Peering Into the Future

PEERING INTO THE FUTURE….Brad DeLong does some sleuthing today and discovers that last year the Social Security actuaries changed the way they calculate future productivity growth. Brad says that if they still used the old method, they’d be projecting long-term growth of 1.9%, not 1.6%.

Fine. But how much difference would that make? The trustees report doesn’t tell us directly, but it does include a “sensitivity analysis” that relates real wage growth to actuarial deficit: roughly, a 1% increase in real wage growth gives you a 1% decrease in the actuarial deficit. Productivity growth is closely linked to real wage growth, so a .3% increase in productivity growth probably equates (approximately) to a .3% decrease in the actuarial deficit.

The trustees currently estimate a long term cumulative actuarial deficit of 1.92% of taxable payroll. Thus, the increase in productivity would decrease this deficit to about 1.62%. In other words, it wipes out about one-sixth of the deficit. That doesn’t save the program, but it’s nothing to sneeze at, either.

It’s funny, isn’t it? Every time we turn over another rock, Social Security’s finances seem better than advertised and private accounts seem worse than advertised. Funny indeed.