There’s been quite a bit of criticism from the left side of the blogosphere of Cato’s Social Security calculator. See here, here, here, here, and here.

In that last one, Atrios basically accuses Cato of fallacy in the post, then recants his accusation five days later in the same post, well after it’s been pushed into his archives, and out of sight of all the people who originally read it. See Atrios’ post on how bloggers have a responsibility to get their facts straight and be self-correcting — posted today, ironcially enough — here.

Jagadeesh Gokhale, Cato senior fellow and eminently credentialed economist sent me a response to the criticisms:

Much of the blog discussion about the Cato Institute’s Social Security calculator appears to be ill informed. In addition, much of the discussion about Social Security reform contains inaccurate statements about how that program operates and impacts economy. So, to set the record straight, here are a few comments:

1) The Calculator’s annual wage growth assumption of 4% per year is in nominal, not real terms. With inflation at just under 3 percent, that implies a real growth of just over 1 percent per year. That’s quite conservative given that labor force growth will slow in the future and, therefore, labor productivity and wage growth can be expected to be higher compared the 1970s, 80s, and early 90s.

2) It is NOT the case that the Calculator’s Social Security benefit is in real terms and the personal account items are in nominal terms. ALL the numbers shown in the Calculator are in constant 2004 dollars. The footnotes say so quite clearly.

3) There is little reason to believe stock returns in the future will be lower than the historical average of 7 percent. The recent and ongoing tech revolution has provided us with many new ways of producing and delivering goods and services. The diffusion of that technology is continuing and is unlikely to abate anytime soon. And its benefits will be reflected in stock returns. Indeed, simulations by researchers show that returns could be even higher during the next few decades because of continuing tech innovations and diffusion of newer technologies. However, a lot depends on whether proper reforms of entitlement programs are implemented to preserve labor market and investor incentives to continue improving workers’ skills and invest in better technologies. Failure to reform entitlement programs such as Social Security (by introducing individual accounts, for example) and Medicare, and instead continuing down a path of ever-increasing taxes will surely hamper prospects for faster economic growth and better returns on investments.

4) Unfortunately, shortsighted federal budget accounting conventions are biasing our policies against pro-growth entitlement reforms. It’s understandable that today’s older generations have launched a vigorous campaign to preserve the entitlement systems that have redistributed vast amounts of resources toward them. These resources are being taken from younger and future generations through sleight-of-hand federal budget accounting. Introducing personal accounts via Social Security reform will reveal the true size of the debt being bequeathed. The anti-reform campaign is aimed at preventing this revelation. That’s the reason it is being suggested that the 1-2 trillion in “transition” costs is the direct result of introducing personal accounts, and that such costs would not arise if we did not undertake such a reform. Both assertions are incorrect. These are not new costs–they are being incurred even under the current system. The Social Security Trustees have reported that the current system’s unfunded obligations amount to more than $10 trillion. Just the interest cost on this debt equals $600 billion per year (in nominal terms). That’s the cost of maintaining the status quo in Social Security.

5) The debt being bequeathed to younger and future generations under the current system is hidden, but it is no less real and these generations need to wake up before it’s too late.

Also, Tim Lee (writing as Tim Lee, blogger — not Tim Lee, Cato staff writer) also offers an honest defense of the calculator here.

This entry was posted on Monday, January 31st, 2005 at 11:44 am by Radley Balko and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.