Social Security & Medicare Notes

Bloomberg – Bush’s Forecasts for Returns on Privatized Accounts too High

This is what Bloomberg published Monday.

Bush is using forecasts from the Social Security Administration that say the economy will expand less than 2 percent a year -- the slowest sustained rate since the 1930s -- after 2020 as population growth eases. At the same time, the agency projects that stocks will return an annual average of 6.5 percent after inflation.
Thirty-nine of 58 economists and strategists surveyed by Bloomberg News say that if the economy slows that much, Bush's stock outlook is too optimistic.

Of course, if the economy expands at more than the 2 percent per year that the Social Security Administration used in its projections, then there is no long term problem paying benefits.

Funny how that works. The Bush administration is conducting a classic "used car" or "mutual fund" sales pitch. They are exaggerating the future problem, threatening politicians who don't accept their "solution", (SF Chronicle) and in the meantime, overselling the possible solution by suggesting unrealistic returns to private accounts so that you are induced to buy it when you don't need it and pay too much when you do.

This is why they are focusing on 18 to 29 year-olds with higher than reasonable suggested possible returns while trying to get seniors to ignore the sales pitch by telling them that people over age 55 won't be effected. Older people know the market doesn't work to make any investor rich, so the 18 to 29 year-olds are viewed as likely suckers. Of course, if Social Security becomes split between government guaranteed benefits and private accounts, there is nothing at all to stop a Republican administration in ten years from cutting the guaranteed benefits because the paying for them and the bonds issued to create the private system are too expensive together.

Addendum: NY Times reports problems with projected stock returns.

posted by Richard @ 5:37 PM