I used to be a Social Security doom-monger. Like everyone else my age, I knew the familiar drill: Social Security is a demographic time bomb. Life expectancies are increasing. The baby boom generation is getting ready to retire. Every year we have a smaller number of workers supporting a larger number of retirees.
Politicians were eager to feed my fears. Bill Clinton urged us to "take action now to avert a crisis in the Social Security system." Al Gore made the Social Security "lockbox" a centerpiece of his presidential campaign. And George W. Bush insisted earlier this month that Social Security was "headed toward bankruptcy down the road." As a result, most young people today are convinced that Social Security will be gone by the time they retire.
But what if something that "everybody knows" turns out to be a political myth? What if Social Security isn't in trouble at all?
Ten years ago Social Security trustees predicted that the system would become insolvent in 35 years, meaning 2029. Five years later they were still predicting that insolvency was 35 years away -- doomsday had been postponed to 2034. Today, they're predicting that insolvency is 38 years away, in 2042.
What happened? Why does the insolvency date keep getting further away? How could the trustees have been so continually wrong?
The answer is all in the numbers. For instance, the future of Social Security is highly sensitive to predictions of economic growth, and the trustees assume a very conservative growth rate of 1.8% per year. That compares with expected growth of 3.9% this year, a fairly average year for the U.S. economy.
Another example: Because young people are the ones who support the system, Social Security projections are also sensitive to immigration rates. Immigrants tend to be young, so the more immigrants, the stronger the system. But despite the fact that immigration to the U.S. has been steadily increasing for more than half a century, the trustees assume not just that it will stop growing -- itself a conservative estimate -- but that it will actually decline.
What this means is that every few years, as reality outpaces the previous year's predictions, the trustees move the insolvency date forward. What's more, there's every reason to think they're still making the same mistake.
