Lies, Damned Lies, and Statistics

In a previous column, I reported that Social Security would go bankrupt in 2022. I didn’t make that up; I got the information from the Office of Management and Budget’s proposed budget to Congress. But on April 23, the Social Security and Medicare Trustees released their report, which claimed that Social Security would go bankrupt in 2033. Why the discrepancy?

My son Nicholas once had a statistics professor who started his course by explaining that: “There are lies, there are damned lies, and then there are statistics.”

They are manipulating the statistics.

First, the trustees are using a 75-year life expectancy to calculate their numbers. But current life expectancy for most Americans exceeds 80. They are not setting aside enough money to pay for the extended life expectancy. This supports the OMB’s assertion of 2022.

Second, Jim Moore from PIMCO mutual funds pointed out that the trustees assume a real interest rate that is double what the current real inflation-adjusted interest rate is. PIMCO further informs us that long-term interest rates could fall below 1 percent. Lower interest rates require more capital to provide promised benefits. This also supports the OMB’s assertion of 2022.

Statistics are misrepresented by the government in other areas as well. Let’s review a few: 

Medicare. When the Medicare trustees released their report, the Medicare actuary immediately disavowed it as inaccurate. Our industry jokes that actuaries are accountants with less personality, but we need their expertise. Actuaries are about the math. The actuary says the trustees used favorable statistics that were unlikely to be achieved. Therefore, Medicare is expected to go bankrupt sooner than the reported 2024.

Inflation. The government reports inflation at 2.9 percent. The inflation calculation does not include energy, food or health-care costs. Do you think inflation would be higher if those costs were included?