Graphic of the day: Thanks to government stupidity, Social Security is in worse shape than thought
posted at 1:02 pm on January 6, 2013 by Allahpundit
It’s not just that life expectancies are increasing while the number of workers is declining. Turns out the government’s been relying on outmoded actuarial assumptions that fail to accurately estimate when the, ahem, “trust fund” will run out. It’s one thing to run a Ponzi scheme, it’s another to muck up the math so badly that the scheme goes bust before you were expecting it. Read it and weep.
Those facts are widely known. What’s not is that the Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out — to the tune of $800 billion by 2031, more than the current annual defense budget — and that the trust funds will run out, if nothing is done, two years earlier than the government has predicted.
We reached these conclusions, and presented them in an article in the journal Demography, after finding that the government’s methods for forecasting Americans’ longevity were outdated and omitted crucial health and demographic factors. Historic declines in smoking and improvements in the prevention and treatment of cardiovascular disease are adding years of life that the government hasn’t accounted for. (While obesity has rapidly increased, it is not likely, at this point, to offset these public health and medical successes.) More retirees will receive benefits for longer than predicted, supported by the payroll taxes of relatively fewer working adults than projected.
Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.
The fact that Obama’s campaign team ran one of the most successful, sophisticated data-crunching operations in modern history while the federal government’s retirement caretakers were running with numbers like this is a spectacular lesson on incentives and self-interest. If his reelection depended upon making Social Security solvent, Team Hopenchange would probably have the program running a surplus by now.
Meanwhile, as Tom Maguire notes, an $800 billion shortfall by 2031 amounts to a $40 billion deficit each year. The GOP’s aborted attempt to amend the fiscal-cliff deal to add spending cuts would have produced only $30 billion in savings annually over the last decade. So meager is Washington’s will to reduce outlays that even an “ambitious” proposal can get instantly swallowed up by a mathematical tweak to our entitlement leviathan.
Take three minutes to look over the NYT’s graphic on why the feds’ current Social Security projections are so screwy. Do not miss number 4.