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Associations

HABA Lecture on Social Security  

 

NEW YORK?–?The Hellenic American Bankers Association (HABA) hosted a presentation by?Gary King, PhD,?Professor, Department of Government, Harvard University?titled “Social Security and the?Outlook for Retirement”?at the New York offices of Wells Fargo on January 28.

HABA President Demetri?Papacostas?introduced King?and moderated the Q & A that followed.?The list of awards, honor society memberships?and publications was long. It suffices to say that King is one of only 24 people at Harvard with the title University Professor and serves as Director of the?Institute for Quantitative Social Science.

King’s ultimate message is that?the problems he talked about can be fixed, but delays greatly increase the danger. He?first put the Social Security Administration (SSA) into perspective by noting that it accounts for 37 percent of Federal Government expenditures and that its transfer payments have succeed in lifting 20 percent of the elderly population above the poverty line.

The issues?of properly funding the social security trust fund and setting the correct?retirement age have been the third rail of American politics for decades.?The great potential danger of insolvency is the?result of a good thing: Medical?advances?enable Americans to live well past the original?retirement age of 65 set in 1935?–?a trend?that accelerated after?2000.

INSOLVENCY?

The retirement of baby boomers is the immediate crisis trigger, and the?question?is: When will insolvency come??SSA says late 2030s, King?believes earlier in the decade, but delays?will make?the financial crunch and lifestyle difficulties more severe.

He emphasized however?that insolvency?will?not result in Social Security going away, rather, there will be severe reductions in monthly checks – up to 25 percent – which nevertheless will be catastrophic for many.

King made it very clear – though?some guests were unconvinced?–?that?the problems he presented were not due to incompetence, corruption, or even political ideology.

The “bias” his work talks about is a more subtle and technical matter.

He spared the?guests?a deep discussion of the sophisticated statistical?and other?methods in his arsenal and noted that the essence of his studies is?simple subtraction: he and his colleagues compare SSA’s forecasted numbers from those actually generated by?the?real?world.

Guests were fascinated and disturbed to learn that not only does the SSA not have a good road map into the future, its officials don’t like getting help with directions from experts in the most recent revolutions relevant to their work.

In order for policy makers to make their suggestions and elected representatives to know which proposals?to vote for, they need financial and demographic forecasts. King spoke mainly about the demography.

BAD, AND GOOD NEWS

King focused on three obstacles to good forecasts.

Non-transparency – he applies the term as a scientific problem, not in a corruption context – is a serious problem because?the Chief Actuary’s office has always refused to release all the data experts need to make assessments and recommendations.

He also explained the now-infamous executive orders by which Presidents have tried to get more data released,?do not have the force of law. They?are?suggestions  that the Office of the Chief Actuary?(OCACT) can?safely ignore.

He said?the?SSA effectively ignores the “data sharing revolution”?among scientists and academics and to a lesser degree, corporations, that has driven the incredible recent scientific advances.

The value of the open society can now be given a dollar sign.

With more information sharing, outside experts can catch crucial mistakes missed by the SSA.?He said they have been making forecasts for 85 years, but they have never been subjected to systematic evaluation.

What he called systematic bias has grown enormously since 2000. He said SSA “uses ad hoc, qualitative, and antiquated statistical forecasting methods… that are jerry-rigged,?suboptimal, and not replicable…They ignore advances in data science, Big Data statistics, and social psychology?“?which uncovers tendencies to bias in human endeavors.

Part of the problem seems to be that the fortress mentality that has enabled SSA to successfully insulate themselves from?ideological pressure has made them suspicious of any calls for change.?He added “they act like they have a monopoly on fairness.”

Among the causes of bias is that too many decision are made on a qualitative, not quantitative basis, with very little feedback that would enable corrections to be made and he reiterates that errors are generated independently of the intentions of the officials.

Ironically?“Trying harder?or getting better people will not make the problems go away”?he said.

Studies find, for example, a general tendency for experts to be overconfident in their forecasts, but that can addressed by external checks.

Another interesting observation was that SSA seems to feel compelled to make the data look more consistent?because?they fear?revealing the real-life fluctuations will cause the non-scientific?congresspersons to take the forecasts less seriously.

But King insists?there are “systemic solutions” changes to?how SSA goes about its work.

Despite the decades old SSA practice of ignoring the recommendations of expert panels, King proposed thee broad solutions?that citizens and politicians must push as much as possible?1) If possible, remove?human judgement by using formal statistical methods;?automate what can be automated, 2)?instituting formal structural procedures when human judgment is required — via the revolution in social psychological research, 3)?requiring transparency and data sharing to catch errors that slip through, via the revolution in data sharing and?replication.

Unfortunately, King finds that as the political pressure has become more intense, the politicians have become more polarized than ever. One guest objected, however, that voters –?at?least?in?the parties’ left and right wings, have attacked leaders who have attempted to find common ground with the other side.

Kings?concluding statement was somewhat optimistic: “There needs to be the right moment in politics to make a change,” implying he believes it is in the realm of possibility.

Papacostas?thanked past HABA president Costas?Kellas?for organizing the event, which included a reception, and he thanked Sophia?Prountzos?for making “the spectacular Wells Fargo space available to HABA.”

 

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