I was just about to ding Larry Kotlikoff for some serious malpractice re his NYT oped this morning when I recalled that Dean Baker has built a cottage industry around the point I wanted to make. And sure enough, here it is from Dean’s blog [my bold]:
[Kotlikoff writes re Social Security:] “you’ll find that the program’s unfunded obligation is $24.9 trillion ‘through the infinite horizon’ (or a mere $10.6 trillion, as calculated through 2088). That’s nearly twice the $12.6 trillion in public debt held by the United States government.”
Are you scared? Hey $24.9 trillion a really big number. That’s more than even Bill Gates will see in his lifetime. Does it mean our kids will be living in poverty?
Not exactly. Kotlikoff could have pulled a number from the same table in the Social Security trustees report to tell readers that the unfunded liability is equal to 1.4 percent of future income. If we just restrict our focus to the 75-year planning horizon (sorry folks, we don’t get to make policy for people living 100 years from now), the shortfall is 1.0 percent of GDP.
Of course, the numbers ‘1’ or even ‘1.4’ don’t sound scary at all, though the shortfall they represent is not trivial and must be addressed, the sooner the better. But as Dean notes, these GDP shares were in the very same table and the fact that Kotlikoff ignored them is proof that he’s more interested in generating fear than insight. It makes no more sense to fret over disembodied trillions in “infinite liabilities” than to kvell that over the “infinite horizon” we’ll have $1,816.7 trillion in GDP. Woohoo! Start the party.
One should also be aware that 75-year or, even worse, “infinite” forecasts are, in the words of Paul Krugman, “a particular boring type of science fiction.”
And I haven’t even gotten started on the mishegoss of “generational accounting” touted by Kotlifkoff, which is handily covered by Dean and by my CBPP colleague Paul Van de Water here.