Social Security Discussions Need to be on the Table

Gary King of Harvard and Samir Soneji of Dartmouth published an Op-Ed in today's New York Times reminding us that it is very unwise to let politicians take Social Security off the table when it comes to budget talks. Their main point is that the mortality forecasts made by the actuaries at the Social Security Administration (SSA) are probably underestimating future survival of older Americans. Their analysis of mortality data, reported in the journal Demography, suggests that the positive effects of the decline in smoking will not be overpowered by the negative effects of increasing obesity. If true, this means that there may well be more people eligible for tax-payer funded retirement benefits down the road than are currently being planned for. If so, the Social Security Trust Fund will run out of money (because it is a pay-as-you-go system) sooner than currently forecast by the SSA.

Now, we all know that prediction is very difficult, especially about the future. But, this is one of those situations where I agree with King and Soneji that we should be thinking about the worst-case scenario. It is a much smaller burden on everyone now to plan ahead than it is to do crisis management later. Indeed, many years ago, an engineering firm hired by the City of San Diego to redo sewer lines in the city asked me to provide a set of population projections complementing those prepared by the San Diego Association of Governments (SANDAG). Using every possible projection technique available to me (albeit less sophisticated than the ones developed by King and Soneji), my calculations suggested that most projections were a bit higher than those developed by SANDAG. Since sewers are very expensive to replace, it was obviously wise to plan for the highest likely population increase, and they did so. This is the same kind of thinking we need to do when it comes to Social Security.

I will add, though, that King and Soneji employed a cheap trick at the beginning of their article:

For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall. Those funds — a $2.7 trillion buffer built in anticipation of retiring baby boomers — will be exhausted by 2033, the government currently projects.

The reason for the deficit was the payroll tax holiday, which has been ended with the fiscal cliff deal. That tax holiday had been suggested by the Simpson-Bowles Deficit Reduction Commission as a short-term way to kick-start the economy during the recession, and it certainly helped. And virtually all of the solutions to the Social Security problem that King and Soneji outline are contained in that commission's report. A little credit for these ideas might have been appropriate.