Sustainable Solvency

Wed, 02 Apr 2008 12:32:11 +0000

Stan wonders what sustainable means in the context of long-term entitlement reforms. We could start (and probably end) with the definition of "sustainable solvency" in the 2008 Social Security Trustees Report:

When a program has positive trust fund ratios throughout the 75-year projec­tion period and these ratios are stable or rising at the end of the period, the program financing is said to achieve sustainable solvency.

It means that for as far as can be projected, the entitlement program does not make a net claim on the rest of the government's resources. I don't think most people would care about a small net claim, but the projections for Social Security currently indicate a net claim of 1.7% of taxable payroll over the next 75 years and 3.2% of taxable payroll over the infinite horizon.

If we were the sort of country whose political system could be counted on to make sensible decisions when faced with an immediate crisis and prudent decisions along the way to avoid those crises, then I wouldn't worry about a net claim even that large.

But we are not that sort of country, at least not without a whole lot of effort applied to the policy process. I wouldn't call the Brookings-Heritage paper "innovative," any more than I would call the LMS plan "innovative." They are compromises agreed to now with the hope of avoiding policy changes done in immediate crisis, which seldom work out well.