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Tuesday, February 01, 2005

[+/-]
 No economist left behind

Paul Krugman explains the Catch-22 facing those who want to privatize Social Security:
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.

Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.

It really is that stark: any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.

Dean Baker, of the Center for Economic and Policy Research, has devised a test he calls "no economist left behind," challenging economists to make a projection of economic growth, dividends and capital gains that will yield a sufficient rate of return over 75 years to support privatization.

Krugman says that not one economist who supports privatization has been willing to take the test. Of course not: there is no crisis.

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