Saturday, March 29, 2008

Lid Blown off Low Cost


One of my very first posts here was What is the Low Cost Alternative which I put up on November 20th, 2004. In it I made the observation that since 1997 Low Cost, purportedly the upper end of a possible range of economic outcomes, in fact always gave the same result: fully funded Social Security through the 75 year actuarial window with a steady reserve. It consistently returned what I call Baby Bear results, the porridge never being too hot or too cold. I discussed the implications of this in my 2006 Post Goldilocks and the Three Social Security Bears.

Well this held up excellently through the 2005, 2006, and 2007 Reports each of which gave the same basic Baby Bear outcome. Which made 2008 kind of a shock. For the first time the Trustees present a Low Cost model that would officially have Social Security over funded after mid century. Low Cost is outcome I in the following figure Figure II.D6.—Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions [Assets as a percentage of annual cost] A constantly rising Trust Fund is a long range menace to Social Security, there is a point when having too much in reserve becomes a bad thing, something I expand on some in Interest on Interest: a Threat.
(I finally figured out how to upload images. II.D6 now displays at the top of this post.)


There is only one way to flatten the tail after 2041 to get Social Security back to long term Baby Bear status. And that is some combination of cutting revenues or increasing future benefits. Which is to say exactly 180 degrees reversed from pretty much universal policy positions. To say the least not at all the kind of crisis people are envisioning.

3 comments:

Anonymous said...

Bruce,

Please email me at Brooksbud@aol.com so I have your email address and can email you my reply to your comment on Thoma's site. For whatever reason my reply comment is not going through.

Thanks,
Brooks

Bruce Webb said...

Brooks rather than take this to e-mail I'll do you one better. I have put up a post called the Brooks Factor http://bruceweb.blogspot.com/2008/03/brooks-factor.html
Put your argument in its most straightforward form or in the form of a response to someone or another as you like in a comment at the above link. I will then copy that argument into the main post, add a disclaimer, and then you can have a permanent place to send commenters.

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