On Thu, 17 Feb 2005 12:47:54 -0500, Erik Reuter <[EMAIL PROTECTED]> wrote: > > David Wessel, who is consistently one of the best economics columnists I > have read, has an article in today's Wall Street Journal about what may > be the Bush personal account plan (in reality, Bush hasn't released all > the details, and I suspect he is playing a game where he will fiddle the > plan details until he believes he has a strong chance at passing it, and > then he will release the details) > > A couple weeks ago, however, it became apparent that the current > version of the Bush plan uses a 3% real interest rate for calculating > the reduction in traditional SS benefits, whereas most people had > expected it to be 2%. I was very disappointed to see the 3% figure, it > is unreasonably high. According to Dimson and Marsh in _Triumph of the > Optimists_, from 1900 to 2000 the annualized real return on long-bonds > in the US was only 1.6%, intermediate bonds 1.6%, and treasury bills > 0.9%. Also, during 1900-2000, the long-bond real returns for Australia, > Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, > Netherlands, South Africa, Spain, Sweden, Switzerland, and the UK were > 1.1, -0.4, 1.8, 2.5, -1.0, -2.2, 1.5, -2.2, -1.6, 1.1, 1.4, 1.2, 2.4, > 2.8 and 1.3%, respectively. The highest is Switzerland at 2.8%. Clearly > 3% is too high. I'm afraid it would encourage people to take too high of > a risk on their personal accounts to try to beat the 3%, when in reality > they should be invest at least 60-70% of their personal accounts in safe > bonds.
I have never seen anything but the 3% figure used. What is more on the background discussion about SS that the White House had they stated that private account holders would only receive the amount they earned in their private account *over the 3% figure.* They really do want the private accounts to be mandated government gambling accounts. BTW - Here is what Treasury and Social Security economists have to say about the current system - A Treasury Department paper written in 1995 looked at data from Social Security beneficiaries and concluded, "Social Security net returns are strongly progressive." For working males, the rate of return was 5.5 percent. Social Security's rate of return for lower-income males was 6.17 percent and for higher income males, 5.04 percent. In June 2001, Social Security economists and actuaries wrote a paper, referred to as Note 144, on rates of return for hypothetical workers. They concluded that low-income "two earner couples" born in 1955 will earn a 3.2 percent rate of return, a medium income bracket would earn just a 2.15 percent rate of return, and a high income bracket couple would earn just 1.49 percent. Note 144 also states that making rate-of-return comparisons with private investment plans is inadequate because Social Security offers benefits that most private plans do not, such as guaranteed cost-of-living adjustments based on the consumer price index and benefits for life in the event of disability. Another Social Security Administration paper released in 1999 found that "At ages 65 to 90, black men were not found to have a significantly higher risk of death than men of other races." A former Social Security official said, "I don't think there is any question if you look at the estimates that the administration is putting together for long run economic growth and how those tie into the return on private accounts, there is a disconnect there." The administration is assuming a 4.6 percent return on private accounts. "That's the basic contradiction," said Shapiro. "In order to get that kind of return, the economy would have to be growing fast enough so that most of Social Security's financing problem would have gone away." http://www.hillnews.com/thehill/export/TheHill/News/Frontpage/021505/treasury.html Gary Denton _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
