The Future of Growth


The long-term actuarial balance of Social Security is heavily dependent on assumptions about long-term economic growth. Thus, the actuaries report is an annual exercise in basically making things up about future population growth and productivity growth. Consequently, if you’re Jagadeesh Gokhale and your job is to be a professional complainer about how Social Security is doomed, you can always offer this kind of critique:

The trustees are discounting the possibility that the unemployment rate may remain higher than was assumed last year and that, therefore, earnings may not rebound any faster compared to last year’s assumptions. It appears that that incoming data on unemployment and GDP growth played little if any role in informing assumptions about future earnings growth rates.

Totally true. Conversely, the trustees are discounting basically all possibilities. Their projections about future productivity, future population growth, future disability rate, etc. are all extremely crude extrapolations that have no real basis. Which is why I think it’s perverse to spend a lot of time worrying about these things.

But one thing that I do think is worth keeping an eye on is people’s consistency about these kind of projections. I normally associate right-of-center people and institutions, like Gokhale’s Cato Institute, with an extremely sunny optimism about the future growth prospects of market democracies like the United States of America. But insofar as you’re sunny and optimistic about US long-term growth prospects, you should be quite sanguine about this Social Security situation. Conversely, if you think the Trustees are too sanguine you ought to be a pessimist about US growth prospects in general. And if you think the long-term growth outlook is bad, then that’s a huge problem for reasons that are much larger than Social Security.