Lloyd Blankfein of Goldman Sachs lectured Americans that the benefits… (Andrew Harrer, Bloomberg )
The question that normally comes to mind when someone claims to know the future is why he's out hustling rubes for pennies with his purported clairvoyance, instead of using it to make a fortune and retiring to the South Seas.
Of course, the answer is that nobody ever does know the future. And that leads to the question of why so much of the "fiscal cliff" debate in Washington is based on supposedly perfect knowledge of conditions that are 20, or even 70, years away.
We're talking about projections of the cost of "entitlements" — a noxious way of referring to Medicare and Social Security, excellent programs that most workers have paid for during their careers and that have kept millions of Americans healthy and out of poverty.
The customary talking point by the anti-deficit lobby is that the rising cost of these programs will eat us alive. That future, the argument continues, is coming at us like an onrushing train, so to avoid having to cut benefits when it arrives, we best cut benefits now.
The element of haste is a crucial element in this debate. That's because as real estate brokers and late-night TV hucksters know, pressure to Act Now! is what leads their marks to overlook that the basic premise is bogus.
Consider the prevailing assumptions about the future of Social Security and Medicare. One is that Social Security's trust fund will run dry in 2033, at which point the money coming in from payroll taxes will be enough to cover only about 75% of currently scheduled benefits. Will this happen? It might, but it might not:
The program's trustees, who are the source of the projection, don't bet the farm on it. They also project that under certain conditions of economic and employment growth — all of them perfectly plausible — it might never run dry. You don't hear much about that projection because it doesn't fit into the narrative that Social Security is "going broke."
Healthcare costs, with Medicare and Mediaid as big components, have been projected to rise to as much as 40% of gross domestic product by 2082 if not restrained. That's a fearsome prospect, but it's based on a long-outdated forecast by the Congressional Budget Office, which doesn't use the same methodology anymore. It was highly implausible, if not impossible, in the first place.
That CBO projection, like others employed by the anti-"entitlement" lobby to push for gutting the program, relied on projecting past experience into the future without adjusting for changes in behavior or policy.
This is a common fallacy well understood by pollsters. They know that if you ask people what the future will look like, they'll describe something that looks like today, except more so. If street crime is in the news, for example, they'll posit a future in which every community looks like Deadwood.
Investment experts try to moderate this tendency by reminding clients that trees don't grow to the stratosphere. To put it another way, just because your son is 4 feet tall at age 6 doesn't mean he'll be 12 feet tall at age 18. And just because the average American born today will live to the age of 78 doesn't mean that a baby born in 2032 will live to 100.
These questionable forecasts result in the nauseating spectacle of corporate CEOs such as Lloyd Blankfein of Goldman Sachs lecturing Americans that the retirement benefits and elder healthcare coverage they've paid for during their working lives are things we "can't afford."
Blankfein didn't worry about what the country could afford when Goldman pocketed $12.9 billion in taxpayer funds to cover its losses in the collapse of insurance giant AIG. But there he was on CBS on Nov. 19, saying, "You...have to do something to lower people's expectations — the entitlements and what people think that they're going to get, because they're not going to get it."
Blankfein proceeded to lecture his interviewer that Social Security "wasn't devised to be a system that supported you for a 30-year retirement after a 25-year career." This is fair enough, one supposes, though it's a mystery where Blankfein gets the idea that the average retiree today has spent only 25 years in the workplace, rather than 45, and lives to the age of 95. Does Goldman Sachs do all its math this way?
The Social Security projection is probably the most misused and misunderstood statistic in the fiscal-cliff debate. The trustees warn every year that its forecast is "inherently uncertain." They warn that it's a melange of projections of at least 17 factors, including fertility and mortality rates, economic growth, unemployment, wages and life expectancy, many of which are interrelated.
No one — no business, no government agency — makes plans today based on a vision of the world 20 years from now. IBM doesn't do it. Google doesn't do it. The Department of Defense doesn't do it. You and I don't do it. Not even life insurance companies, which might be said to live in the future, do it.