Jan 6, 2013

Smackdown Of Chief Actuary!

     From an op ed piece by Gary King and Samir Soneji of Harvard in today's New York Times:
What’s not [widely known] is that the Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out — to the tune of $800 billion by 2031, more than the current annual defense budget — and that the trust funds will run out, if nothing is done, two years earlier than the government has predicted...
[T]he government’s methods for forecasting Americans’ longevity were outdated and omitted crucial health and demographic factors. Historic declines in smoking and improvements in the prevention and treatment of cardiovascular disease are adding years of life that the government hasn’t accounted for. ...
This omission can be explained by the fact that the Office of the Chief Actuary, the branch of the Social Security Administration that is responsible for the forecasts, is almost exclusively composed of, well, actuaries — without any serious representation of statisticians or social science methodologists.
      Wow! An academic smackdown of actuaries! That will really rivet the nation's attention!
     There are at least a couple of lines of response to this. First, longevity is only one element in the forecast for the Social Security retirement trust fund. Rates of economic growth, interest on federal debt obligations, female fertility (that is, the average number of children that women bear) and immigration are also major factors in producing the actuarial estimates. The economic elements are the biggest imponderables. On the whole, a two year error isn't a big deal and is likely to be overwhelmed by errors in predicting future economic growth and interest rates. Those errors could go in either direction but historically, Social Security's actuaries have erred on the side of caution. The trust funds have almost always held up better than the actuaries predicted.  Dean Baker at the Center for Economic and Policy Research states the other line of response:
Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji's projections prove accurate, Social Security will not exactly be breaking the bank.


Anonymous said...

An actuary with more than a few of those exams under his or her belt has far more knowledge of organizational factors AND statistics (and other branches of mathematics) than any sociologist or statistician.

I'm all about sociology, it has uncovered untold trends and other very real factors occuring in our world that other disciplines simply couldn't or didn't even think about. But to rely on that discipline for objective data forecasting? foolish.

Anonymous said...

A professional actuary with their several written certificsation examinations are very qualified. I do not know if all the GS "actuarys" have this type background.
[Ater the glory days Big Blue shop for what was then state-of-are big iron mainframe computing at SSA, SSA managers tried to promote from within 'computer operators' and 'programers' based more on equal oportunity rather than industry recognized tests -- resulting in the decline in reputation of SSA's in-house IT.]

Anonymous said...

good point. knowing AFGE, there are probably two types of "actuaries," just like decision writers--one class who actually have a degree and license, and the other with high school diplomas AFGE couldn't possibly let stay as GS-9s with great benefits since it's so easy in the private sector (even unionized jobs) to have a HS diploma and max out around $70 grand with great benefits...

the real actuaries probably get assigned figuring out long-term budget concerns, life expectancies, etc., while the "actuaries" are tasked with determining which baby names were most popular last year