I have been taking up too much space at Economist's View (but Mark Thoma should be a daily stop for anyone discussing Social Security.) So I want to return to the topic of my previous diaries: Life After Solvency.
Social Security Solvency with no changes in benefits, retirement age or payroll tax is not an impossible dream. Each year the Trustees lay out a set of economic numbers that would would produce that result. This dataset, called Low Cost never gets a bit of attention. But that doesn't make it go away. You can get a little (okay a lot) of background at my website starting with What does Low Cost mean? More below the fold.
Welcome back, if you left at all. Over the last ten years Low Cost consistently returned the same result: flat trust fund ratio. What does that mean? For a fuller explanation you can check outThe Trust Fund Ratio explained. In brief the Trust Fund is a lot closer to a checkbook than a savings account. Contributions and interest earned go in, checks go out. The Trust Fund ratio is simply your balance expressed as a function of time. For example the Trust Fund ratio at the end of 2004 stood at 305 which means 3 years 18 days Table VI.C6.—Operations of the Combined OASI and DI Trust Funds
in Fiscal Years 2000-14 That is our current reserve and the direction of the curve is headed up under all three alternatives: Intermediate, High Cost and Low Cost Figure II.D7.—Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions and if you look at our old friend Intermediate Cost (II) you see familiar dates like 2017 (when the curve peaks) and 2041 (Trust Fund Depletion). But what's up with curve (1): no drawdown until 2023? a slight dip then we sail through the 75 year window with a 450 Ratio? Are the economic numbers of Low Cost so optimistic that this is just pie in the sky? Judge for yourself. Personally I think 2.1% for 2005, 2.2% for 2006 and no number higher than that in the out years is more than doable.
Payroll vs Productivity: What would it take
2005 Report: Economic Assumptions
Low Cost is doable. In my view it is already done. You plug current growth numbers into this model and that ratio just keeps on rising.
If anyone responds maybe we can talk about what this would all mean. Meanwhile you might want to check out the terrific Rock the Vote flash Social Security: Don't get played and maybe follow that up with Lee Arnold's animation Social Security: The Real Connections. Lots to chew on. Mangia.