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January 25, 2005To Infinity And BeyondBy Jim DallasJesse tells us why Don Luskin is the "stupidest man alive" (according to Brad DeLong). Actually, my qualm is this. If you assume this crazy infinite-horizon thing is the way to measure Social Security's financial situation, then is a $10.4 trillion deficit really that bad? (Incidentally, what's the per annum cost: 10.4 trillion divided by infinity? That's, uhh, zero, isn't it?) But for context, $10.4 trillion is the size of the U.S. gross domestic product. If we could commit five percent of GDP for twenty years to save Social Security FOREVER, would it be that bad? And considering that our current budget deficit is nearly 5 percent of GDP already...and could easily be closed with a little common sprinkled into the pages of our tax code... (Incidentally, that last off-the-cuff mathematical statement was economically wrong-headed; because GDP grows considerably faster than inflation - something like a percent or two annually - by the twentieth year $520 billion would be a lot less than 5 percent of GDP). Needless to say, the point of this exercise is to point out that even a big scary like $10.4 trillion is neither big, nor scary, nor indicative of any rational reason to muck around with a Social Security system that is running a slight fever, but otherwise fit as a fiddle. Posted by Jim Dallas at January 25, 2005 04:35 PM | TrackBack
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No, $10.4 trillion isn't that much when compared to the $870 trillion that is the present value of GDP... Posted by: Brad DeLong at January 25, 2005 05:57 PMSo if Luskin checked his $300 trillion number against the PV of GDP of circa $870 trillion (Brad is following the Trustee's model here), he'd be noticing his claim amounts to 35% of GDP going to pay for Soc. Sec. benefits. Now that should have given Luskin a clue. Posted by: pgl at January 25, 2005 06:06 PMI had to remark on this post on my own blog, as well. Any time you are projecting something to infinity, any number you get out of it is essentially meaningless anyway. In the abstract, you can make assumptions and then make a projection along any point on the timeline, but those assumptions are just those, assumptions. With no actual data to work with other than random numbers, you can't do a decent extrapolation and have anything of value left over. There is also a logical paradox in their argument. Since we're talking about the budget shortfall over the infinite horizon, that means we will never reach it. The budget shortfall in Social Security can be any number but the $10.4 trillion since we'll never reach the end of that projection. The sun will explode before we ever get there, which I think is a much bigger crisis to deal with, but that's another 5 billion years away. We'll let our grandkids deal with it. Posted by: Nate at January 25, 2005 07:19 PM
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