“At the same time SS is not an unfunded liability.”
Errrr....yes it is. The calculation that the actuary does is to accumulate 75 years worth of projected outlays, discounted to a present value using 2.9% real rate of interest and compare this to 75 years worth of projected payroll tax revenues assuming no changes in current law. The difference is the amount of SS promises that are “unfunded.”
Note that if the assumed interest rate is 0, this actually makes matters worse since the disconnect between outlays and revenues is larger 75 years from now than it is next year etc. (see Table III.B15.—Estimated HI Income Rates, Cost Rates, and Actuarial Balances,
Based on Intermediate Estimates with Various Real-Interest Assumptions at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2012.pdf)
And, we aren’t paying that much interest ~ we have, in fact, been paying what amounts to 0% interest on some of our more recent bonds.
Right, but a) 0 percent surely is not a reasonable estimate for the expected interest rate Uncle Sam will have to pay on long term bonds in order to keep convincing China, Japan and others to keep lending to us; and b) even if it were zero, it would actually make matters worse since both costs and revenues are discounted using the same rate. So treating future dollars at the same value as today’s dollar (which is what a 0 discount rate implies) massively balloons the size of both projected outlays and projected revenues, but also increasing the size of the net present value of the difference between these 2 streams.
However, the real use of present value is the same as the computation of return on investment ~ to compare alternatives ~ not to estimate actual costs at some future period.
It's one of those things that's nice to use in the middle but not at the lims ~ where it leads to unrealistic expectations. E.g. Deutschland will not make a profit on increasing it's debt simply because they can charge a negative interest rate ~ nor will not go bankrupt because someone for the sake of analysis has decided to extend a higher interest rate 100 years into the future.
Same here ~ plus, we have assets, and as long as you have marketable assets you are not bankrupt.