or Powell's or me• • •
"Mike and Jon, Jon and Mike—I've known them both for years, and, clearly, one of them is very funny. As for the other: truly one of the great hangers-on of our time."—Steve Bodow, head writer, The Daily Show
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"Who can really judge what's funny? If humor is a subjective medium, then can there be something that is really and truly hilarious? Me. This book."—Daniel Handler, author, Adverbs, and personal representative of Lemony Snicket
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"The good news: I thought Our Kampf was consistently hilarious. The bad news: I’m the guy who wrote Monkeybone."—Sam Hamm, screenwriter, Batman, Batman Returns, and Homecoming
February 01, 2005
Krugman On Stock Return Issue
I just mentioned this... but now I will mention it again, because Paul Krugman wrote about it today.
For years, economist Dean Baker has been pointing out a glaring flaw at the heart of the argument for privatizing Social Security. It's this:
The reason the Social Security Administration predicts there will be a shortfall in Social Security revenue in 2042 is that the SSA believes the US economy will grow very slowly over the next 75 yearsâ€â€about half the rate of the past 75.
Privatizers look at this and say: well, we should make everyone put their Social Security money in private accounts invested in the stock market! That will solve the problem! Because we know the average return on stocks is 7%! Then they plug the 7% into their calculations, and it shows that privatization would be great.
But.
It's true the average stock return over the past 75 years has been 7%. But there's no way for the return on stocks to be that high in an economy growing much more slowly. Baker has been trying and trying and trying to get privatization supporters to write down some numbers showing how it could happen. But they simply refuse. They know it's impossible.
Of course, the Social Security Administration could be wrong. The economy could grow like it did in the past, in which case stock returns could be like those of the past too. But then there's nothing wrong with Social Security.
Anyway, Paul Krugman (working together with his avenging economist beard) points this out here. He also graciously cites Baker.
The amazing thing is that this isn't fancy math. It's third grade arithmetic. And yet the privatizers have been able to get away with it so far. Baker has said that if they pull this off, he'll devote the rest of his life to trying to shut down academic economics departments. As he says, if economic departments can allow the most important government program in the US to be ripped to shreds based on a lie that could be understood by a nine-year old, there's no reason for them to exist.
Posted at February 1, 2005 07:15 AM | TrackBackThe privatizers arguments are meant to waste your time. I doubt they believe them themselves. Snickering loons like Patrick Sullivan support them because they like the idea of social darwinism for others, and are sure they will be exempt.
I wish Dean Baker luck in his quest to shut down academic economics departments. I'd enjoy teaching Arnold Kling how to dumpster dive.
Posted by: Harry at February 1, 2005 10:55 AMIt's wise to predict slower economic growth than we've had in the last 75 years, if for no other reason than oil.
You could call the last 75 years the oil years, meaning years in which our economy had a nearly cost-free infusion of billions of dollars in oil.
That will start to go away as we reach and pass the point of peak oil production soon. After that oil gets more and more expensive to produce and refine and buy.
Economic models that include but don't make explicit this infusion of free wealth are lousy models for the next 75 years, the years of the downhill side of the oil curve.
Increasingly forecasts are the oil costs will stay high for years, not just return to their 1999 rates. It might be the new way, for keeps.
Posted by: jerry at February 1, 2005 02:05 PM
