« Final Update | Main | Jokes You Shouldn't Laugh At But Do »

March 23, 2005

Social Security Trustees Report

That, of course, was the day's big news. Some minor fiddling allowed them to bring the insolvency date a year closer, from 2042 to 2041. An insignificant change economically, but highly significant politically, as it'll allow them to argue that things are getting worse and, in the worsd of Fafblog!, if we don't do anything Social Security will explode!

If I had time, I'd probably go through the report today and talk about things I don't quite understand. But I have to move down for Spring Break. So here's a cliff notes guide to what you need to know and links to what you need to read.

As mentioned above, they moved the date of the trust fund's exhaustion (but I thought the fund didn't exist!) back a year, from 2042 to 2041. They also pushed back the beginning of the cash deficit (when we start using the trust fund) from 2018 to 2017. They seem to be doing this by revising death rates downward -- at this rate, there'll come a point when no one will ever die -- and by using absurdly low assumptions on immigration. Further, productivity increases, which could bring things back into balance, are assumed to be nonexistent. This despite the fact that they've almost doubled projections for the past few years. I'm going to just quote Matt on this, because it's really important:

The 2002 report projected productivity growth of 1.4 in 2002, 2.7 percent in 2003, 2.1 in 2004, 2.0 in 2005 and a long-term trend of 1.6 percent. By the 2003 report they knew that 2002 growth had actually been 3.6 percent, and short-term projections were accordingly revised upwards to 1.9 percent for 2003, 2.3 percent for 2004, and 2.1 percent for 2005. The long-term trend, however, was left at 1.6 percent. Then came the 2004 report, which revised the '02 historical number upwards to 3.8 percent, and showed that '03 productivity had actually been 3.4 percent. Thus, the projection for '04 was revised upward to 2.7 percent, and the '05 number revised downward to 1.8 percent. The long-term projection was unchanged. Now the 2005 report is out and once again past projections were too low. The actual 2004 number was 3.3 percent, and the '05 projection has been boosted to 2.0 percent.

Nevertheless, the long-term projection is unchanged. Why? Because the method used to generate the long-term projection deliberately excludes all this new data. Instead, they come up with 1.6 percent because "The annual increase in total productivity averaged 1.6 percent over the last four complete economic cycles (measured from peak to peak), covering the 34-year period from 1966 to 2000. The annual increase in total productivity averaged 2.2, 1.2, 1.3, and 1.6 percent over the business cycles 1966-73, 1973-78, 1978-89, 1989-2000, respectively." So far, productivity growth in the current cycle has been much higher than 1.6 percent. As a result, there's every reason to believe that, as long as the methodology is held constant, the long-term number will shoot up once we reach the next economic peak.

What's really amazing here is that, even with the tweaked assumptions and the "see no, hear no, speak no" approach to productivity gains, the long-term balance of the program has actually improved from last year to this year. Despite fiddling with some numbers so the president can yell "Crisis!", Social Security is actually healthier down the road than it was last year. Go look at the graph Brad's got, it's all there.

Despite all this, the LA Times' headline blares "Social Security going broke in 2041". Sigh. The article, interestingly, shows that Social Security is not the problem, it's Medicare that matters. Medicare, after all, started paying out more than it's taking in last year (as opposed to Social Security's date of 2017), and total bankruptcy for the program is projected for 2020. Spending so much time worrying about Social Security is like a doctor worrying about early signs of Parkinson's while his patient has a heart attack on the table. Not so bright. Weird note -- the article calls 2041 the date Social Security goes "broke", but 2020 is when Medicare faces "insolvency". Same meaning, but the sense of urgency is drastically different.

So bottom line, things aren't too bad. Politically, the report helps Bush, but the slight changes should blunt its effectiveness. Moreover, Bush himself has begun admitting that private accounts don't do anything for the program's solvency, and since the report is dealing with Social Security's fiscal condition, it shouldn't give any momentum to privatization. Oh, and Medicare is going to kill us all.

For more on this, see Max Sawicky's report from the press conference, Matt Yglesias's comprehensive coverage at TAPPED, and Brad Plumer's analysis at MoJo.

By the way, two years ago, when I was starting at UC Santa Cruz and spending a great deal of my time intoxicated, I really didn't think I'd ever be disappointed because I couldn't read the latest Social Security Trustees Report in a timely fashion. I mean, Jesus, what's happened to me? I can't even drink yet (well, legally), and yet I'm genuinely fascinated by actuarial assumptions regarding the long-term fiscal health of the state-run pension program? You must be kidding me.

March 23, 2005 in Social Security | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c572d53ef00d83457462469e2

Listed below are links to weblogs that reference Social Security Trustees Report:

» Bush II; Day 141: What a difference a year makes from Issues Forum
Apparently the trustees of Social Security have come out to say that the system starts to put out more money than it takes in one year earlier than previously thought. The sky is falling! The sky is falling! Seriously, I... [Read More]

Tracked on Mar 24, 2005 12:53:12 PM

» Ezra Klein Has Joined the Collective! from Brad DeLong's Website
Welcome, Ezra! You have been successfully assimilated! However, he is really horrified: Ezra Klein: Social Security Trustees Report: By the way, two years ago, when I was starting at UC Santa Cruz and spending a great deal of my time intoxicated, I rea... [Read More]

Tracked on Mar 24, 2005 4:39:27 PM

» Bush II; Day 141: What a difference a year makes from Issues Forum
Apparently the trustees of Social Security have come out to say that the system starts to put out more money than it takes in one year earlier than previously thought. The sky is falling! The sky is falling! Seriously, I... [Read More]

Tracked on Mar 24, 2005 5:06:00 PM

Comments

I feel ya. Kinda like being 20 going on 40, no? At least, that's what people tell me. God knows what's gonna happen when we are 40...

Posted by: Chris in TX | Mar 23, 2005 3:24:42 PM

So why did you leave UCSC?

Posted by: aphrael | Mar 23, 2005 3:38:31 PM

Yeah, what is your problem? I graduated from UCSC 24 years ago and I still don't get excited by those reports. More parties at Kresge might have helped.

Posted by: Col Bat Guano | Mar 23, 2005 4:12:18 PM

My eyes grow heavy at mere mention of actuary.

Posted by: Michael Schreiber | Mar 23, 2005 7:09:27 PM

The President has embraced loan shark economics to sell his social security privatization play.

“ money will earn a greater rate of return than that which is now being earned in the Social Security trust. So a dollar will be a lot bigger when it comes time to retire than a dollar that had been kept in the trust. That's called the compounding rate of interest.” George Bush Tampa Convention Center (1)

The President errors because the subject is long term social security solvency for all generations. Therefore the program must be based on sound polices based on real growth, avoiding extreme debt accumulation, and respecting interest fundamentals over a long period of time.

Unscrupulous Brokers promising compound returns have bamboozled the President . Like viagra salesmen these Brokers promise that the Dollar will actually get “a lot bigger” in personal accounts. Bamboozled because for the investor to receive “a lot bigger” dollar return greater than real GDP growth, than usury and loan shark plunder must become the operating principle.

Stock sharks and Treasury Secretary John W. Snow even conjure up the spirit of Albert Einstein to sell the idea that all stock investments compound in real terms. (2) (3) These Sharks are not selling real growth and real value. But rather they are selling inflation and volatility . On March 23, 2005 Krispy Kreme Doughnuts had 52 week low of $ 5.05 and a High of $ 35.35; the Stock closed @ $ 9.15. This is an example of stock volatility not compounding. It is also true that if you got in at the low and out at the high you may have had a large gain.(4)

However do not be snowed Einstein absolutely knew that a basic compound interest calculations would not secure a better future for all. Writing in 1949 he wrote: “ It is "society" which provides man with food, clothing, a home, the tools of work, language, the forms of thought, and most of the content of thought; his life is made possible through the labor and the accomplishments of the many millions past and present who are all hidden behind the small word "society." ” (5)

In a moral society a knowledge of usury excludes the magical illusion of compounding as a sound economic principle. Writing in 1836 a critic of usury and compound interest American lawyer John Wipple wrote: "If 5 English pennies ... had been ... at 5 per cent compound interest from the beginning of the Christian era until the present time, it would amount in gold of standard fineness to 32,366,648,157 spheres of gold each eight thousand miles in diameter, or as large as the earth."

To show how compound interest policies can harm the economy Economist use the example above, called the Hail Mary’s Penny or Caesar’s Penny example, to disembarrass foolish interest policies. Economist know that compounding "introduces an exponential element of limitless growth into a finite economic and social system" resulting in economic turmoil over the long term. (6) And honest men in the Bible and the Koran condemn Usury by showing that there is no moral high ground found in the “Miracle of Compound Interest”

It is sad that a President can be so easily buy into the idea that large gains can be expected without taking significant risk, and without constantly adjusting your mix of investments based in informed research.

Plus the whole issue of $ 1 Trillion in nearly unregulated Hedge Funds , which offer both risks and rewards to the rich, are not addressed by the president. “Most hedge funds open themselves only to investors who have $1.5 million in net worth or annual incomes of $200,000 for an individual or $300,000 for an individual and spouse."(7)(8)

The President should know that over the long term the path to social security solvency for all generations will be real GDP growth, and stable markets. Not two sets of rules one for the rich and another for everyone else.


(1.)http://www.whitehouse.gov/news/releases/2005/02/print/20050204-13.html
George Bush Tampa Convention Center For Immediate Release Office of the Press Secretary February 4, 2005

(2) “Think about where you want to put your long-term savings. In a savings account that may give you about 3 percent annually? In U.S. Treasury bills, which have yielded roughly 4.2 percent per year during this century? Or in the stock market, which has historically yielded more than 11 percent per year? You do the math, Fool!” ©1995-2005 The Motley Fool. All rights reserved.
http://www.fool.com/foolu/askfoolu/1999/askfoolu990915.htm

(3)Right after WWII Veterans bought small 1,300 sq. ft. houses for about $ 10,000. Adjusting for inflation the Houses would sell today for $87,579.45. Now in Buffalo - Syracuse - and Rochester New York these houses sell in the range of $ 80K to $ 100K. In Queens and New Jersey these houses sell in the range of $ 200K to $ 300K. The difference in prices reflects the complex history of these communities. Not some compound interest formula. The Houses did not actually grow by thousands of square feet.

(4) Albert Einstein believed, and the President and I agree, that compound interest is one of the most powerful forces in the universe. It's why a personal account nest egg would give workers the prospect of a retirement that is far better than the rapidly-weakening promise of Social Security benefits. March 23, 2005 JS-2332 Treasury Secretary John W. Snow Statement on the 2005 Social Security and Medicare Trust Fund Reports.

(5) Why Socialism? by Albert Einstein This essay was originally published in the first issue of Monthly Review (May 1949).
There is no source for the snow job quotation from John W. Snow.

(6) Doesn't God Understand Economics? John Hotson
"Interest on loans introduces an exponential element of limitless growth into a finite economic and social system. The result is always increasing injustice and eventual breakdown. There is nothing more powerful than compound interest (exponential growth) if it has lots of time to work."
http://solutions.synearth.net/2004/04/16
This article, by the late Professor of Economics at Waterloo University in Ontario, was originally published in 1984 in Policy Options Politiques Vol.5 No.2, and reproduced in 1997 in The Social Crediter Vol.76 No.6.

(7)New SEC rule could stem hedge fund losses By Jim Freer
South Florida Business Journal Updated: 7:00 p.m. ET March 13, 2005 “A rule requiring hedge fund managers to register with the SEC or state regulators is coming too late for investors who lost millions in now-closed West Palm Beach-based KL Group”

(8) Financial Times Hedge fund secrecy hard to understand
By James Altucher Published: March 14 2005 20:59 “Let us say that, on January 1 2000, you bought all 30 1999 additions to the Nasdaq 100. It turns out you would have had 29 losing trades and only one winning trade – eBay, up 151 per cent. Many of the other plays – Global Crossing, Adelphia, @Home, and Metromedia – have gone the way of bankruptcy. Others, such as CMGI or Broadvision, are down more than 98 per cent. Overall, you would be 72 per cent down – even worse than the Nasdaq 100’s 62 per cent decline – saved only by eBay from complete destruction.”

Posted by: Paul | Mar 24, 2005 1:14:05 AM

Bottom line, privatizers are faced with defending 2.0% productivity growth for 2005. So when they start yammering about 2041 simply ask them why they hate America so much that they believe growth over the next three years will be 60% of the rate of the last three years.

Real world 2002-2004 3.2% 3.5% 3.3% Intermediate Cost 2005-2007 2.0% 2.0% 1.8% . Did I miss something in the business pages that would explain this long term meltdown?

2005 Report: Economic Assumptions

Posted by: Bruce Webb | Mar 24, 2005 9:27:29 AM

托盘
托盘
钢托盘
钢制托盘
塑料托盘
木托盘
木制托盘
纸托盘
木塑托盘

托盘
钢托盘
钢制托盘

托盘
钢托盘
钢制托盘
塑料托盘
托盘

托盘
钢托盘
钢制托盘
钢托盘
木托盘
钢制托盘
托盘
塑料托盘

托盘
钢托盘
钢制托盘

托盘
钢托盘
钢制托盘
塑料托盘
木托盘
南京托盘
南京钢托盘
上海托盘

托盘
钢托盘
钢制托盘
塑料托盘
木托盘
南京托盘
南京钢托盘
上海托盘

托盘
钢托盘
钢制托盘
塑料托盘
木托盘
纸托盘
南京托盘
上海托盘
北京托盘
广州托盘
杭州托盘
成都托盘
武汉托盘
长沙托盘
合肥托盘
苏州托盘
无锡托盘
昆山托盘

托盘
钢托盘
钢制托盘
塑料托盘
木托盘
纸托盘
南京托盘
南京钢制托盘
南京钢托盘
上海托盘
北京托盘

托盘
托盘
托盘
托盘
钢托盘
钢制托盘
塑料托盘
塑料托盘
塑料托盘

托盘
塑料托盘
钢托盘
钢制托盘
铁托盘
托盘
钢托盘
铁托盘
钢制托盘
塑料托盘

托盘
钢托盘
铁托盘
钢制托盘
塑料托盘
托盘
钢托盘
铁托盘
钢制托盘
塑料托盘

托盘
托盘
钢托盘
钢托盘
铁托盘
铁托盘
钢制托盘
钢制托盘
塑料托盘
塑料托盘

托盘
钢托盘
铁托盘
钢制托盘
塑料托盘
托盘
钢托盘
铁托盘
钢制托盘
塑料托盘
托盘
钢托盘
铁托盘
钢制托盘
塑料托盘

托盘
钢托盘
铁托盘
钢制托盘
塑料托盘
托盘
托盘
托盘
钢托盘
铁托盘
钢制托盘
塑料托盘

托盘
钢托盘
钢制托盘
铁托盘
塑料托盘
木托盘
木制托盘
纸托盘
木塑托盘
柱式托盘
波纹托盘
镀锌托盘
南京托盘
上海托盘
北京托盘
广州托盘
托盘
钢托盘
钢制托盘
铁托盘
塑料托盘
木托盘
木制托盘
纸托盘
木塑托盘
柱式托盘
波纹板托盘
镀锌托盘
南京托盘
上海托盘
北京托盘
广州托盘

托盘
钢托盘
钢制托盘
铁托盘
塑料托盘
木托盘
木制托盘
纸托盘
木塑托盘
柱式托盘
波纹托盘
镀锌托盘
南京托盘
上海托盘
北京托盘
广州托盘
托盘
钢托盘
钢制托盘
铁托盘
木托盘
塑料托盘
木塑托盘
柱式托盘
波纹板托盘
镀锌托盘
南京托盘
上海托盘
北京托盘
广州托盘

托盘
钢托盘
钢制托盘
铁托盘
塑料托盘
木托盘
木制托盘
纸托盘
木塑托盘
柱式托盘
波纹托盘
镀锌托盘
南京托盘
上海托盘
北京托盘
广州托盘
托盘
钢托盘
钢制托盘
铁托盘
塑料托盘
木托盘
纸托盘
木塑托盘
柱式托盘
波纹板托盘
镀锌托盘
南京托盘
上海托盘
北京托盘
广州托盘


托盘
钢托盘
钢制托盘
托盘
塑料托盘

Posted by: peter.w | Sep 15, 2007 4:25:56 AM

The comments to this entry are closed.