Social Security And Fuzzy Math

I think that most of us now by now that the intention of Bush's Social Security "reform" is to slay what they see as an evil dragon from the New Deal not save it. Paul Krugman checks their math today and finds it has some major flaws. He shows that if the economic assumptions they make for their estimated returns in stocks are true then Social Security will not go broke.

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.

And I suspect that at least some privatizers know that. Mr. Baker has devised a test he calls "no economist left behind": he challenges economists to make a projection of economic growth, dividends and capital gains that will yield a 6.5 percent rate of return over 75 years. Not one economist who supports privatization has been willing to take the test.

So like everything else that we hear from this administration the numbers on the return from "private" accounts and the date the Social Security System becomes insolvent are just bogus numbers with no basis in fact. Once again, kind of like the mythical WMD's.