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Tuesday, February 01, 2005

Cooking the Numbers—Privatization Gumbo 

Paul Krugman busts through another Social Security privatization myth today in his NY Times column. With the help of some of his economist buddies, Krugman runs the numbers being used both to tout the ‘floor wax & dessert topping’ wonders of private accounts— and to scare the public about what will happen if we take a pass on privatization.

Krugman uncovers the basic Catch 22 in their pitch:

“…to believe in a privatization-friendly rate of return, you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble - and that stock prices will nonetheless keep on rising.”

and conversely, he observes:

"… 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."

Which set of numbers will the privatization pitchmeisters settle on? Whichever set suits their current argument, apparently.

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