 AM
The CIA published a report a few years that forecast that advanced educational needs in the USA would decline in the future."
Close all medical schools, now. Imagine we have hundreds of students going to medical school in Cuba, free, yes, free, but America's problem of problems is too much education. What is the opposite world of Superman's enemy? The bizarro world, I think, where up is down and hello is goodbye.
Posted by: anne | Feb 21, 2007 4:17:35 AM
Duh, I am an intelligence agent checking to see that there are no hidden copies of Moby-Dick in the house, Lady. Imagine, a white whale still subversive. A threat to America.
Posted by: anne | Feb 21, 2007 4:20:13 AM
http://www.princeton.edu/~batke/moby/moby_001.html
1851
Moby-Dick
Posted by: anne | Feb 21, 2007 4:22:00 AM
Call me "who," call me "what?" Ah, the tragedy and subversion of the American English major. Do you have CIA clearance to post that passage from Moby-Dick? Call me who?
Posted by: anne | Feb 21, 2007 4:26:43 AM
Notice the intimidation, always the intimidation because that is what intimidators do they intimidate. Notice how intimidated I am. Always lunatic bullying, all the time.
Posted by: anne | Feb 21, 2007 5:43:07 AM
"The CIA published a report a few years that forecast that advanced educational needs in the USA would decline in the future."
Stop American children before they become, yes, educated. Your intelligence agency at work, via lunatics.
Posted by: anne | Feb 21, 2007 5:44:36 AM
'A) 35% of respondents answered: "Yes, it is a serious problem."
'B) 65% of respondents answered: "No es una problema serio." '
Notice the ethnic stereotyping and meanness. I am so amused by ethnic meanness, but sadly not the least surprised.
Posted by: anne | Feb 21, 2007 5:48:22 AM
Ah, yes, too many educated French women and men. Imainge, all studying, say, social studies and, well, even Franch let alone Chinese. Eek.
Posted by: anne | Feb 21, 2007 6:21:14 AM
Notice the intimidation, aolways the intimidation because that is what intimidators do, and notice the language used because intimidators will intimidate by all means when clubs are not going to work. I am so intimidated.
'A) 35% of respondents answered: "Yes, it is a serious problem."
'B) 65% of respondents answered: "No es una problema serio." '
Notice the ethnic stereotyping and meanness. I am so amused by ethnic meanness, but sadly not the least surprised.
Posted by: anne | Feb 21, 2007 6:39:12 AM
There I was thinking we needed to leave Iraq, immediately, when all the time we just needed to leave Berkeley. Bless the CIA for warning us in time. Bless Joseph Wilson for warning us. The danger is Berkeley. Leave Berkeley, immediately. Then, we close down Franch (sic) schooling as well. Tra la.
Posted by: anne | Feb 21, 2007 6:44:37 AM
Always intimidation, all the time, because that is what lunatic intimidators do, they intimidate. Notice the language and notice the forms and structures of intimidation. Of course, notice how intimidated I am by lunatics.
'A) 35% of respondents answered: "Yes, it is a serious problem."
'B) 65% of respondents answered: "No es una problema serio." '
Posted by: anne | Feb 21, 2007 6:49:19 AM
Always intimidation, all the time, because that is what lunatic intimidators do, they intimidate. Notice the language and notice the forms and structures of intimidation. Of course, notice how intimidated I am by lunatics.
'A) 35% of respondents answered: "Yes, it is a serious problem."
'B) 65% of respondents answered: "No es una problema serio." '
[Courtesy, my professor friend professor, courtesy.]
Posted by: anne | Feb 21, 2007 7:06:57 AM
"The CIA published a report a few years that forecast that advanced educational needs in the USA would decline in the future."
No; I have been so valuable, can you imagine a more valuable contribution? There is have been warning, afgainst warning of the desperate threats against America from, well, students and teachers. Imagine, we are being over-run by the over-educated and has I not found the secret CIA document I would never have known. (Secret?)
Posted by: anne | Feb 21, 2007 7:34:37 AM
Warning, Moby-Dick is coming to a university classroom near you. Possibly not just the book but the whale. Oh my, oh me. Moby-Dick is coming, along with Ishmael. (Notice the name?) Why should I call him, Ishmael? Why not, Larry? Larry, the whaler. Beware, Moby-Dick is coming. (CIA warning, white whale alert.)
Posted by: anne | Feb 21, 2007 7:43:04 AM
Evagrius"
"Education in the U.S. has never been highly regarded.
Training has but not education."
Actually, that was quite a fine comment. Careful though, the CIA is monitoring carefully, ever looking for the, well, over-educated American. What will they make of Barack Obama?
Posted by: anne | Feb 21, 2007 7:51:39 AM

[anne]

Always intimidation, all the time, because that is what intimidators do, they intimidate. Notice the language and structure of intimidation. Always though, intimidation because psychologically intimidators must intimidate. No clubs, then language must do and oh what language.

[Movie Guy]

Thread wreckers will whine and say anything to justify their deceit. The louder the whining, the worse the thread wrecker.

You trashed a thread this morning for no reason. No one was talking to you. You weren't even participating. You didn't care about the subject. Not throughout the entire thread.

You can can over because you spotted activity and intentionally wrecked that thread is your frequent habit.

Stop telling lies. Everyone can read the thread and make their own decision.

You're such a phony. You're the biggest BS artist I have ever seen on this blog.

[anne]

Always intimidation, all the time, tra la, because intimidators can only intimidate. I am so intimidated, tra la. Imagine how afraid I am?

[Peter Schaeffer]

Anne,

Why don't you post using a real name and Email address?

[anne]

Always intimidation, all the time, that is what intimidators do. Imagine, the idea of lunatics is to become even more threatening. Notice how intimidated I am by intimidators.

[Peter Schaeffer]

Anne,

Please explain. How does a suggestion that you post using your real name and Email address constitute intimidation. Inquiring minds...

[anne]

http://www.fawltysite.net/episode12.htm

Basil the Rat

The Major is wandering cautiously around the bar, looking for the now departed rat:

Basil: Do you need any help Major?
Major (pointing the shotgun at Basil): Don't move! Vermin!
Basil: We haven't got any this week, Major. No Germans staying this week… May I have the gun?
Major: I'm going to shoot him, Fawlty.
Basil: Yes… Major… Not… Not legal anymore… Murder…
Major: But they're animals, Fawlty!
Basil: Oh yes, yes… Still, forgive and forget, eh, Major?
Major: Forgive 'em?
Basil: Well, pretend we do.
Major: But they spread disease, Fawlty… He was sitting there on that table, eating the nuts if you please.
Basil (to himself): He's really gone this time.

Fawlty Towers
October 25, 1979

[Movie Guy]

The Thread Wrecker anne Alert