Republicans have tried a decade ago to reform the Social Security system, warning that the program would tip over into the red earlier than expected and the trust fund would entirely dissipate while some current recipients were still alive to see it. Democrats led by Harry Reid and Nancy Pelosi claimed the crisis didn’t exist when George W. Bush proposed limited privatization options, and the 2008 financial-sector crash put an end to further GOP reform efforts. Studies from Harvard and Dartmouth this week corroborate Bush’s warnings on Social Security, and further accuse the SSA of increasing bias in its analyses in order to maintain the illusion of a slower decline:
New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000.
“These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science. “[Social Security] is going to be insolvent before everyone thinks.” …
Researchers examined forecasts published in the annual trustees’ reports from 1978, when the reports began to consistently disclose projected financial indicators, until 2013. Then, they compared the forecasts the agency made on such variables as mortality and labor force participation rates to the actual observed data. Forecasts from trustees reports from 1978 to 2000 were roughly unbiased, researchers found. In that time, the administration made overestimates and underestimates, but the forecast errors appeared to be random in their direction.
“After 2000, forecast errors became increasingly biased, and in the same direction. Trustees Reports after 2000 all overestimated the assets in the program and overestimated solvency of the Trust Funds,” wrote the researchers, who include Dartmouth professor Samir Soneji and Harvard doctoral candidate Konstantin Kashin.
How bad is it? Barron’s notes that the estimates are off by $1 trillion, maybe more.
Some of the predictions have already been proven correct. Social Security went into the red on payments against revenues in early 2010, rather than in 2017 as predicted by Reid and the Democrats based on these same actuarial projections. It’s no surprise, then, that the target date for trust fund depletion is similarly too optimistic. We have been fed a long line of rosy estimates, at least relatively speaking, which has reduced our options for reforming the system with as little pain as possible, thanks in large part to the demagoguery of Harry Reid, whose pensions are notably unaffected by the crisis he helped extend.
Whether it runs out in 2033, 2031, or 2022, the problem is the system itself and its Ponzi-scheme structure. In the early days of Social Security, it had a ratio of workers to pensioners of 42:1 (1945), and the access age of 65 exceeded the national average life expectancy. It intended to offer a backstop for people who could no longer legitimately support themselves, not set a national retirement age. Thanks to both a falling birth rate and extended life expectancy, the ratio of workers to pensioners was 2.9:1 in in 2010, and dropping. The collapse is coming from its own internal unsustainability.
What direction should reform take? Chris Christie wants to turn Social Security into an explicit welfare program by means-testing the benefits, a sharp departure from the contributory-fund illusion that the government has maintained for 80 years:
That certainly would help, but it also removes the limits on taxation for those purposes, too. Plus, it makes Social Security more vulnerable as it reduces its political strength; those not expecting to draw anything from it won’t feel particularly compelled to protect it. It still doesn’t solve the actual problem of an impossible structure, because the rich aren’t drawing any more benefits than other fully-vested participants — and there aren’t enough of them to make means-testing a viable long-term solution.
The better solution was proposed a decade ago: partial privatization, with ownership of the individual funds left in the hands of its beneficiaries. It’s a government mandated Roth or 401K, where the taxpayers manage their own money and the government can’t raid it to pay for other programs. The transition would have been bumpy a decade ago, and today it’d be even more so. It still beats what’s coming down the tracks, at a higher rate of speed than politicians will admit.
Everyone will lose their money without some sort of reform in place. Partial privatization would give taxpayers the most control over their own money. Let’s face it: the impending collapse shows that politicians can’t be trusted with it, especially demagogues who are more concerned with elections than watching people’s savings get wiped out.