Back of envelope calculations by Kevin Drum - political animal
Begin>
I'm just trying to get an idea of what the answer is, and I hope some
real economist will stick these numbers into a model and produce a
more rigorous result. Here goes:
* Privatizers assume that stock market returns for the next
75 years will be as high as they have been for the previous 75 years.
For that to happen, economic growth for the next 75 years also needs
to be roughly as high as it has been for the past 75 years.
* Real GDP growth over the past 75 years has averaged 3.4% per year.
* GDP growth is equal to productivity growth + population
growth + growth in average hours worked. The trustees assume long-term
labor force growth of .2% per year and no growth in average hours
worked. Thus, GDP growth of 3.4% requires productivity growth of 3.2%
per year.
Warning: No one believes productivity growth will actually be
that high. But given the slowdown in population growth over the next
few decades, that's the assumption we have to make in order to get
3.4% GDP growth.
* In the trustees' model, real wage growth is closely related
to productivity growth. Typically, it's a few tenths of a percentage
point less than productivity growth, which means that productivity
growth of 3.2% equates to real wage growth of about 2.9%. This is 1.8
percentage points higher than the intermediate projection for real
wage growth of 1.1%.
* Using the sensitivity analysis included in the trustees'
report, an increase of .5% in real wage growth equates to a decrease
of .54% in the "actuarial balance" â a measure of how big the Social
Security deficit will be in 75 years. Thus, 1.8 percentage points of
additional real wage growth equates to a drop of 1.94 percentage
points in the projected Social Security deficit.
* The current intermediate assumption is that the long-term
deficit equals 1.89% of taxable payroll. If you subtract 1.94, you get
a long-term deficit of -.05%. In other words, you get a surplus of
.05% of taxable payroll.
That was fun, wasn't it? Basically, Krugman is right: if you take the
economic assumptions behind stock returns of 6.5-7% and plug them into
Social Security's economic model, the system is solvent as far as the
eye can see.
The big caveat here, of course, is that the privatizers are almost
certainly wrong. Productivity growth is likely to be higher than the
trustees' estimate of 1.6%, but it's not going to be 3.2% either.
Something in the middle is more likely.
Still, no matter what numbers you use, Krugman's basic point is sound:
if you're going to compare the current Social Security system to a
privatized system, you need to use the same economic assumptions for
both. Instead, privatizers like to play a shell game where they use
gloomy assumptions for Social Security and rosy assumptions for
privatization.
http://www.washingtonmonthly.com/archives/individual/2005_02/005562.php
<end>
Of course, as someone in the comments mentions all the real world
numbers in the real world won't make any difference - this is really a
GOP dream of Social Engineering on a grand scale, a chance to change
the psyche of America as the libertarian Rauch puts it. This is not a
crisis - it is a Republican dream much like the Democratic Great
Society dream in the 60's. The GOP thinks the Great Society turned
into a nightmare. The Democrats are sure that will happen with the
GOP Ownership Society.
http://www.reason.com/rauch/011505.shtml
Another good link gleaned from Kevin's currently uncivil comments
section is the document library on Social Security.
http://www.perrspectives.com/resources/documents.htm#socsecurity
--
Gary Denton
Easter Lemming Liberal News Digest
- I think Brin was on to something in _Earth in suggesting the right
to vote be dependent upon subscribing to some opposing viewpoint
media.
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