Wednesday, February 02, 2005

SOTU: Alpo Accounts: YABL, YABL, YABL 

Bush in the SOTU:

Here is why personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver - and your account will provide money for retirement over and above the check you will receive from Social Security. In addition, you'll be able to pass along the money that accumulates in
your personal account, if you wish, to your children or grandchildren. And best of all, the money in the account is yours, and the
government can never take it away.
(via Mr Duncan Black)

The truth:

In other words, to believe in a privatization-friendly rate of return, you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble - and that stock prices will nonetheless keep on rising.

Social Security privatizers usually defend their bullishness by saying that stock investors earned high returns in the past. But stocks are much more expensive than they used to be, relative to corporate profits; that means lower dividends per dollar of share value. And economic growth is expected to be slower.

Which brings us to the privatizers' 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.
(via Paul Krugman NY Times

Winger delusions.

NOTE Which the great Brad DeLong, on TV, does not hammer home. Dems gotta get their talking points home.

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