They Didn't Know Nothin' Bout Numbers
"It was never intended as a retirement program. It was set up in ‘37 and ‘38 to take care of people who were in distress -- ditch diggers, wage earners -- it was to give them 43 percent of the replacement rate of their wages. The [life expectancy] was 63. That’s why they set retirement age at 65” for Social Security, Alan Simpson
Uhm no. This life expectancy misinformation is so widespread, I don't know if we'll ever be able to set it stright. But I might have expected that one of President Obama's Deficit commission appointees -- the co-chairman no less -- would not be among those who believe it. (Normally I would suggest that he was just a liar, but from this account it's pretty clear to me that he really doesn't understand it.)
This is a very important point and one that everyone needs to understand if they hope to beat back the social security assault:
HuffPost suggested to Simpson during a telephone interview that his claim about life expectancy was misleading because his data include people who died in childhood of diseases that are now largely preventable. Incorporating such early deaths skews the average life expectancy number downward, making it appear as if people live dramatically longer today than they did half a century ago. According to the Social Security Administration's actuaries, women who lived to 65 in 1940 had a life expectancy of 79.7 years and men were expected to live 77.7 years.
"If that is the case -- and I don’t think it is -- then that means they put in peanuts," said Simpson.
Simpson speculated that the data presented to him by HuffPost had been furnished by "the Catfood Commission people" -- a reference to progressive critics of the deficit commission who gave president's panel that label.
Told that the data came directly from the Social Security Administration, Simpson continued to insist it was inaccurate, while misstating the nature of a statistical average: "If you’re telling me that a guy who got to be 65 in 1940 -- that all of them lived to be 77 -- that is just not correct. Just because a guy gets to be 65, he’s gonna live to be 77? Hell, that’s my genre. That’s not true," said Simpson, who will turn 80 in September.
This is the frustration with this argument. People just can't seem to wrap their minds around this.
Understanding life expectancy rates at age 65 in 1940 is central to understanding Social Security itself. If the very nature of the population has changed dramatically since the program's creation, it stands to reason that the program itself requires dramatic changes: Means testing, creating private accounts and further upping the retirement age for the program have all been proposed by its opponents.
But if the population is largely similar today, then only modest changes would be needed to maintain Social Security. Critics of the program therefore have an incentive to dramatize life-expectancy stats.
But those dramatic claims aren't buttressed by the data: A man who turned 65 in 2010 has a life expectancy of 83.1 -- barely five years more than he had in 1940. Women have increased their life expectancy at roughly the same rate. Since 1940, the retirement age for drawing Social Security benefits has been lifted from 65 to 67, meaning that people are receiving a net of only three extra years of benefits than they were 70 years ago.
The second prong of the Social Security critique relies on the coming wave of Baby Boomer retirements. This flood of retirees will tip the ratio of workers to pensioners out of whack, the argument goes.
"The statistics right now show a totally unsustainable program that cannot possibly function when 10,000 a day are coming into the Social Security system at 65," Simpson explained to HuffPost. "Was that ever planned [for]? That 10,000 a day would suddenly coming into the system?"
In fact, it was planned for: The Social Security Administration tracks births every year and knew by 1947 that 1946 had been a boom year. When the system was reformed in 1983 by the Greenspan Commission, the Baby Boom was specifically taken into account.
"The fundamental ratio of beneficiaries to workers was fully taken into account in the 1983 financing provisions and, as a matter of fact, was known and taken into account well before that," Social Security's actuaries noted in 1994.
The explanation for the shortfall -- the program will only be able to pay roughly four-fifths of scheduled benefits after 2037 -- is much simpler: Social Security's actuaries didn't see the wild swing in income inequality that came about since 1983. Income has been largely flat for the middle class while rising for the wealthy. Social Security taxes apply only to the first $106,000, so increases for the rich don't contribute to the trust fund. And compensation increases that come in the form of more expensive health care benefits are also not subject to Social Security taxes.
Simpson surely knows about the Greenspan Commission. He's just lying about that (or he's senile.) But what's Erskine Bowles' excuse? Or Dick Durbin or Saxby Chambliss or all the other politicians who parrot this misinformation all the time? Are they all senile too?
The people who designed the system understood very well that if "life expectancy" went up it would mean that there were also more younger workers who hadn't died in childbirth paying into the system. And they understood the concept of productivity gains and knew that more people would be brought into the system --- paying as well as receiving benefits --- over time. They weren't cave men. It was only 70 years ago. Simpson was a teen-ager at the time. What they may not have anticipated was just how badly the political system would be distorted by corporate propaganda that made people believe that black is white and up is down. It's the real problem and solving social security's minor shortfall in 2038 is a piece of cake compared to solving that one.