Saturday, November 20, 2004

What is the Low Cost alternative? What does it mean?

(Author's note. In February 2006, the Social Security Administration took down the HTML versions of the 1997 to 2000 Reports. Those links will no longer work. The Reports are still available in PDF form and it is possible that we will get them mirrored somewhere else on the web, at which point I will fix the links.)
Well there are two answers to that. One is to take the Trustees' at their word that that is just about the best the economy can reasonably be expected to do. The other is to be more empirical and examine that number over time and to see what stays consistent within the model. And the answer is obvious: outcome. Let us take a look at all reports from 1996 to 2005.

As we click through the Reports upwards from 1996 (it may take a couple of seconds to actually move to the graphic from the top of he loaded page) we find a graph that has a consistent shape. High Cost ( III ) and Intermediate Cost ( II ) alternatives that show shortfall dates being pushed out, and a Low Cost ( I ) that always shows us a positive, yet flat Trust Fund Ratio.

Yes in each case the Low Cost alternative results in a flat line, that is Social Security funded, and with a consistent level of reserve. But what you never find is a projection that would result in an ever growing Trust Fund Ratio.

And now a look at the Economic projections in these respective reports. From which I have extracted the following series representing growth in the out years:

1996- 1997- 1998- 1999-- 2000-- 2001- 2002- 2003- 2004- 2005- Report Year

2.1% 2.2% 2.2% 2.1-2.2% 2.2-2.4% 1.8% 1.9% 1.9% 1.9% 1.9% Productivity Growth in out years to fix (Low Cost)

What we have is a curious suppression of growth projected in the out years. Given that the economy was consistently hitting the high end of the forecast, why ratchet down this number? A look back at the Economic Projections for 2004 suggests an answer. A difference of .2% or .3% can result in huge changes in Trust Fund Ratio. If the Trustees substituted the numbers considered perfectly reasonable in 1996 into the charts for the 2005 the result would have been a substantially overfunded Trust Fund.

That would not fit the Privatization agenda at all.