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Saturday, March 30, 2013

Social Security forecasts are very unrealistic, we don't have good estimates for what it will cost.

A new site  page is up, or here is an intro:
In the US Treasury's annual "Financial Report of the U.S. Government" released in January 2013, the Government Accountability Office reports that the numbers for Social Security are so problematic it couldn't audit them to even render an opinion, saying: "In addition, GAO issued disclaimers of opinion on the 2012, 2011, and 2010 Statements of Social Insurance (SOSI)".  They don't attempt to audit projections of future finances which are even more problematic, and may underestimate worst caste costs. Their claimed "high cost" scenario is high cost in nominal dollars, but if you adjust it for inflation it becomes the lowest cost scenario. 

  It is important to note the SSA has  a history of not just being  wrong on their expected demographic estimates (which is understandable for a long term forecast), but more importantly being overoptimistic about how much variation to consider for best/worst case scenarios. The 1950 annual SSA report projected US population in 2000 to be worst case 199 million, best case 173 million. In reality it turned out to be 282 million, 42% above their highest projection. Imagine if their real costs turn out to be 42% higher than their current projections. 

The SSA claims to be able to forecast things like GDP yearly growth through 2090  more accurately than 2  or 5 year forecasts have proven to be for the past few decades from the Congressional Budget Office, the Administration, the Federal Reserve and blue chip private consensus estimates.  Their estimates indicate they think they can forecast future GDP even more accurately than GDP is measured. Their projections have questionable estimates, and exhibit overconfidence in the accuracy of those estimates.

Imagine by analogy someone were to document the most sophisticated  weather forecast system existing today. They might provide lots of numbers,  but if it gave a forecast for the weather 1 year from today and claimed it would be off at most by 1 degree we would still be wise to be rather skeptical without better evidence their methods were realistic.
  The US needs to plan for the possibility 
Social Security system could wind up  in far worse shape than it admits since the estimates should be considered far less certain than it claims. For more details see this new site  page

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