Reality Time

Things That Will Happen Before Social Security
Faces a Shortfall
Dean Baker
June 2005
http://www.cepr.net/publications/ss_shortfall_list_2005_05.pdf

Based on current trends, we can expect that by 2052:
· Health Care -- Annual spending on healthcare will have increased by an amount
equal to 12 percentage points of GDP. This would imply an increase in annual
healthcare spending of almost $5,000 per person (measured at the 2005 level of
GDP).
· Prescription Drugs -- Annual spending on prescription drugs will have increased
by an amount equal to 2.7 percentage points of GDP. This would imply an
increase in annual spending of $1000 per person (measured at the 2005 level of
GDP).
· Housing -- The housing bubble will have burst, destroying more than $5 trillion
in bubble wealth created by the temporary run-up in home prices. This translates
into a loss of $17,000 per person.
· The Falling Dollar -- The dollar will have declined by 30 percent or more against
the currencies of U.S. trading partners. This will add more than 2.0 percentage
points to the annual rate of inflation and reduce annual consumption by
approximately $2,000 per person.
· The Criminal Justice System -- The number of people in jail or prison will have
increased to almost 7 million, with the government spending an additional 3.1
percentage points of GDP on the criminal justice system. This projected increase
in spending on criminal justice would be equal to $310 billion a year measured at
the 2005 level of GDP or $1,000 per person.

1 The Social Security trustees put 2041 as the date at which the program will first face a shortfall. In contrast to the non-partisan CBO, four of the six trustees are political appointees of President Bush.

· The U.S and the World (China) -- China’s economy will have grown to be more
than twice as large as the size of the U.S. economy. If it spends the same share of
its GDP on the defense as the CIA currently estimates, then China’s defense
budget in 2052 will be four to six times the level of defense spending that CBO
projects for the U.S. in that year.
· The U.S and the World (India) -- India’s economy will have grown to be one
and a half times as large as the size of the U.S. economy. If it spends the same
share of its GDP on the defense as the CIA currently estimates, then India’s
defense budget in 2052 will be three times the level of defense spending that CBO
projects for the U.S. in that year.
· Animal and Plant Extinctions -- Tens of thousands of species will have become
extinct, most of them due to human impact such as oil and mineral extraction,
pollution and deforestation.
· Climate Change -- The earth’s temperature will have risen by between 1.0 and
4.0 degrees, causing rising sea levels, melting glaciers, and spreading of tropical
diseases into temperate areas.

For the most part, these other trends are receiving almost no attention from either political leaders or the media. Presumably, these opinion leaders view developments like soaring health care costs or plunging home prices as being less consequential than the projected shortfall in Social Security in 2052. It is nonetheless worth noting these trends, since others may assess their importance relative to the projected Social Security shortfall differently.

This Study portrays why there is a limit beyond which Current Trends cannot be used to define Economic Projections. The Author will go through the List, as concisely as possible:

1) Health Care: Costs could not exceed more than 4 percentage points of GDP above its current level (then or now) , without facing extreme Health Care Labor shortage, while actual GDP growth levels would fall because of the stripping of resources from other necessary economic activities.
2) Proscription Drugs are at a traditional extreme High in Cost, and will reduce in Cost in later Years as Patents expire, and current Drugs are as equivalently effective as any further design.
3) Housing will begin to decline in value (bubble or not) because of declining Population. It will be much deeper than $5 trillion loss by 2052. (think $13 trillion).
4) The Dollar will start to regain value against other Trading Currencies, not lose value, within the next 2-3 Years. It has caused more than a 2% Inflation rate in the last three Years (think a workable 6% per Year over the last three Years). What will incite the rise in the value of the Dollar? The World's refusal to fund Federal deficits, American reduction in the use of Oil, and Consumer reduction in the purchase of foreign Goods.
5) The Criminal Justice system cannot absorb more Funds, and therefore will be altered. The greatest Cure would be to alter Sentencing policy to state Convicts must work, must pay for their own maintenance, and must pay to all Costs and Damages inflicted by the Crime for which they were sentenced. They will not be released until all such Costs are paid.
6) China is only a current Trend. China has greater Social Welfare problems than even the United States. China will find it difficult to maintain the economy achieved by 2010.
7) India is in a worse economic state than China, and will either face Warlordism or Dictatorship to reduce Population.
8) Ecology changes while dominant Species survive. Ecological damage must be assessed in statistical terms of impact, not Save the little Furry things!
9) 4-5 billion People will starve to death, if there is a Climate change of 4% in overall Temperature, other ill effects need not be considered. The Ecology also has several Self-saving curatives, a 1% increase in Temperature will increase Cloud density by over 20%, restricting Sunlight heat by about 14%.

Such are the Author's own thoughts on these matters. His opinion may warrant no greater belief than Others, but Outcomes are never certain. lgl