While many believe that Social Security is doomed, new research says otherwise.
Mark Twain's famous retort "The reports of my death have been greatly exaggerated" could apply to the commonly held perception that the Social Security system is in trouble. In his new book, The Social Security Crisis? An Evaluation of Status Quo Social Security, Dr. Jason T. White presents research and analysis that he conducted as a part of his Ph.D. dissertation.
The classic "everybody knows" scenario includes the widely accepted belief that the modern Social Security system faces looming shortfalls and ultimate bankruptcy as baby boomers move into retirement. White makes a compelling argument in his book, saying that it ain't necessarily so. Here's his thinking, as I understand it.
Unlike today, Social Security faced a very real and imminent short-run financial crisis in the early 1980s. At that time, it was projected that the Social Security Trust Fund would be exhausted in mere months if action were not taken to preserve the program. President Reagan appointed the National Commission on Social Security Reform, which became known as the Greenspan Commission, named for its chairman, Alan Greenspan. The commission was charged with restoring short-run and long-run actuarial balance to the Social Security system, which they accomplished through a host of reforms, including an increase in the payroll tax rate that funds the system.
Shortly thereafter, the 1983 Board of Trustees declared the system to be in balance for both the short-run (10 years) and long-run (75 years) actuarial forecast periods, a period well beyond the life expectancy of the baby boom generation popularly believed to be the cause of Social Security's future anticipated insolvency.
So what has gone so terribly wrong since these reforms were enacted? What pending crisis creates the popular notion that Social Security faces insurmountable financial obstacles, and ultimately insolvency? According to White, nothing real.
In the book, White examines the Board of Trustees of the Social Security Trust Fund's recent annually reported estimates of the system's 10-year and 75-year actuarial balance. The trustees prepare three separate assumptive scenarios for analysis: "most optimistic," "most pessimistic," and "most likely." he system is actuarially balanced under all three scenarios for the 10-year period and under the "most optimistic" set of assumptions for the 75-year period. Even under the "most likely" 75-year period, it is now estimated that the Social Security system will still be able to meet more than 70 percent of its current obligations, despite grossly pessimistic assumptions by the trustees about the future of the U.S. economy.
White says that status quo Social Security can and should be preserved for future generations. He argues that the trustees are overly focused on actuarial balance as a measure of the future health of the program. This approach requires the Trustees to make many arbitrary assumptions for the next 75-years regarding the economy, demographics, disability and forecast methodology.
White argues that the pessimism in these assumptions, even under the "most likely" scenario, should give one pause for thought. For example, growth in real gross domestic product, a critical economic variable, is projected at a high of 2% in the early years of the forecast, and declines to an annual rate of just 1.3% by the end of the forecast period. Real wage growth is assumed to fall to less than 1% during the forecast period, despite the fact that we may experience significant labor market shortages from the retirement of the baby-boom generation. Worker productivity forecasts are equally dismal.