Social Security: Can the Trustees Be Trusted?
El Paso Times (TX), May 22, 1999
Knight-Ridder/Tribune Media Services, May 19, 1999
The debate over Social Security has never really been about the numbers. Almost all of the participants have chosen to accept the projections of Social Security's Trustees, and make their arguments from there. It's hard enough to straighten out the massive confusion that Social Security's enemies have sown for all these years without your audience starting to look oxygen-deprived. So who wants to challenge the Trustees' intermediate cost projections, or get bogged down in the boring details of their methodology?
But serious questions have recently been raised about the Trustees' numbers, and some members of Congress are demanding answers. Let's start with their 1999 Annual Report, released last month. In this report the Trustees make their projections for the Social Security program's revenue and expenses over the next 75 years. It is only because these projections show a shortfall beginning 35 years from now-- however tenuous that may be-- that there is still talk of "reform."
In their latest report, the Trustees made changes that lowered the projected rate of wage growth over the 75-year planning period. Since 1996, these changes have made Social Security's financial problems appear about five years earlier than they otherwise would. These changes are very hard to defend, since both wages and productivity haveshown considerably higher growth over the past few years than previously. So why would the Trustees move their projections in the opposite direction? Their annual report does not explain.
The Social Security Administration's deputy chief actuary, who is responsible for the projections, was questioned about these changes by Senate staff two weeks ago. He surprised everyone in the room by noting that the actuaries' recommendations to the Trustees are actually secret, even from members of Congress. And so is any record of the Trustees' deliberations.
In other words, the actuaries come up with their projections, and the Trustees, who are political appointees, decide what the report will say. And the public has no right to know about any back and forth that may have changed the results. Among the Trustees is Treasury Secretary Robert Rubin, who announced his resignation last week. He is one of the Administration's most powerful spin meisters on a variety of economic issues.
If this sounds fishy to you, that could be because it is. After all, we're not talking about nuclear secrets here. The Chinese government isn't going to pick up any new military technology from the wage projections made by Social Security's actuaries.
How significant are the Trustees' unexplained changes in estimating wage growth? Consider this: in just the last two years the program's year of financial shortfall has moved from 2029 to 2034. Without these changes, we would be looking at 2039. This would put Social Security's problems 40 years away, with the distance having increased by a full decade over the past two years. Many more people might refuse to take the whole "problem" seriously. At the very least it would seem reasonable to wait a few years and see if the shortfall, which is pretty small and uncertain to begin with, disappears of its own accord.
The Social Security Administration has also raised serious concerns over its evaluation of legislative proposals currently before Congress. For example, in considering the most recent plan from the House Republican leadership, the Archer-Shaw plan, the SSA has assumed a 7% annual real rate of return on investment in the stock market. This rate of return is logically inconsistent with the actuaries' other assumptions, most notably their assumption of very slow economic growth (less than 1.5% a year over the next 75 years, or about half as much as the economy has grown in the past).
This is a serious problem: the actuaries do not actually make projections for stock returns, but when someone proposes legislation that would put Social Security money in the stock market, they have accepted the inflated returns alleged by the proponent. This has misled the media and most of Congress into believing, for example, that the Archer-Shaw plan would balance Social Security's finances over the next 75 years. The media has reported it this way, even though neither the actuaries nor the Trustees have produced any numbers that could support such a conclusion.
The whole movement for Social Security reform has run out of steam lately, which is certainly a good thing for the survival of America's largest and most successful anti-poverty program. But if the Trustees can fudge the numbers and hide the whole process from the public, then maybe we do need some reforms-- at the Social Security Administration and its Board of Trustees.