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The Young People Get It

June 23rd, 2008 . by economistmom

Last week in DC, a group of young (20-something and 30-something) leaders from all over the country met with fiscal policy experts at the “Youth Entitlement Summit” (YES!) to learn more about our nation’s long-term fiscal challenges, and to coalesce around a strategy they can take, as young leaders, to help turn the situation around. 

Here is the declaration the young leaders read on national (C-SPAN) TV at the dinner hosted by the Concord Coalition, which was the culmination of the YES two-day summit.  If you watch the video, you’ll see that the young people do “get it”–and that the “old people” (no offense, Belle, Stuart, and Bob, as I count myself as one, too) are impressed:

In our democracy, there exist fundamental obligations that bind us together. This intergenerational compact compels us to leave future generations in better condition than we ourselves are in.

Our generation believes that the promise of the American dream must be continually renewed. Yet our ability to address new challenges is severely impaired. The social contract is crumbling and is taking down the rest of government finances with it.

Therefore we make the following findings and assertions:

Whereas short-term thinking has dominated our politics, the democratic process for redress of these grievances has failed . . .

Whereas honest debate has been undermined by political expediency and special interests . . .

Whereas young people are underrepresented in government despite historic levels of civic engagement and future generations cannot speak for themselves . . .

Whereas health care’s runaway cost increases require comprehensive reform to Medicare, Medicaid, and indeed our entire health care system…

Whereas America’s demographic changes, namely an aging of the population and lengthening life spans, requires significant revisions to Social Security…

Whereas Social Security’s mechanism for creating equity across generations, the trust fund, has proved inadequate. . .

Whereas Social Security, Medicare, and Medicaid are all on unsustainable paths. . .

Whereas a failure to correct the paths of said programs will lead to their failure, total budget insolvency, inequity for current and future generations unprecedented in the history of the United States, and inability to address other priorities, and declining economic prosperity…

Therefore, we hereby declare our generational interdependence.  We will work to achieve reforms that are fair for all generations, including those to come.

Pursuant to our study of these issues, we resolve:

1) Fair and effective action MUST be taken up by the next President and next Congress. Delay compounds both the inequity and the difficulty of reform.

2) Changes to the tax and benefit formulas of Social Security, Medicaid and Medicare must be considered together to meaningfully fix the system.

3) For those who can work, a delayed and flexible retirement age will improve generational equity, match the original promises of the program, and strengthen our nation’s economy.

4) Meaningful savings mechanism, in concert with investment in financial education and fiscal literacy for those disproportionately impacted, would help ensure retirement adequacy and fairness and offer young Americans more control and ownership of their future.

5) To address Medicaid and Medicare requires nothing short of a comprehensive overhaul of the larger healthcare system. 

6) Our current budget system – complex, burdensome, and riddled with concessions to special interests – is an impediment to entitlement reform; tax and spending reforms should be part of the solution.

The preceding is the result of our coming together for an intensive, two day summit investing the challenges facing our generation.  We come from various ideological perspectives, but share the common goal of strengthening this country and our future.  No politician who claims to represent young people can in good conscience ignore these issues.  We call on our leaders to act- and act now.

23 Responses to “The Young People Get It”

  1. comment number 1 by: pgl

    “Whereas Social Security, Medicare, and Medicaid are all on unsustainable paths. . .”

    Their call for health care reform and their recognition that the current projected path of Federal funding of health care benefits are on an unsustainable path are both excellent. But they seem to be buying into some Cato-GOP spin regarding the finances of the Social Security system.

  2. comment number 2 by: M Gilleland

    pgl,
    Can you elaborate on your constructive feedback? Are you referring to plank (4) of their resolve regarding more control and ownership for younger Americans and future generations?

    From what I can tell of where the center of gravity lay in American values overall it is shaded more toward the individual liberty-responsibility end of the spectrum than it is the collectivist end. I think they are right to call for more individual control and ownership in the future rather than leave complete control in the hands of congress.

  3. comment number 3 by: Bruce Webb

    Sigh.
    “Whereas Social Security’s mechanism for creating equity across generations, the trust fund, has proved inadequate. . .

    Whereas Social Security, Medicare, and Medicaid are all on unsustainable paths. ”

    The Trust Fund never was an instrument for creating equity across generations, that is to totally misunderstand its historical function and current projections. The 1983 Commission at no point thought that they had “pre-funded” Boomer retirement, indeed projections from the late 1980’s through the mid 1990’s showed the Trust Fund going to Depletion right as the maximum impact of the Boomers hit the system (in the years around 2030). To say the least this would have been a pretty odd notion of “pre-funding”.

    In point of fact the Trust Fund over the last decade has performed much better than projected, particularly in the years 1997 to 2004 as projected Trust Fund depletion was pushed back steadily at a rate of more than a year per year. Progress stalled some from 2005 to 2007 but then resumed with the 2008 Report. There was a reason why Baker and Weisbrot entitled their 1999 Book Social Security: the Phony Crisis noting in the Introduction (online at the link) “This is the situation facing Social Security, and it is well known to those who have looked at the numbers.”

    Sorry these kids may have all the best intentions in the world but when it comes to Social Security they don’t “get it”. Instead they have succumbed to Cato/Heritage/Concord propaganda. And I use the word advisedly, you could Google ‘Butler Germanis leninist strategy’ and see how this plan to fool the young was laid out in detail in the Fall 1983 Cato Journal issue on Social Security. Social Security: Continuing crisis or real reform. For all practical purposes this youth manifesto was drafted for them 25 years ago.

  4. comment number 4 by: Bruce Webb

    Well my original comment took, but the edit failed. Oh well, maybe it will come back.

    Short version: the Trust Fund was never thought to be a mechanism for intergenerational equity, that is to mistake its history and purpose. At no point did the 1983 Commission think they had “prefunded” Boomer retirement, indeed all projections from the late 1980’s and early 90’s had it going to depletion right at the peak of Boomer retirement. Which would have made for an odd ‘prefunding’. In point of fact the Trust Fund is in much better projected shape today than it was a decade ago and the indicators are better than even that depletion will continue to get pushed out in time.

  5. comment number 5 by: M Gilleland

    Bruce,
    Not knowing the detailed history, I’m curious, why did congress allow huge surpluses to build in a trust fund if it wasn’t to substantially pre-fund future benefits knowing the demands that boomers would place on the programs?

    In other words, it may have never been stated as a pre-funding mechansim (itself a dubious mechanism considering the only assets are intragovernmental treasuries–a.k.a. claims on future taxes and borrowing), but it conceptually does have the affect of being an “asset” that can then be drawn down to pay benefits in the future.

    As far as the overall issue of generational inequality–they absolutely do “get it” and if corrective action continues to be delayed they are most likely going to be substantially impacted in the form of signficantly higher tax rates and diminished economic opportunity.

    Let’s give a bipartisan, balanced effort a chance here–last time I checked the Brookings Institute was involved in this overall effort too (fiscal wake-up tour).

  6. comment number 6 by: economistmom

    Bruce and PGL: On these statements that you seem to object to in the YES declaration:

    “Whereas Social Security’s mechanism for creating equity across generations, the trust fund, has proved inadequate. . .

    Whereas Social Security, Medicare, and Medicaid are all on unsustainable paths… ”

    I think that many liberals misunderstand Concord’s position on Social Security, and hence misunderstand what the YES panelists meant by these statements as well. This issue is deserving of its own post as soon as I’m back from vacation, but for now I just want to make it clear: Concord’s motivation for pointing out the unsustainability of Social Security (and Medicare and Medicaid) in NO WAY is intended to sabotage this crucial public program. We choose to emphasize the need to bring the longer-run level of funding in line with the longer-run level of benefits, precisely because we want to find real solutions that will keep the program alive permanently, while also accomplishing that sustainability in an intergenerationally equitable way. Concord believes in good, strong government programs, and we think our government should continue to provide these vital services in a fiscally responsible manner, so that ALL generations benefit.

    I don’t see anything wrong in the two statements above, but I can understand how some of you may be reading them through scepticism-clouded glasses. M Gilleland is correct that some scholars from the Brookings Institution are indeed part of the Fiscal Wake-Up Tour (including former Brookings scholar and Obama’s economic policy director, Jason Furman), and I can assure you that Concord is not plotting any destruction of Social Security with extremist conservative organizations. There’s no way I’d be working for them if that were the case.

    Like I said, this is definitely deserving of more elaboration soon. I hope we can keep the conversation going.

  7. comment number 7 by: B Davis

    I think that many liberals misunderstand Concord’s position on Social Security, and hence misunderstand what the YES panelists meant by these statements as well. This issue is deserving of its own post as soon as I’m back from vacation, but for now I just want to make it clear: Concord’s motivation for pointing out the unsustainability of Social Security (and Medicare and Medicaid) in NO WAY is intended to sabotage this crucial public program.

    I second this. With the disappearance of pension funds in the workplace, I think that it’s critical that we continue the pension-like features of Social Security. As such, my top priority regarding Social Security has been to argue against any plan that would endanger these features. If you read the comments at this link, you’ll see that I had a long debate with the author of “What If Social Security Were Completely Scrapped?” on the Mises site (under the name of R. Davis). I would not spend that much effort arguing against such suggestions if I did not feel strongly on the matter.

    Likewise, I believe that the Concord Coalition has always been opposed to any privatization that would in any way endanger the pension-like features of Social Security. As I recall, their very first plan to deal with Social Security’s funding problems was the “Comprehensive Entitlement Means Test”. You can still find a couple of references to it if you google it. I think that they’ve taken a broader approach of listing the requirements of any valid reform plan and various options that meet those requirements. You can see a current list of their key points here. So while there may be debate as to what changes may need to be made to Social Security, I think that the Concord Coalition is united in preserving its current key protections.

  8. comment number 8 by: M Gilleland

    B Davis, I found your debate on the Mises site informative and entertaining, well done–I loved the tennis raquet comment.

    Thank you for suggesting the greater transparency reform as well, segmenting or just separate reporting for the insurance, retirement, and safety-net components of social security would provide greater flexibility for incremental reform overtime–if I understood you correctly.

    I just watched the online CSPAN recording of the youth entitlement summit panel and found the notion of a potential mandatory private savings component (over and above current taxes) an interesting idea. Although I’m a believer first and foremost in individual liberty so anything mandatory I cringe at, I also pragmatically realize a libertarian society will likley only come out of necessity (crisis). So in the absence of a predominately libertarian reality, I’m open to the idea of people being forced to some small degree (slippery slope) to take responsibility for their own future contengencies and thefore reduce the burden on the rest of productive society to make up the difference to whatever level collectivists get away with deeming enough.

  9. comment number 9 by: B Davis

    B Davis, I found your debate on the Mises site informative and entertaining, well done–I loved the tennis raquet comment.

    Yes, it seems like those who make declarations like “game, set, and match” or “checkmate” often have the least convincing arguments. I couldn’t help but make some reference to it! Anyhow, I’m glad to hear that you found the debate informative.

    Thank you for suggesting the greater transparency reform as well, segmenting or just separate reporting for the insurance, retirement, and safety-net components of social security would provide greater flexibility for incremental reform overtime–if I understood you correctly.

    Yes, you do understand me correctly. I found it much easier to think about the problem if I split the program up into its components. Likewise, I think it would clarify the issues for others and make it easier to achieve reforms. For example, most people understand that you can only expect a “good return” from the retirement component, not from the insurance or safety-net component. Anyhow, thanks for your remark as you’re the first person who has commented on that suggestion.

    I just watched the online CSPAN recording of the youth entitlement summit panel and found the notion of a potential mandatory private savings component (over and above current taxes) an interesting idea. Although I’m a believer first and foremost in individual liberty so anything mandatory I cringe at, I also pragmatically realize a libertarian society will likely only come out of necessity (crisis). So in the absence of a predominately libertarian reality, I’m open to the idea of people being forced to some small degree (slippery slope) to take responsibility for their own future contengencies and thefore reduce the burden on the rest of productive society to make up the difference to whatever level collectivists get away with deeming enough.

    I think that I largely agree with this. It seems to me that the government has the strongest case for mandating a level of savings that will, one way or another, provide a minimal level of income necessary for a person to survive their retirement. The government will most likely be called on to support any destitute retirees so they have some right to mandate that future retirees make a reasonable attempt to avoid that condition. However, I don’t know that the government should be mandating much beyond that. As an extreme example, it would be wrong for the government to mandate that workers sacrifice their current standard of living so that they can afford to travel the globe in their retirement. Beyond some minimum, it should be up to the individual to decide what standard of living to which they wish to retire.

  10. comment number 10 by: Bruce Webb

    M. Gilleland to answer your question in full would be to overstay my welcome. I was recently invited to put up a series on Social Security on Angry Bear, a series that has extended to 23 parts. I indexed it at my own Soc Sec site under Social Security Posts on Angry Bear. Comments are enabled both at AB and my site and I would be more than happy to discuss this at any length at either place.

    Short answer the Trust Fund balances are not in context that huge. The numbers are big because the program is big. The Trustees measure the Trust Fund for operational purposes by Trust Fund Ratio, that is assets as a function of time in relation to projected cost. Currently that Ratio is around 350 or three and a half years or reserves. Under Intermediate Cost projections that level of reserves will allow Treasury to backfill benefits for the 24 years between shortfall in 2017 (when taxation falls behind cost) and 2041 (trust fund depletion). But at no time will the Trust Fund be called upon to pay more than 22% of benefits in any given year, Social Security is always projected to be largely a pay-go system.

    As to why Congress allowed the Trust Fund to accumulate that level of reserves? Well absent positive action to lower revenues by cutting FICA rates there was no way to avoid it, and a temporary cut in rates short term in the face of a shortfall projected to start 10-15 years out (i.e. 2017) didn’t make much sense, it would only make the gap that much harder to politically address when the time game..

    As to Brookings providing some sort of liberal bi-partisan cover, I have to say that ideology is no substitute for hard headed examination of Social Security numbers in isolation from Medicare as they have played out over the last ten years. People bought into a narrative on Social Security that was largely hardened in the late 1980s and early 1990s (remember ‘deficits as far as the eye can see’ on the General Fund side?). Because whoever you give credit for the late 90’s boom it fundamentally grew the economy to a point where even subsequent stalls don’t change the underlying dynamic, under moderate growth rates Social Security will be funded for decades after 2041. Odd as it seems almost no one did their homework and actually examined the changing numbers in Tables V.B1, V.B2, VI.F7, and VI.F8 of the Social Security Reports.

  11. comment number 11 by: Bruce Webb

    Economistmom. I look forward to that post.

    My objection was on technical grounds. The Trust Fund was never considered a “mechanism for creating equity across generations”, to the extent that better than expected growth from 1997 to 2004 put it partially in that position was more or less unanticipated by anyone. Moreover if you did have to see it as such a mechanism the numbers show that it has become more and not less adequate over time. The 1997 Social Security Report projected Trust Fund Depletion in 2029, a point when the impact of Boomers on Social Security would be at its maximum level. The 2008 Report projects Trust Fund Depletion in 2041, a point at which the mortality tables suggest Boomer impact will be rapidly on the wane (we will be 77 to 95 years old). Which is to say that by the numbers Boomers have in fact financed their own retirement by growing the economy to the point where current tax rates fully fund almost all of our projected retirement, (certainly I don’t expect to be around in 2041).

    I saw an ad pushing this intergenerational summit showing a pouting baby blaming Boomers for creating some $54 trillion in unfunded liability. Well cry me a river, almost all of that represents projected spending on Gen X and following generations retirement security and medical coverage, excuse us for wanting our children and grandchildren having the same dignity in retirement that we paid for for ourselves through a lifetime of Social Security contributions.

    As to Concord, well I won’t go to motivations but some people on both sides of the bi-partisan aisle wedded themselves to the SocialSecurityMedicareMedicaid ‘entitlements’ ‘crisis’ narrative a couple of decades ago and ar e simply unable or unwilling to break this conflation down into its individual components. Social Security in isolation is not particularly a problem and there is no economic argument that suggests it needs to be considered as part of the big picture. Ideological arguments based on the superiority of market solutions in all cases to governmental ones, sure they are out there, but given the actual data tables end up being largely special pleading.

    In short Social Security is not ‘unsustainable’ at all, the current payroll gap is small (1.7%) and itself based on very pessimistic numbers in the out years (1.7% productivity, 2.1% Real GDP), and would still result in a benefit even after the projected cut at depletion 25% better in real terms than retirees get today (78% of 160% = 125%, h/t Prof Rosser).

    ‘Unsustainable’ simply builds in some false numeric premises, at least as related to Social Security.

  12. comment number 12 by: Bruce Webb

    B. Davis, thanks for the link.

    Under Concord’s first bullet point on Social Security. “The only way to do so without burdening tomorrow’s workers and taxpayers is to reduce Social Security’s long-term cost.” Which translates to ‘benefit cuts for Boomers’. As noted under current Intermediate Cost projections Social Security ‘crisis’ means full funding of benefits until 2041 and then a cut in benefits after that point by 22%, which would still leave future retirees getting a better real benefit than current retirees.

    To suggest that the only solution to prevent a wholely theoretical cut in benefits 33 years out (theoretical because Trust Fund Depletion has been moving out on average more than a year per year since 1997) is to phase those benefit cuts in earlier is non-sensical. Now if the reforms proposed by Concord actually give the retiree of 2041 a better benefit than the 78% one current projections deliver then great. But nothing I have seen suggests that they do. Instead their notion of ‘intergenerational equity’ is to force Boomers to share the pain while ignoring that Gen X’ers ultimate benefit in real terms would still be better than newly retired Boomers get today.

    You want some ‘intergenerational equity’. Try growing the economy at the same rate the Boomers have managed to do. You don’t even have to deliver GDP at the 4.0%+ rates of the 90s, you just need to keep the immediate economic future reasonably close to the immediate economic past. Even with a disappointing 2.2% number for 2007, average GDP for 2004-2007 came in at 2.95%. Just maintain that pace for the next four years and Depletion gets pushed back significantly, keep it up over the medium term (10 years) and it is likely that no one now in the work force will ever see a benefit cut. Or an increase in retirement age.
    2008 Report: Table V.B2.—Additional Economic Factors

  13. comment number 13 by: Robert Saint Loup

    I agree with Bruce Webb that the Trust Fund was never intended to be an intergenerational equity device, though I differ with respect to the evidence he offers for that. When the Congress acted on the Greenspan Commission’s recommendations, they projected “solvency” through 2058 — not depletion in the middle of the Baby boom retirement. The more conservative projections of the Trustees that showed insolvency at earlier dates like 2029 — those projections were made in the mid-1990s, and have no bearing on the motivations behind the Trust Fund balance created by the 1983 reforms.

    But there is plenty of evidence that the Greenspan Commission never thought they were pre-funding future benefits through a Trust Fund buildup. For one thing, they never looked at the annual balances that would give rise to such a buildup. For another, they used an actuarial methodology that is inconsistent with the view that the Trust Fund represented real pre-funding. The one the Trustees use now (discounting future shortfalls by the rate of interest attributed to the Trust Fund) wasn’t adopted until 1988, five years after the reforms, when it became apparent that a big Trust Fund was building up and there was a discontinuity between the Trust Fund balance and the previously used metrics determining solvency.

    Several members of the Greenspan Commission, including Pat Moynihan and its Executive Director Robert Myers, indicated later that there was no intention to pre-fund, and after they realized they’d created the quirky situation of big surpluses followed by big deficits, they urged Congress to cut the payroll tax rather than to continue the illusory “solvency” based on running big surpluses and spending them. Though, as we know, Moynihan lost that fight.

    But I agree with Bruce Webb that the attribution of pre-funding intent to the Greenspan Commission is a common misreading of history. An understandable misreading on the part of those who have seen the last few decades of surpluses and assumed a purpose behind them, but a misreading nevertheless. Despite being the authors of the reforms that extended “solvency” then through 2058, and now projected only through 2041, these members of the Commission would say that the financing problem arrives in 2017, not 2041, as they would have rejected the idea that the Trust Fund represented real pre-funding.

    I differ, however, with Mr. Webb in his take on Concord’s analyses and motivations. Id’ make three points in response to the latest post above:

    – Yes, under current projections the 22% cut from scheduled benefits in 2041 is a higher benefit in real terms than are benefits today. But that’s an argument for changing the benefit formula today, not for waiting. If we change it now, we can grow smoothly in real terms to the level of benefits that can be afforded. But it’s absurd to think that people will countenance a 22% sudden benefit cut in 2041 from a much higher level, based on the rationale that it’s higher than benefits were back in 2008. We wouldn’t be able to sell a 22% benefit cut to today’s retirees based on the logic that it’s still more than people got back in 1975. Similarly, the only way to take advantage of the fact that we can afford a slower, albeit still positive, rate of real benefit growth in the future is to grow smoothly to that level, not to go much higher and then jerk it back.

    – The insolvency in the future is not theoretical or uncertain to any significant degree. Comparing with the 1997 projections is a real cherry-pick, because that’s a set of projections made on the eve of an especially atypical surge in real wage growth that caught all forecasters by surprise, not just the Trustees. Looking over the entirety of the Trustees’ projections, they’ve been too optimistic more often than they’ve been too pessimistic. And a stochastic analysis of the current projections shows only a 10% chance that permanent cash deficits will appear as late as 2019, and only 2.5% as late as 2021. There just isn’t much give there.

    – The idea that faster ecomic growth eliminates the Social Secuirty problem is an oft-repeated fallacy, but it’s a fallacy. First, it’s going to be tough for future generations to have aggregate economic growth go as fast as it did when the Boomers were entering the workforce. Aggregate growth is productivity growth times workforce growth. Since the demographics have annual workforce growth dropping to about one-fifth the rate of growth as in the last few decades, the next generation would have to be a LOT more productive than the Baby Boomers to even get close. And it doesn’t make a huge difference in the projections anyway. Real wage growth has averaged 0.9% over the last 40 years. The Trustees project that this will rise to 1.1% over the next 75. Even if it went up to 1.6%, though — 78% faster than the last 40 years, on average — it pushes insolvency out only five years, and that mostly because the additional revenues arrive earlier than the additional benefits obligated by th e additional contributions. In terms of the structural deficit, it matters almost not at all.

    One of the unfortunate aspects of the Soc Sec debate is the amount of time spent trying to deny the reality of the problem rather than just dealing with it. In 1991, the Trustees’ projection of the permanent deficit date was 2017 — the same as it’s been the last few years of the report. In the meantime, we’ve gone 17 of the 26 years of lead time we were given before the deficits hit without doing a blasted thing. And despite the annual confirmations of the problems coming, we still putter around and watch the problem grow worse. It’s a sorry shame that our kids will pay dearly for.

  14. comment number 14 by: B Davis

    Bruce Webb wrote:

    Under Concord’s first bullet point on Social Security. “The only way to do so without burdening tomorrow’s workers and taxpayers is to reduce Social Security’s long-term cost.” Which translates to ‘benefit cuts for Boomers’. As noted under current Intermediate Cost projections Social Security ‘crisis’ means full funding of benefits until 2041 and then a cut in benefits after that point by 22%, which would still leave future retirees getting a better real benefit than current retirees.

    As you say, the current program promises a higher real benefit to future retirees (assuming that wages continue to grow faster than the true rise in inflation). In addition, future retirees are promised longer and longer retirements (assuming that life expectancy continues to increase and the age of full retirement remains at 67). I therefore don’t understand your seemingly total opposition to any change which would slow down this increase in benefits in order to better insure that all future retirees will receive them. Regarding an increase in age, I understand that future retirees are wary of the age being increased too quickly or beyond the age when they can work. On this count, it may be reasonable to continue to allow early retirement at 62 (but at the appropriately lower benefit levels). This would also allow those who have low life expectancies to have retirements of reasonable length. In any case, there is little doubt that the normal retirement age will eventually need to be increased, just as it was formerly increased from 65. Why not admit this possibility at least to the degree that it can be factored into the projections?

    As Diane said in her post of June 26th, I suspect that many of those who oppose Social Security reform believe that “reform” is used as a code word for “destroy”. I am sympathetic to that view as I think that many of those who pushed “private accounts” cared little about maintaining the insurance or safety-net components of Social Security. That’s one of the problems with having a debate most of whose participants are higher-income individuals. For such individuals, their chief concern is likely a plan which provides the highest expected return. For low-income individuals, their chief concern is likely a plan that insures that they will receive the minimum that they need to survive for the whole of their retirement. I would contend that this latter concern is the most critical.

    In any case, keep in mind that many of us who talk about reform do so because we believe that it is the best way to insure that Social Security will survive in something close to its current form. We believe that doing nothing is more likely to lead to a radical change than the discussion of moderate reforms. That said, I am aware that an irresponsible approach to reform could open the door to those who might want to destroy Social Security. Hence, it’s not a question of who wants to protect Social Security more but how one believes that this goal can best be achieved.

    To suggest that the only solution to prevent a wholely theoretical cut in benefits 33 years out (theoretical because Trust Fund Depletion has been moving out on average more than a year per year since 1997) is to phase those benefit cuts in earlier is non-sensical.

    On this point, I have to agree with comment number 13 by Robert Saint Loup that it is much more non-sensical to plan on implementing a 22% cut in 2041. I believe that Social Security should be able to cash in all of the bonds in its trust funds. However, I think it should be put on a glide path such that no sudden cuts in benefits are necessary according to the intermediate projections. And if things go better than those projections, we can always increase benefits later.

    You want some ‘intergenerational equity’. Try growing the economy at the same rate the Boomers have managed to do. You don’t even have to deliver GDP at the 4.0% rates of the 90s, you just need to keep the immediate economic future reasonably close to the immediate economic past. Even with a disappointing 2.2% number for 2007, average GDP for 2004-2007 came in at 2.95%. Just maintain that pace for the next four years and Depletion gets pushed back significantly, keep it up over the medium term (10 years) and it is likely that no one now in the work force will ever see a benefit cut. Or an increase in retirement age.

    Once again, I have to agree with Robert Saint Loup’s reply. Economic growth is determined by productivity growth and population of workers growth. The decline of the latter is already baked into the cake, at least for a number of years. The trouble with some of these alternate projections is that they are largely back-of-the-envelope projections that have been subjected to little, if any, public scrutiny. The Trustees projections may not be perfect but, unless and until someone can come up with alternate projections from a credible source, I have to stick with those from the Trustees.

  15. comment number 15 by: Bruce Webb

    The Low Cost alternative is not my work product, it is equally as official as the standard Intermediate Cost alternative and is found in exactly the same data tables. To suggest that they are back of the envelope calculations is nonsense. The Trustees tell us that Low Cost demographic and economic outcomes produce a fully funded Social Security system. If you have a problem with the numbers take it up with the Office of the Chief Actuary. These l
    projections are from the exact same source and were subject to the same level of scruitiny or lack thereof as the Intermediate Cost alternative.

  16. comment number 16 by: Bruce Webb

    I am working from an iPhone so have limited ability to respond to Robert’s post.

    But I would appreciate a link to the 2058 claim.

    I an not much impressed with the stochastic projections. A close reading shows that they are not in fact an evaluation of the probability of any particular variable, but simply a measure of whether statistical variation for any individual variable on its own will carry you to Low or High cost while keeping all other variables at IC levels. Or you can explain the language clearer than the Reports do. In any event this measure was only introduced with the 2003 Report. Color me cynical.

  17. comment number 17 by: Bruce Webb

    Robert it is up to you to demonstrate that the net reduction in benefits come Trust Fund Depletion come 2041 under current policy is greater than than that of phased in reductions now. If people still end up with a benefit at or less than 78% of the current schedule under ‘reform’ the notion that you are doing anyone a favor by cutting my benefits and my nephew’s benefits for decades to avoid his younger sister taking a hit in 2041 is nutty, particularly when Trust Fund Depletion has been pushed back by an average of more than a year per year for the last decade. If this trend shows any signs of reversal get back to me.

  18. comment number 18 by: B Davis

    Bruce Webb wrote:

    The Low Cost alternative is not my work product, it is equally as official as the standard Intermediate Cost alternative and is found in exactly the same data tables. To suggest that they are back of the envelope calculations is nonsense.

    I was not talking about the Low Cost alternative, I was talking about claims that we should be able continue our recent GDP growth, ignoring the fact that growth in the work force is going to be much slower (unless we greatly increase immigration of workers). If you have a credible source that can back up the projection that GDP growth will continue at it’s recent higher rate, please post it.

  19. comment number 19 by: Bruce Webb

    You may not have been talking about Low Cost, but I was, in fact all numbers used by me come straight from either the Trustees’ Reports or the SSAB or occassionally from BLS just to avoid the accusation that I am just making stuff up based on back of envelope calculations. As for baked in the cake those work force numbers are equally baked into Low Cost. If you have some quarrel with the specifics as laid out in the data tables then feel free to cite chapter and verse, the implied notion that the existence of the Baby Boomers is coming as some surprise to the demographers that crafted the Low Cost alternative is risible. Plus I am not talking about continuing present GDP growth, I am talking about 30% slowdowns over four years as being seen somehow as optimistic.

    “Real wage growth has averaged 0.9% over the last 40 years.”
    You might want to source that. Using the numbers supplied by the Trustees Real wage growth averaged 1.15% from 1960-2005 and was followed by 1.8% in 2006 and 1.6% in 2007 2008 Report: Table V.B1.—Principal Economic Assumptions . In fact if we just take the years from 1997 to 2007 we see Real Wage increasing on average at a 1.6% rate. Now if you would like to advance a case why we should privilege a 40 year window to either a 10 year window or perhaps a 63 year window (to capture all post-war wage gains) then have at it. But using a time frame that magically just manages to capture the 1969-70 and 73-75 recessions while ignoring the two decades of strong wage growth that preceded that is not exactly playing cricket.

    And now that you mention it the immigration numbers used in Intermediate Cost are in fact ridiculous on their face, a fact pointed out by the Technical Panel of the Social Security Advisory Board in their recently released Report on Assumptions and Methods. We might also not in passing that in Table 1 the Technical Panel suggests replacing Real Wage estimates under Intermediate Cost with 1.3% (next 25 years) and 1.5% (next 50 years) for the 2007 Reports’ 1.1% over that same time.

    I would think the Technical Panel is a credible source. (And BTW you could crank the patronization level down a notch or two, I didn’t just fall off the turnip truck on this issue.)

  20. comment number 20 by: Bruce Webb

    “I therefore don’t understand your seemingly total opposition to any change which would slow down this increase in benefits in order to better insure that all future retirees will receive them”

    “After the village of Ben Tre was virtually destroyed, an American Major said to journalist Peter Arnett (who would become famous for his work on CNN during the Gulf War), “It became necessary to destroy the village in order to save it.”

    The same logic seems to be being deployed here. If someone was actually arguing that by phasing in benefits early we could preserve benefits after 2041 at some level over the 78% that Intermediate Cost projects today (up BTW from 75% in the 2007 Report) then great, lets get some numbers on the table and calculate the benefits foregone by workers between now and 2041 under your reform plan as opposed to the extra benefits retained by workers after 2041. But I don’t see that. Instead we get variations on the following:

    “But it’s absurd to think that people will countenance a 22% sudden benefit cut in 2041 from a much higher level, based on the rationale that it’s higher than benefits were back in 2008.”

    First of all these people have thirty three years of warning and so plenty of time to plan, there is nothing “sudden” about it, we can send them annual postcards starting in 2031 or something. Second almost everyone has to plan for a major cut in income at retirement and I would suspect most people take more than a 22% hit. The notion that I should take 18 years of benefit cuts between 2023 and 2041 so that some Gen-X retiree doesn’t get sticker shock because he spent the last three decades not paying attention to his Social Security statement is at best some special pleading. When faced with actual numbers the whole ‘crisis’ narrative melts away, which is why privatizers only use cherry picked numbers when they use numbers at all.

  21. comment number 21 by: B Davis

    Bruce Webb wrote:

    Plus I am not talking about continuing present GDP growth, I am talking about 30% slowdowns over four years as being seen somehow as optimistic.

    Following is what you wrote to me in comment 12:

    Try growing the economy at the same rate the Boomers have managed to do. You don’t even have to deliver GDP at the 4.0%+ rates of the 90s, you just need to keep the immediate economic future reasonably close to the immediate economic past. Even with a disappointing 2.2% number for 2007, average GDP for 2004-2007 came in at 2.95%. Just maintain that pace for the next four years and Depletion gets pushed back significantly, keep it up over the medium term (10 years) and it is likely that no one now in the work force will ever see a benefit cut. Or an increase in retirement age.

    Admittedly, I concentrated on your first statement. That is the back-of-the-envelope projection that I was talking about. If that phrase offended you, I’m sorry. Regarding the other numbers you quote, I don’t have the time or inclination to recrunch or verify these numbers. If you have a credible source that gives the final projections, I’ll take a look at it.

    “Real wage growth has averaged 0.9% over the last 40 years.”
    You might want to source that.

    Better yet, you might want to ask the author of that statement to source it. It was made by Robert Saint Loup in comment 13.

    And now that you mention it the immigration numbers used in Intermediate Cost are in fact ridiculous on their face, a fact pointed out by the Technical Panel of the Social Security Advisory Board in their recently released Report on Assumptions and Methods.

    Funny, I did a search of that entire report and did not find a single occurrence of the word “ridiculous”. :) Seriously, doing a quick search, I did see that the report said “Immigration has been greater in the recent past than the Trustees Reports portray and, we believe, will continue to be greater in the future than the Trustees project.” But, as I said before, I don’t have the time or the background to come up with my own projections or verify someone else’s. I may have missed it but I saw no place in the report that they suggested that the Trustees low-cost projections is better than their intermediate projections. In fact, I ran across the following statement on page 10:

    As depicted on Figure 1, the trust fund balance remains positive for only one additional year under the Panel’s recommended intermediate assumptions compared to those in the 2007 Trustees Report, with the balance reaching zero in 2042 rather than 2041.

    I would think the Technical Panel is a credible source. (And BTW you could crank the patronization level down a notch or two, I didn’t just fall off the turnip truck on this issue.)

    Since you have attributed other people’s quotes to me, I’m unclear about whether it was my comments that you found patronizing. I’ll guess that you found the “back-of-the-envelope” comment patronizing and I explained that above. In any case, it seems to me that I have expressed sympathy and/or understanding for some of your positions and you have expressed chiefly disdain for mine. In the next post, you seem to comparing me and others here to a soldiers who destroy a Vietnamese village and accuse us of being privatizers who “only use cherry picked numbers when they use numbers at all”.

    In fact I did go to your site (I believe that you invited me) and read some of the posts. I did not post anything because I simply do not have time to read and post on another board. However, you sounded much more congenial to some modifications to Social Security there. For examples, here you said the following about the Treasury’s Social Security Issue Brief no. 5:

    The proposal seems quite interesting. Rather than simply readjusting the benefit schedule by some blunt change in method of calculating CPI, this would adjust benefits with an eye on both the income and cost sides. The end result would be to adjust the benefit both in relation to actual changes in real wages and prices. This contrasts to the current model which rather locks you into a rigid set of projections from the outset.

    In fact, I don’t disagree that it would be preferable if we could come up with some system that could adjust to ongoing events in the real world rather than attempt to lock into a rigid set of 75-year projections at the outset. If you would propose such things here, you might find much less conflict and much more common ground.

  22. comment number 22 by: Bruce Webb

    Sheesh if you are going to parse it to that level fine. The word ‘ridiculous’ was my assessment of the net result of the Technical Panel’s recommendations on adjusting immigration numbers. The Technical Panel suggested a starting number of 1.35 million immigrants for 2007 for all three alternatives up just a bump from the Report’s estimate of 1.275 million. But in place of 2010 numbers that would have immigration at 835,000 (High), 1.195 mn (Inter), and 1.6 mn (Low) and ultimate numbers that would have immigration at 770,000 (High), 1.25 mn (Inter), and 1.305 mn (Low) the Technical Panel suggested that they considered more realistic numbers to be 1.437 mn (High), 2.189 mn (Inter) and 2.82 mn (Low).

    Did the Technical Panel go out of their way to ridicule the Office of the Chief Actuary? Absolutely not, in fact they even explained why the current methods used by the OACT required them to low ball the numbers in the way they did. But in the cold light of day and whatever the methodological restraints the suggestion that in the face of a crisis defined in large part by a projected labor shortage that the response of the US would be to choke off immigration in both absolute and even more so relative numbers to the effect that the foreign born population of this country would actually shrink over time violates every sense of logic to the point that ‘ridiculous’ seem perfectly appropriate. The Technical Panel suggests that the numbers are off by a factor of 50%. Seems significant to me.

    “I don’t have the time or inclination to recrunch or verify these numbers”

    No but you seemed to have the time and inclination to snark that I was relying on crappy data. “The trouble with some of these alternate projections is that they are largely back-of-the-envelope projections that have been subjected to little, if any, public scrutiny.” That was a direct shot that you are now not willing to back up. Oops.

    And I guess I owe you an apology for assuming that you agreed with all of Robert San Loup’s data points when you suggested that “On this point, I have to agree with comment number 13 by Robert Saint Loup that it is much more non-sensical to plan on implementing a 22% cut in 2041.” On the other hand his conclusion derives from his premises which in fact were based on cherry picked data ranges. Certainly you are free to agree to his conclusions without actually signing on to his argument, but in doing so you kind of vitiate your own argument.

    As to the civility question your original post linked to Concord with the suggestion that they were committed to “preserving its current key protections”. When I pointed out that this seemed to translate to across the board benefit cuts and means testing you responded rather agressively with “I therefore don’t understand your seemingly total opposition to any change which would slow down this increase in benefits in order to better insure that all future retirees will receive them.” Which in fact imbedded a false argument in that nothing you put forth to that point actually supported the “in order” clause. Instead you put me in the position of being a blind obstructionist unwilling to discuss this on a reasonable basis.

    I typically am a pretty polite debator. I regularly have interchanges with Andrew Biggs at his site Notes on Social Security Reform which remain quite cool in spite of him and I having views on this that are diametrically opposed. And I would also advance my response to Economistmom as another example.

    But frankly the following challenge would have been a lot less offensive if you had deleted one word: “If you have a credible source that can back up the projection that GDP growth will continue at it’s recent higher rate, please post it.” Combined with “back of envelope” the word “credible” implied that I was just an ignoramus pulling claims out of places not mentionable on a Mom’s site. You’ll have to excuse me for being touchy on that subject, for years I have had to respond to people who in fact have “no time or inclination to recrunch or verify these numbers” but assume based on little that I have not in fact done my own crunching and verification.

  23. comment number 23 by: B Davis

    But frankly the following challenge would have been a lot less offensive if you had deleted one word: “If you have a credible source that can back up the projection that GDP growth will continue at it’s recent higher rate, please post it.” Combined with “back of envelope” the word “credible” implied that I was just an ignoramus pulling claims out of places not mentionable on a Mom’s site. You’ll have to excuse me for being touchy on that subject, for years I have had to respond to people who in fact have “no time or inclination to recrunch or verify these numbers” but assume based on little that I have not in fact done my own crunching and verification.

    I explained my “back of the envelope” comment in my prior post so I’m not going to spend any more time on that. However, I will explain what I mean by a “credible source”. What I mean is a known source that can be referenced by myself and others. If you look at my site, you’ll see that it consists chiefly of economic and budget data and the sources from which they came. I try to include all of the available data (at least from the given source) so as not to be guilty of cherry-picking. I believe that the inclusion of a clear source is critical for two reasons. First of all, it allows that data to be recrunched and reexamined. Most people may not have the time or inclination to recrunch the data but it’s there for anyone who does. Secondly, the source allows the reader to judge the credibility of the data based on the specific source. For myself, I find that certain partisan think tanks have a tendency for cherry-picking and I usually verify and recrunch their data before taking it too seriously. I believe that government data, on the other hand, is pretty reliable in its collection and compilation. There are people who question some of their formulas (which may be more susceptible to political pressures) such as John Williams at http://www.shadowstats.com/ and Kevin Phillips in his recent book “Bad Money”. The point is that providing the precise sources allows people to validate the data and make their own judgment about the credibility of the source.

    Hence, I was not saying that you are “an ignoramus pulling claims out of places not mentionable”. I was saying that, without a known source that can be easily referenced, your numbers are of limited use to me (just as mine would be to you). And as I do not have the time or background to take your data and create or verify projections, I was asking for a source that concludes that the Trustees low-cost projections are more likely to occur than their intermediate projections. In any case, I have been asking people for “credible sources” for years and nobody has become upset. Hence, there was nothing personal meant by the request I made of you.

    In any event, we seem to be the only ones left in this thread and so I suggest that we just agree to disagree on this issue and move on to newer threads.