Business Must Be Booming at SSA

I follow what’s being discussed about Social Security. A Google alert produces 20 stories a day on average. In my view most of it is drivel. The passionate (and prolific) supporters of Roosevelt’s great legacy constantly make the same assertions. That SS has a Trust Fund that will last until 2037, and that SS does not have any impact on the deficit. Neither of these things are true.

When you look at a financial statement always look first to the lower right for the “bottom line”. It’s no different with SS. Their bottom line for 2010 was a deficit of $49b.

This is how the Trust Fund presents its results. They don’t hide the deficit. They highlight it, as they should. I just wish that Huff Post and all the others that are blathering that “SS is off limits in 11’ as there is no problem” would just shut up and read what SSA is reporting.

I try to forecast these numbers. My estimate last summer was -35b. So I was off by $14b. I thought I had a negative view. I still missed the revenue number by 3%. A year ago a fellow who knows SS quite well suggested that I was “Chicken Little” with my forecast that SS would begin a period of perpetual deficits in10’. After all, this was not supposed to happen until 2016. But, of course, it has happened.

In 2010 there were 1,509,278 net new beneficiaries of SS checks. Ten years ago in 2000 the number was 462,740. The rate of increase is more than three times what it was just a decade ago. There are a bunch of folks who are, let’s say, leaving the system. Therefore the actual number of newbies getting checks is closer to 2.5mm a year. It comes to 60,000 a week. Business must be booming at SSA. Clearly this is a “growth” story. If you’re looking for work, file an application with the local SS office. They’re hiring. AdMin at SS was $6.5b last year. Look for that to go up by at least $500mm in 10’.

My current outlook for SS in 2011 is a picture not unlike that of 10’. I see some evidence that the revenue side (payroll tax) has stabilized. On the assumption that we see full year GDP growth around the current thinking of +3% I would expect revenue to grow by about $25b. I am much more confident on my outlook for expenses. These will come in at least 25b higher than 10’. Absent any significant prior year adjustments this would put the full year cash flow in deficit by $40-60 billion. The critical ratio of Pay Roll tax minus Benefits will be in deficit by $55-75 billion. Call it a disaster. And that’s the “good”news.

Note:
I’m laughing at myself while writing this. My forecasts are based on a 3% growth story. But look at the headlines. The global energy complex is in doubt at the moment. Sure, a case can be made that the new “Ins” that are coming to govern these critical areas will be motivated the same as the old “Outs”. Money. If they don’t pump, they don’t get paid. I don’t care who is in. They all will need money, so the best chance is a soft landing. A speed bump, at worst. But if you had asked me a month ago to make odds on what has happened I would have lost a ton of money. The situation and any economic projections are simply up in the air. I am reminded of this version of an old story:

A scorpion and a crocodile meet on the banks of the Nile. The Scorpion says:

“Crocodile, please let me crawl on your back and swim me across the river. I need to get to the other side.” The crocodile responds:

“Not a chance! If I let you crawl on my back you would bite me and I would die!” The scorpion answers:

I would never do that. If I bit you while on the river I would drown. Rest easy and give me a ride.

The crocodile thinks this over, sees the logic and agrees to give the scorpion a lift. But in the middle of the river the scorpion bites the croc and they both die. Before he goes under the croc yells to the Scorpion. “But why? Now we are both doomed.”

The scorpion cries out, “Nothing makes sense in the Middle East!”