More bad math on Social Security

The Sunday business section of the New York Times contained an "economic view" whose math was so transparently inaccurate that it's a wonder the copyeditors didn't pull the plug on the piece. The paper even included a graphic illustrating the economic nonsense.

The author was Ann Bernasak, whose byline I'm not familiar with and who otherwise was unidentified. She wanted to highlight the risk of the government borrowing to privatize Social Security -- something I also oppose. But it does no one any good when specious arguments are used to advance a worthy cause.

The article, "The Outer Limits of National Debt," argued that the "sound limit" for a nation is 150 percent of gross domestic product. She arrived at this benchmark by looking at Great Britain right after World War II, a questionable choice since it marked the departure point for the British empire from the global stage.

No matter. The real problem was in her calculations of current U.S. debt for her comparison to our current $12 trillion GDP. She first added up debt held by the "public," (read Chinese, Japanese and all other holders of U.S. T-bills) and debt held by the Social Security and other government trust funds. That came to $6.6 trillion -- well below the $18 trillion that would mark 150 percent of current GDP.

But then she added in $4 trillion in unfunded Social Security obligations over the next 75 years and $30 trillion in unfunded Medicare obligations over the same time period. She added this to the $6.6 trillion and concluded this $40.6 trillion was "well over the prudent limit of $18 trillion."

Wait a minute. This wasn't an apples to apples comparison. What will the size of the U.S. economy be in 75 years? It won't be $12 trillion. If it grows at only 3 percent per year (slightly less than its historic average), the U.S. economy will be at least three times its current size or about $36 trillion in 75 years. That doesn't make the projected shortfalls less of a problem, but it certainly makes them seem more manageable.

This is just a minor point on the overall Social Security debate. But as Dean Baker of the Center for Economic Policy Research has pointed out, all projections about the 75-year-future of Social Security -- whether you're talking about the projected returns from privatized accounts invested in the stock market or the magnitude of the unfunded liability of Social Security -- must take into account the size of the economy in those out years.

Politicians like the President who are hell bent on destroying Social Security routinely distort the economics of the nation's retirement system. One would hope for better from the Times' business pages.