When the Bush admin makes an economic forecast to predict the future of the SS Trust Fund, they make extremely pessimistic predictions. Yet, when they forecast economic growth to predict how well private accounts will perform, they make extremely rosey predictions. Both can't be honest assumptions. It's just fraud.
As Josh correctly notes, whether the economic future is rosey or grime, you must use the same assumptions to forecast the Trust Fund future as you do the private accounts future. Bloggers have been making this point for some time and finally the MSM is picking up on it.
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.NYTs (sorry, no open link)
....Over the last 50 years, as the U.S. economy grew 3.4 percent a year on average, almost twice as much as the agency is forecasting, the Standard & Poor's 500 Stock Index returned only 6.8 percent after dividends were reinvested.
"A 6.5 percent real equity return is not realistic'' at the growth rates being projected, says Thomas McManus, chief investment strategist in New York at Banc of America Securities LLC. ``If it were, we will not have a Social Security problem in 2050 because shareholders will be so wealthy they could easily fund the shortfall.''
In barnstorming the country over Social Security, administration officials predict that American economic growth will slow to an anemic rate of 1.9 percent as baby boomers reach retirement.This last point is extremely important. Bush must predict a 6.5% return in the market because anything less and the private accounts will provide less than the Soc Security they gave up, and no one believe the market will perform this well into the future.
Yet as they extol the rewards of letting people invest some of their payroll taxes in personal retirement accounts, President Bush and his allies assume that stock returns will be almost as high as ever, about 6.5 percent a year after inflation.
Many [economist] believe that stock returns will be lower than they have been in the past, closer to 5 percent than 6.5 percent, and that returns on a balanced mix of stocks and bonds will be much lower than that.
The statistical battle is politically important. If investment returns are just one percentage point lower each year than predicted, a person would end up with 35 percent less money than she expected after 30 years of saving.
Under Mr. Bush's plan, moreover, people would need to earn at least 3 percent a year after inflation just to make up for automatic cuts in traditional Social Security benefits.
Both articles are worth your time to read.
Although the math may be somewhat complicated, it doesn't take an economist to know that when someone is using two dramatically opposed economic assumptions to sell a policy, they are lying, and it's really shameful that it has taken this long for this obvious criticism to get some traction.