It’s a sad commentary on the state of public discourse when you have to fact-check FactCheck.org. But that’s what it’s come to. The non-partisan project of the Annenberg Public Policy Center of the University of Pennsylvania was a reliable guide to the issues during the last presidential election, even-handedly finding fault and favor with statements made by both candidates. But now that the debate over Social Security reform has gotten increasingly nasty and complex, FactCheck.org seems to have lost its way.
In a posting last week, FactCheck.org asked, “Does Social Security Really Face an $11 Trillion Deficit?” The answer, in the feature’s headline, was: “Bush and Cheney say yes. But actuaries say the figure is ‘likely to mislead’ the public on the system’s true financial state.”
It’s that headline that is “likely to mislead.” And you can be sure that the opponents of reform will seize on it to do just that — mislead. That headline gives the impression that the $11 trillion deficit is a number created by Bush and Cheney in defiance of expert advice to the contrary. In reality, Bush and Cheney are simply quoting an official deficit estimate of the Trustees of the Social Security Trust Fund in their 2003 and 2004 annual reports.
The trustees relied on the work of actuaries to come up with that deficit estimate. So, to be fair, the headline should have read, “Actuaries say yes. But other actuaries say the figure is ‘likely to mislead’ the public … ” But that wouldn’t be an exciting headline, would it? Battling actuaries is about as dull as, well — it’s just about the dullest thing in the world.
Beyond the headline, FactCheck.org’s analysis is also “likely to mislead.” When you get right down to what was really said by the actuaries who differ with the Bush/Cheney quote, it’s not a matter of the accuracy of the number — which is the proper domain for actuarial opinion. Instead, the dispute is only about whether the number is “likely to mislead.” If the number is accurate, do we really care what one or another actuary thinks about how “likely” it is that it will “mislead the public”? Actuaries are supposed to be experts on mortality rates — not public relations.
One of the actuarial groups cited by FactCheck.org is the American Academy of Actuaries, which sent a letter to the Social Security trustees on December 19, 2003, raising these concerns. I asked Ronald Gebhardtsbauer, the American Academy’s senior pension fellow (and a member of the committee that sent the letter) what it was all about. He said it was a response to the trustees’ adoption in 2003 of a new “infinite-horizon” analysis that examines Social Security’s solvency to perpetuity, as opposed to the arbitrary 75-year period mandated by statute. That 75-year analysis shows a deficit of $3.7 trillion, but by considering the years beyond 75, the infinite-horizon analysis naturally shows a larger deficit — and a more honest one: $10.4 trillion.
According to Gebhardtsbauer, while the American Academy committee had concerns about public perceptions, the new infinite-horizon analysis has distinct advantages:
Policy wonks can use this to compare different proposals. Any solution that has effects beyond the 75th year doesn’t see those effects included. I totally understand why they developed this. With private accounts, the system bears all the costs up front, but the benefits often don’t come until after the 75th year.
A conspiracy-theory-minded critic might conclude that the new “infinite horizon” analysis was cooked up to flatter Bush administration proposals for personal accounts. But then a similarly minded critic on the other side of the debate could conclude that seeking to suppress the new analysis is a way of making personal accounts look bad.
Indeed, Gebhardtsbauer was concerned by the way the American Academy’s 2003 letter had been referenced in a New York Times editorial several weeks ago. It was cited as justification for calling the $10.4 trillion deficit number “the closest you can get to pulling a number out of the air” and “essentially bogus.” Both he and the letter’s author, Eric J. Kleiber, chairperson of the American Academy’s Social Insurance Committee, strongly denied that was the meaning of the letter. Gebhardtsbauer told me, “We didn’t say it was a bogus number.”
FactCheck.org also cited concerns about public perceptions of the $11 trillion deficit number in the 2003 report of the Technical Panel on Assumptions and Methods — a group of actuaries, economists, and demographers appointed by the Social Security Advisory Board. The report recommended that the infinite-horizon deficit figure should be presented as a percent of payroll, and next to the value of payrolls to the same infinite horizon. This was done in the Social Security trustees’ 2004 report. The deficit amount of $10.4 trillion was given as 3.5 percent of payroll and compared with $295.5 trillion of total payroll.
If you want context — so that the public is sure not to be misled — then how about this? That $10.4 trillion number represents the value of economic assets today that would have to be contributed to the Social Security system to assure its perpetual sustainability based on the best estimates we can make at this time. To set things right, then, we would have to contribute today virtually the entire market value of the S&P 500. We would have to throw down the gaping maw of Social Security almost every share of every major company in America today in order to satisfy the hungry beast.
– Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your visit to his blog and your comments at firstname.lastname@example.org.
From the Author: In the original post of this column, I erroneously added the $10.4 trillion present value of Social Security’s unfunded liabilities to the $295.5 trillion present value of total payroll, to calculate the present value of payment obligations. This was an error, as of course it is the present value of payroll taxes that must be added to the present value of the unfunded liability to get the present value of the payment obligations. The paragraph containing this error has been struck from the text above. Doing so does not affect my thesis, so nothing else requires correction and nothing else has been modified in any way. [Note to Dan Okrent: This is how you do it; if a mistake is really just a mistake, columnists should not hesitate to admit it.]