Sunday, December 30, 2007

(Near) Year End Balances 2007

(Actual balances are in and I will need to edit this post. Short version OAS ended up at $2.024 trillion or $3.3 billion behind Intermediate Cost projections. DI came in at $215 billion or about $6 billion ahead of IC projections (but unchanged for the month). Combined OASDI came in at $2.239 trillion beating IC projections but slightly lagging Low Cost. Most interesting note? 2007 Real GDP came in at 2.2% against a projected 2.6% yet receipts overall managed to come out ahead. This is the third year in a row that Real GDP came in at or below expectations and yet receipts held up.)

Well it's near the end of the year but the Bureau of Public Debt reports with a lag time of a month. So these are the totals as of Nov. 30th.

From the Bureau of Public Debt Nov. 30 Report

OAS Old Age Survivors:$2,014,006,866,559.62
DI Disability $215,535,461,216.24

Total: $2,229.5 billion

Low Cost projection for OAS: $2,030.5 billion
Low Cost projection for DI: $210.8 billion
Total Low Cost projection for OASDI: $2,241.3 billion

Intermediate Cost projection for OAS : $2.027.7 billion
Intermediate Cost projection for DI: $208.9 billion
Intermediate Cost projection for OASDI: $2236.6 billion

Well in a couple of places I posted that back of the envelope calculations showed that OASDI surpassed year end projections about week two of November. Didn't seem to happen. On the other hand the change from October to November was plus $10 billion for OAS and almost $1 billion for DI so we are looking at a total projection of about $2,240.3 billion by years end, which is to say comfortably above Intermediate Cost and slightly below Low Cost. Which btw is in line with reported GDP and productivity numbers. I am still in the comfort zone.

Update: Well the December job numbers were pretty lousy, then again most of those paychecks wouldn't come until January anyway so shouldn't impact December receipts. 2008 is not shaping up well at all on the Social Security front. On the other hand it is kind of hard to sell private accounts when the country is in a recession. Which of course is the overall point of this whole blog, Social Security solvency tracks the economy much as the stock market does. There just is not enough margin to exploit to give materially better outcomes for private accounts.

Wednesday, December 12, 2007

Visit to the Dark Side: What if the Fed is right

(Note this has not had its final edit. It is meant to make a point about how robust the system is even when it takes a large hit)
Some people are predicting that the next four quarters are going to be totally flat. What happens to our model if we assume a sequence of 2007. 2.6%; 2008 1% then sustained growth at 2.6% while maintaining a pretty pessimistic view of growth in the outyears. Note that 2008 was projected as being the only year at 3.0% in the whole projection, replacing that with a zero is going to hurt. But how much? As it turns out surprising little.

The vertical axis has the Intermediate Cost alternative projections given in the 2007 Report for the years from 2007 to 2024. The horizontal axis represents the numbers as they would have to be adjusted for posited GDP over that same period.

2007 2.6
2008 3.0--3.0
2009 2.8--2.8--2.9
2010 2.6--2.6--2.8--2.8
2011 2.6--2.5--2.8--2.8--2.7
2012 2.4--2.4--2.7--2.7--2.7--2.7
2013 2.2--2.2--2.7--2.7--2.7--2.7--2.7
2014 2.1--2.1--2.6--2.6--2.6--2.7--2.7--2.6
2015 2.2--2.2--2.5--2.6--2.7--2.6--2.6--2.6--2.5
2016 2.2--2.2--2.5--2.5--2.5--2.5--2.5--2.5--2.5--2.5
2017 2.2--2.2--2.4--2.4--2.4--2.5--2.5--2.5--2.5--2.5--2.5
2018 2.2--2.2--2.3--2.3--2.4--2.4--2.4--2.5--2.4--2.4--2.4--2.5
2019 2.1--2.2--2.2--2.3--2.3--2.3--2.4--2.4--2.4--2.4--2.4--2.4--2.4
2020 2.1--2.1--2.2--2.2--2.3--2.3--2.3--2.3--2.4--2.4--2.3--2.3--2.3--2.3
2021 2.1--2.1--2.2--2.2--2.2--2.2--2.3--2.3--2.3--2.3--2.3--2.3--2.3--2.2-2.2
2022 2.1--2.1--2.1--2.2--2.2--2.2--2.2--2.3--2.3--2.3--2.3--2.3--2.2--2.2-2.1-2.0
2023 2.1--2.1--2.1--2.1--2.2--2.2--2.2--2.2--2.3--2.3--2.3--2.2--2.2--2.2-2.1-2.0-1.9
2024 2.1--2.1--2.1--2.1--2.1--2.2--2.2--2.2--2.2--2.2--2.2--2.2--2.2--2.1-2.0-1.9-1.9

2.6% is a pretty pessimistic number but even in the face of a terrible 0% hit in 2008 would put the system on track to solvency by 2014. It just takes some minor adjustments to growth numbers in the outyears.

Crisis Maintenance at 3.0% GDP (historic trend)

The following three posts try to make an attempt to show how the Intermediate Cost alternative would have to be adjusted to keep Social Security 'Crisis' constant, that is to not have the current 2041 date recede further into the future. The methodology assumes that greater than expected growth in any give year can be offset one for one by subtracting equivalent points from future years. In fact due to compounding on the interest on a greater than expected surplus the effect would actually be greater than depicted here, though not significantly over the period presented.

From 1985 to 2006 Real GDP increased on average a shade over 3.0% 2007 Report Table V.B2.-Additional Economic Factors . This table shows how Intermediate Cost responds to trend growth over the short run.

The vertical axis has the Intermediate Cost alternative projections given in the 2007 Report for the years from 2007 to 2016. The horizontal axis represents the numbers as they would have to be adjusted for 3.0% GDP over the period 2007-2012.

2007 2.6
2008 3.0-----2.9
2009 2.8-----2.7-----2.7
2010 2.6-----2.6-----2.6-----2.5
2011 2.6-----2.5-----2.4-----2.4-----2.3
2012 2.4-----2.3-----2.3-----2.2-----2.1-----2.0
2013 2.2-----2.2-----2.2-----2.2-----2.1-----1.9
2014 2.1-----2.1-----2.1-----2.1-----2.1-----1.9
2015 2.2-----2.2-----2.2-----2.1-----2.0-----1.9
2016 2.2-----2.2-----2.1-----2.1-----2.0-----1.9

There has been exactly one five year period since 1960 with average Real GDP of 2.4. Two years of growth at trend would put us at a point where all future five year periods were bleaker than anything in the past. Now current forecasts generally call for a dismal 2008 so this process might not kick in right away. But whether you start in 2009 or 2010 growth at historic trend grinds crisis down to nothing in a short period of time.

Crisis Maintenance at 2.8% GDP

There have been three five year periods below 2.8% since 1960, and six above with a range from 2.4% to 5.0%. This would have to represent a fairly pessimistic outcome, particularly coming off a 3.3% 2006 number

The vertical axis has the Intermediate Cost alternative projections given in the 2007 Report for the years from 2007 to 2016. The horizontal axis represents the numbers as they would have to be adjusted for 2.8% GDP over the period 2007-2012.

2007 2.6
2008 3.0-----2.9
2009 2.8-----2.7-----2.8
2010 2.6-----2.6-----2.6-----2.6
2011 2.6-----2.6-----2.6-----2.6-----2.5
2012 2.4-----2.4-----2.4-----2.4-----2.3-----2.3
2013 2.2-----2.2-----2.2-----2.2-----2.2-----2.1
2014 2.1-----2.1-----2.1-----2.1-----2.1-----2.1
2015 2.2-----2.2-----2.2-----2.2-----2.2-----2.0
2016 2.2-----2.2-----2.2-----2.2-----2.2-----2.0

At 2.8% average Real GDP we leave crisis behind by at latest 2010

Crisis Maintenance at 3.3% GDP

Okay nobody is currently projecting 3.3% GDP growth in the short term. On the other hand this is in fact just under the 3.4% Real GDP average of 2004-2006. It is not crazy talk.

The vertical axis has the Intermediate Cost alternative projections given in the 2007 Report for the years from 2007 to 2016. The horizontal axis represents the numbers as they would have to be adjusted for 3.3% GDP over the period 2007-2012.

2007 2.6
2008 3.0-----2.9
2009 2.8-----2.7-----2.6
2010 2.6-----2.6-----2.5-----2.4
2011 2.6-----2.5-----2.4-----2.2-----2.1
2012 2.4-----2.3-----2.2-----2.1-----2.0-----1.9
2013 2.2-----2.1-----2.1-----2.1-----1.9-----1.9
2014 2.1-----2.1-----2.1-----2.0-----1.9-----1.9
2015 2.2-----2.1-----2.1-----2.0-----1.9-----1.9
2016 2.2-----2.1-----2.1-----2.0-----1.9-----1.9

At 3.3% Real GDP we hit ultimate numbers by 2012. In fact I only subtracted six out of nine points from the 2010 column, this would actually take 2017 from 2.2% to 1.9% as well.

Monday, November 05, 2007

Comment to Washington Monthly

(This comment was blocked, perhaps on grounds it was too HTML heavy)

If you want to restore progressivity to the overall tax system you do it by raising top marginal income tax rates and taxing capital gains as regular income. There is absolutely no reason to launder the money through a Social Security system that is scheduled to deliver a $200 billion per year surplus on average for the next ten years.

The payroll tax is only regressive if you regard Social Security as a government program like any other, as if it were in fact a welfare plan that should be funded by wealth transfers. But the fundamental strength of Social Security is that it is worker funded insurance that benefits workers. It draws nothing from capital and so owes nothing to capital, particularly nothing in the form of direct political control. The cap serves as political insulation, it is almost the only thing that prevents Social Security being relegated to the 'spending we cannot afford' category (think SCIPS) as opposed to the 'spending we can't NOT afford (anything military). Leave the cap alone, the cap is our friend. If you really think you have the political strength to simply extract another 6.2% (or 12.4%) from the wealthy then take marginal rates back to 39%, don't tinker with the cap.

If Social Security was actually facing some serious funding crisis we might consider tinkering with the cap. But it isn't. Once you actually put numbers to those dates like 2017 ($30 billion) and examine the growth numbers that produce them (2.2% Real GDP in 2015 - a 33% slowdown from 2006) you realize there is a reason they never talk dollars in articles that talk about Social Security. Instead it is always adjectives like 'looming'. The reason for this are pretty clear, 95% of America has fallen for a deliberate con game. Dean Baker and colleague Mark Weisbrot spotted the con in the 1990s and responded by writing Social Security: the Phony Crisis in 1999. The link is to the introduction in which Dean and Mark describe the situation as follows
We have a chance, said President Clinton, to “fix the roof while the sun is still shining.” He was talking about dealing with Social Security immediately, while the economy is growing and the federal budget is balanced. The audience was a regional conference on Social Security, in Kansas City, Missouri, that the White House had helped bring together.
The roof analogy is illuminating, but we can make it more accurate. Imagine that it’s not going to rain for more than 30 years. And the rain, when it does arrive (and it might not), will be pretty light. And imagine that the average household will have a lot more income for roof repair by the time the rain approaches.
Now add this: most of the people who say they want to fix the roof actually want to knock holes in it.
This is the situation facing Social Security, and it is well known to those who have looked at the numbers. The program will take in enough revenue to keep all of its promises for over 30 years, without any changes at all. Thirty years is a long time—it’s hard to think of any other program that can claim to be secure for that long. Furthermore, the forecast of a shortfall in 2034 is based on the economy limping along at less than a 1.7 percent annual rate of growth—about half the rate of the previous three decades. If the economy were to grow at 1998’s rate, for example, the system would never run short of money.
Well the economy actually outperformed 1998 for a number of years and has now and has settled back in a glide path for total solvency.

This is going to sound pretty harsh to a pretty politically sophisticated group, but unless you are familiar with what Baker and Krugman have written on the topic of Social Security your knowledge base is more likely than not to be negative.

Here are some questions for you. In 1997 the Social Security Trustees said the Trust Fund would go to depletion in 2029. In 2007 they now project it to go to depletion in 2041. What are the implications of having a future date recede in time at a rate of more than a year per year? Obviously if Social Security continues to improve at that same rate then we need to do nothing, and certainly not right away. Two what caused the date to move out so steadily in the first place? What is the causal explanation for the trend seen in this table? EPI: Changes in the Trustees Projections over Time Those are the questions we should have been discussing over the last ten years, not listening to the scary stories of people who have always hated Social Security to start with.

Take Dean Baker's advice. Take a look at the numbers for yourselves. You will probably be amazed at what you will find. The Reports are available at or via my website.

Wednesday, January 31, 2007

2006 Year End Balances

From the Bureau of Public Debt Dec 2006 Report

OAS Old Age Survivors:$1,845,338,897,223.25
DI Disability $203,922,695,075.07

Total: $2.0492 trillion

Low Cost projection: $2.0380 trillion
Intermediate Cost: $2.0353 trillion

The first year difference between fully funded Low Cost and an Intermediate Cost that goes to zero in 2041 is $2.7 billion. Not only did we hit Low Cost, we beat it by $11.2 billion.

The Trust Fund just isn't broke. By the numbers.