Social Security in crisis… blah, blah, blah. Culture of life… blah, blah, blah. Marriage between a man and a woman… blah, blah, blah. Democratic Iraq… blah, blah, blah.
Oh well. Let’s just use this as an opportunity to continue our discussion of his dumb-ass, dishonest Social Security proposal. (I’m sorry, does that sound like I’m prejudging it?) This from the New York Times:
Mr. Bush skirted the issue of paying for the establishment of the accounts. That process, by the White House’s calculation, would require more than $750 billion in additional government borrowing between now and 2015, and trillions of dollars of additional borrowing in the subsequent decade once the system is fully up and running, analysts said.
By the way, I heard David Brooks talking on Nightline last night, saying that Republicans support privatization because they believe that by forcing more Americans to invest in the stock market, they will create more Republicans. That’s sound economic policy, huh?
And while we’re at it, let’s bring Paul Krugman back into the discussion:
The Social Security projections that say the trust fund will be exhausted by 2042 assume that economic growth will slow as baby boomers leave the work force. The actuaries predict that economic growth, which averaged 3.4 percent per year over the past 75 years, will average only 1.9 percent over the next 75 years.
In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade.
Krugman explains that for stocks to yield the 6.5 percent rate of return projected by the privateers, the average price-earnings ratio would have to rise to over 100 by 2060. (The historic average is 14, today it’s about 20.) This creates a Catch-22:
They can rescue their happy vision for stock returns by claiming that the Social Security actuaries are vastly underestimating future economic growth. But in that case, we don’t need to worry about Social Security’s future: If the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.
Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.
It really is that stark: Any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.
Man… Bushies must hate Krugman.