A Midwest Academy Production

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A Midwest Academy Production
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In 2000 and previous annual reports, the
Trustees where quite open about their inability
to predict the future. They said. . . .
Here is the Joker When Social Security makes
its projections, it is careful to add the words
Based on the intermediate assumptions. But
exactly what are these assumptions, and are they
hard facts?
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While it is reasonable to assume that actual
future trust fund experience will fall within the
range defined by the three alternative sets of
assumptions used in this report, no definite
assurance can be given that this will occur
because of the uncertainty inherent in
projections of this type and length. In general,
a greater degree of confidence can be placed in
the assumptions and estimates for the earlier
years than for the later years. Nonetheless, even
for the earlier years, the estimates are only an
indication of the expected trend and potential
range of future program experience. Trustees
Report 2000. Page 11.
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Business Week was very direct
The truth is that predictions of Social Security
insolvency are based on estimates of
ever-changing variables stretching out an
incredible 75 years. They are simply not
reliable.
Editorial. July 3, 2000
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Making projections is much harder than rocket
science. They are based on many many factors
The truth is that economists cant predict any
one of these things more than a few years
ahead, and then they often get it wrong.
Social Security is trying to make 75 year
projections that take into account all of these
factors and the ways that they all interact with
each other.

• Birth and death rates
• Marriage and divorce
• Migration rates
• Workforce size
• Unemployment rates
• Inflation rates.
• Productivity rates
• Wage increases
• Economic growth rates
• Retirement ages

Trustees Report, 2004 Page 6
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75 Years
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So how broke is it?

• The slide that follows shows that the Trustees
  have made
• three sets of economic and demographic
  assumptions.
• I Optimistic
• II Intermediate
• III Pessimistic
• They say that the intermediate assumptions are
  most likely.
• The chart shows that under the intermediate
  assumptions,
• the system will run out of assets by 2042. But,
  if the opti-
• mistic assumptions turn out to be right, then the
  system
• will be solvent for 75 years and more.

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Averages 2000 - 2040
Trustees Report 2000 Pg. 58
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The assumed economic growth rates that separate
the projections are very small and below the
average of the last four decades
Average percent change in annual GDP
The growth rate of the economy is closely related
to all of the other factors in the projections.
The Optimistic projection is only a three-
fifths of a percentage point higher than that
under which the system goes broke. This is
not a crisis. The difference is less than the
margin of error in making such predictions.
Actual 1960- 2003
I Surplus
II Broke
Averages 2004 - 2047
Trustees Report 2004
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Demographic differences between the broke and
surplus scenarios are small
1,300,000
900,000
1.9
2.2
Fertility Children per woman. Immigration
net annual.
Table II.C1. 2004 Trustees Report
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Other economic assumptions are also close
Table II.C1. Trustees Report 2004
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Doing nothing to fix our Social Security system
will cost us, as well as our children and
grandchildren, an estimated 10 trillion,
according to the Social Security Trustees.
White House Press Statement 10/02/04
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To reach 10 trillion, the Trustees went beyond
their 75 year projection to what they call the
infinite horizon. This, they claim, is what the
System will be short over an infinity of years.
Not only is this silly, it isnt even as bad as
it sounds. They added that the 10 trillion is
only 3.5 of the infinite taxable wages over the
same period. In other words, an infinite 3.5
tax increase would solve the whole problem for
all eternity.
Romeo, Romeo! Wherefore art thou Romeo?
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Well, the 10 trillion is the closest you can
get to pulling a number out of the air. Make that
the ether.
--The NY Times. Editorial 1/3/05
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And Therefore
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Links
Center on Budget Priorities
CBO Report
Trustees Reports
Our Future
National Committee to Preserve Social Security
Century Foundation
Economic Policy Institute
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Thats All Folks