An op-ed in the New York Times explains how poorly financial forecasts for Social Security are made and suggests social scientists can help:
Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.
This omission can be explained by the fact that the Office of the Chief Actuary, the branch of the Social Security Administration that is responsible for the forecasts, is almost exclusively composed of, well, actuaries — without any serious representation of statisticians or social science methodologists. While these actuaries are highly responsible and careful and do excellent work curating and describing the data that go into the forecasts, their job is not to make statistical predictions. Yet the agency badly needs such expertise.
With considerable help from the actuaries and other officials at the Social Security Administration, we unearthed how the agency makes mortality forecasts and uses them to predict the program’s solvency. We learned that the methods are antiquated, subjective and needlessly complicated — and, as a result, are prone to error and to potential interference from political appointees. This may explain why the agency’s forecasts have, at times, changed significantly from year to year, even when there was little change in the underlying data.
We have made our methods, calculations and software available online at j.mp/SSecurity so that others can replicate or improve our forecasts. The implications of our findings go beyond social science. As the wave of retirement by the baby boomers continues, doing nothing to shore up Social Security’s solvency is irresponsible. If the amount of money coming in through payroll taxes does not increase and if the amount of money going out as benefits remains the same, the trust funds will become insolvent less than 20 years from now.
Sociologists seem to be looking for ways to get involved in major policy issues so perhaps this is one way to do that. It is also interesting to note this op-ed is based on a 2012 article in Demography titled “Statistical Security for Social Security.” Not too many articles can make such a claim…
Also, I’m sure this doesn’t inspire confidence among some for the government’s ability to keep track of all of its data. Does the federal government have the ability to hire and train the kind of people it needs? Can it compete with the private sector or political campaigns (think of what the lauded 2012 Obama campaign big data workers might be able to do)?