In yesterday’s column, I wrote:
If you have an issue with Social Security, then fix it. The regressive taxes to fund retirement benefits top out at about $117,000 in 2014. Why not simply raise that to $250,000 next year and $500,000 during the next 20 years. Congratulations, you just made Social Security solvent for the next century.
I was incorrect. Several sharp-eyed readers pointed out those numbers didn't add up. That sent me back to a research report I was basing this on, and as it was, I had incorrectly read the data, conflating raising the cap with removing it entirely. As the Congressional Budget Office numbers show, making incomes up to $500,000 subject to the payroll-tax wouldn't get the job done. Indeed, removing the cap would only cover about nine-tenths of the projected Social Security shortfall in the coming decades.
Any opportunity to correct myself when I make an error is an opportunity that is always appreciated. It happens to everyone all the time. But as Bridgewater Associate’s Ray Dalio has so eloquently argued, it is much better to own up to a mistake, rather than pretend it never happened, or simply hope no one notices or mentions it again in public. Bridgewater, the world’s largest hedge fund, makes this a key part of it culture and process. Some people deem this self-reflection cultish; it has also led to one of the most enviable long-term track records in investing.
I get things wrong at more or less the same rate as the any other blathering fool does (perhaps a touch less, he wrote wishfully). However, I own my mistakes. Then I correct them, and hopefully try to learn something from each one. This is the motivation for flogging myself each year, offering up in public my annual mea culpas for the things I got wrong.
It works for Dalio, it works for me, and it can work for you, too.
As to Social Security, instead of the hyperbole I proffered, what I should have done was confirm the data before I hit “send.” Then what I should have written was the following:
Anyone looking to make sure the retirement fund can meet its obligations should consider the following options: Raise the payroll-tax rate, raise the ceiling on taxable income, increase the retirement age, means test benefits, tax benefits, lower the cost-of-living adjustment, reduce benefits, or any combination of the above.
The American Academy of Actuaries has even set up a dashboard where you can tweak these approaches. It turns out to be surprisingly easy to numerically make Social Security very solvent.
It’s the politics that are so challenging.
But fixing Social Security wasn't the goal of yesterday’s commentary. Rather, the relentless nonsense peddled by so much of the economic punditry turns out to be just that -- worthless blather. And, it unfortunately affects policy and policy makers. There are genuine and serious repercussions when the pontificators litter the landscape with their errata, never to be corrected.
I doubt we can ever fix policy if the surrounding discussions are exercises in faulty forecasts and fabricated data. It is good for the body politic and for those who participate in these debates to be kept honest. What passes for analysis too often is mere partisanship, fear mongering wrapped in lousy forecasts. Whether that means calling out someone for making a poor prediction (Arthur Laffer), or correcting a hyperbolic exaggeration of how to fix Social Security (me), it makes the process of debating policy issues that much better off.
Be like Dalio. Own your mistakes, fix them and learn from them. Demand that the people who are influencing public policy debates do the same.
To contact the author of this article: Barry Ritholtz at firstname.lastname@example.org.
To contact the editor responsible for this article: James Greiff at email@example.com.