Krugman says high rate of returns flaw in SS privatization plans

[jfern]

"The fight over Social Security is, above all, about what kind of society we want to have. But it's also about numbers. And the numbers the privatizers use just don't add up.

Let me inflict some of those numbers on you. Sorry, but this is important.

Schemes for Social Security privatization, like the one described in the 2004 Economic Report of the President, invariably assume that investing in stocks will yield a high annual rate of return, 6.5 or 7 percent after inflation, for at least the next 75 years. Without that assumption, these schemes can't deliver on their promises. Yet a rate of return that high is mathematically impossible unless the economy grows much faster than anyone is now expecting."
http://www.pkarchive.org/column/020105.html

You can get all his old columns here:
http://www.pkarchive.org/

[Cha]

1. Everything they do is a lie to sell

their scams..I'm watching this one..I got into politics in 2000 because of the future of Social Security. It's gone way beyond SS but here were are again.

[papau]

2. true - the Bush 1.6% growth will not support net 6.5% investment returns

and any higher GDP growth means there is no 2018 or 2042 or 2052 problem - the system becomes solid on paper for the next hundred years.

[The_Casual_Observer]

3. I'm surprised they didn't use 10%. 10% is what investment advisors

used to base all the millions you would earn when you invested your money with them. I think that "people" like gabriel wisdom still use the 10% number when dashing off a quick compound interest fairy tale.

[kerrygoddess]

4. It's all scare tactics

Roosevelt's son wrote a good editorial for the Boston Globe about this...

In an editorial in today’s Boston Globe, James Roosevelt Jr. said, “The implication that FDR would support privatization of America's greatest national program is an attempt to deceive the American people and an outrage.”

Throughout the six successful decades of Social Security, it has been adjusted in both benefits and revenues. But it has continued to observe FDR's principles of a secure, guaranteed retirement income provided by an insurance system that all workers pay for. Then, as now, the key to taking the fear out of the Social Security debate is speaking truthfully. Instead, the proponents of privatization have not only misused the name and image of my grandfather, they have mischaracterized undisputed facts to create a phony impetus for abandonment of the program.

Those who are seeking immediate, drastic change should recognize that even the Social Security trustees appointed by the president agree that Social Security with no changes could pay full benefits until 2042, even under pessimistic assumptions about economic growth. They should recognize that the Congressional Budget Office says that Social Security with no changes could pay full benefits until 2052. They should recognize that even then benefits would be cut only about 25 percent if there were no changes, not nearly as drastically as most private account proposals would cut them. The lies and half-truths from the proponents of privatization must stop.

Most of all, the creation of fear by the unjustified use of words like "crisis" and "bankruptcy" is destructive of a reasonable debate about what adjustments to Social Security will ensure the payment of full benefits throughout the 21st century. Every honest person knows that there is no crisis, there is no threat of bankruptcy, and that what is needed are adjustments, not drastic measures like privatization. Just as bad is the use of terms like "worthless IOUs" to describe US Treasury bonds held by the trust fund. These are scare tactics designed to create fear.

http://www.lightupthedarkness.org/blog/default.asp?view=plink&id=304