Systematic Bias and Nontransparency in US Social Security Administration Forecasts

Citation:

Konstantin Kashin, Gary King, and Samir Soneji. 2015. “Systematic Bias and Nontransparency in US Social Security Administration Forecasts.” Journal of Economic Perspectives, 2, 29: 239-258. Publisher's Version Copy at http://j.mp/1ITZ6Mw
Article1.28 MB
Systematic Bias and Nontransparency in US Social Security Administration Forecasts

Abstract:

The financial stability of four of the five largest U.S. federal entitlement programs, strategic decision making in several industries, and many academic publications all depend on the accuracy of demographic and financial forecasts made by the Social Security Administration (SSA). Although the SSA has performed these forecasts since 1942, no systematic and comprehensive evaluation of their accuracy has ever been published by SSA or anyone else. The absence of a systematic evaluation of forecasts is a concern because the SSA relies on informal procedures that are potentially subject to inadvertent biases and does not share with the public, the scientific community, or other parts of SSA sufficient data or information necessary to replicate or improve its forecasts. These issues result in SSA holding a monopoly position in policy debates as the sole supplier of fully independent forecasts and evaluations of proposals to change Social Security. To assist with the forecasting evaluation problem, we collect all SSA forecasts for years that have passed and discover error patterns that could have been---and could now be---used to improve future forecasts. Specifically, we find that after 2000, SSA forecasting errors grew considerably larger and most of these errors made the Social Security Trust Funds look more financially secure than they actually were. In addition, SSA's reported uncertainty intervals are overconfident and increasingly so after 2000. We discuss the implications of these systematic forecasting biases for public policy.

DOI: http://dx.doi.org/10.1257/jep.29.2.239