Is Stock Market Going Broke by myj85372


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									A Midwest Academy Production
This is what it is all about. Who
   can answer the question:
How many children will your grand-
children have, and how much will they
earn a year?

If you don’t know, why would we believe
that the Bush Administration does?
                          Watch out for the
                           joker in the deck
                         The Bush campaign to privatize
                         Social Security is starting. The
                         Administration quotes the Social
                         Security Trustees as saying that
                         the system is in crisis with assets
                         gone by the year 2042. They will
try to frighten seniors with benefit cuts and everyone else
with higher taxes while insisting that the only solution is
private stock market investment accounts.
Here is the Joker:
When Social Security makes it’s
projections, it is careful to add the
words “Based on the intermediate
assumptions.” But exactly what
are these assumptions, and are
they hard facts?
In 2000 and previous annual reports, the
Trustees where quite open about their inability
to predict the future. They said. . . .
“While it is reasonable to assume that actual future
trust fund experience will fall within the range
defined by the three alternative sets of assumptions
used in this report, no definite assurance can be
given that this will occur because of the uncertainty
inherent in projections of this type and length. In
general, a greater degree of confidence can be
placed in the assumptions and estimates for the
earlier years than for the later years. Nonetheless,
even for the earlier years, the estimates are only an
indication of the expected trend and potential range
of future program experience.”
                                Trustees Report 2000. Page 11.
                                 The Trustees Added
                                 This Caution:
                                “Although these three sets of
                                economic and demographic
                                assumptions have been devel-
                                oped using the best available
                                information, the resulting esti-
                                mates should be interpreted
                                with care. The estimates are
                                not in-tended to be predictions
                                of the future financial status of
                                the OASDI program, but rather,
                                they are intended to be
 indicators of the expected trend and likely range of future
income and outgo, under a variety of plausible economic and
demographic conditions.”
         Business Week
         was very direct

“The truth is that predictions of Social
Security insolvency are based on estimates
of ever-changing variables stretching out an
incredible 75 years. They are simply not
                         Editorial. July 3, 2000
As Recently As 2002 The Trustees Said
  “Any projection of the future is, of
  course, uncertain. The degree of
  uncertainty involved can be illustrated
  by imagining how difficult it would have
  been in 1925 to project the world of
  1930, much less that of 2000.”
                        Trustees Report 2002. Page 7.
Starting in 2003 such statements
were removed from the report!
It would seem that the Bush
Administration decided that it really
can make economic predictions 75
years into the future.
                    Making projections is much harder
                    than rocket science. They are
                    based on many many factors:
 •    Birth and death rates      The truth is that economists
                                 can’t predict any one of
 •    Marriage and divorce
                                 these things more than a
 •    Migration rates            few years ahead, and then
 •    Workforce size             they often get it wrong.
 •    Unemployment rates
 •    Inflation rates.           Social Security is trying
                                 to make 75 year projections
 •    Productivity rates
                                 that take into account all
 •    Wage increases             of these factors and the
 •    Economic growth rates      ways that they all interact
 •    Retirement ages            with each other.
Trustees Report, 2004 Page 6
75 Years
 So how broke is it?
The slide that follows shows that the Trustees have made
three sets of economic and demographic assumptions.

   • I Optimistic
   • II Intermediate
   • III Pessimistic

They say that the intermediate assumptions are most likely.
The chart shows that under the intermediate assumptions,
the system will run out of assets by 2042. But, if the opti-
mistic assumptions turn out to be right, then the system
will be solvent for 75 years and more.
      2004 Trustees Report. Page 15

                                       Assets 500%
                                       of costs in 2080

                             Assets gone in
                             2042. Income
Pessimistic.                 still covers 72%
Assets gone -                of SS costs.
The economic conditions that separate going broke
from a large surplus are often a percentage point or
less apart. Too small to really measure or predict .

   %                           Averages 2000 - 2040

                             Trustees Report 2000 Pg. 58
   The assumed economic growth rates that
   separate the projections are very small and
   below the average of the last four decades
                                       Average percent change in annual GDP
The growth rate of the economy is      3.5

closely related to all of the other     3
factors in the projections. The
Optimistic projection is only a
three- fifths of a percentage point     2

higher than that under which the       1.5   3.4%
                                                          2.1%         2.7%
system goes broke.

This is not a crisis. The difference   0.5

is less than the margin of error in     0
making such predictions.
                                           Actual     II Broke     I Surplus
                                         1960- 2003
                                                      Averages 2004 - 2047

                                                      Trustees Report 2004
  Demographic differences between the
“broke” and “surplus” scenarios are small

    6                                                         Immigration
    4      1.9                   2.2
              Broke                 Surplus
  Fertility = Children per woman. Immigration = net annual.

                                          Table II.C1. 2004 Trustees Report
      Other economic assumptions
             are also close

  1                                  Productivity *
0.8                                  Real Wages*
                                  * Annual % change
        Broke    Surplus

                       Table II.C1. Trustees Report 2004
“Doing nothing to fix our Social
Security system will cost us, as well
as our children and grandchildren, an
estimated $10 trillion, according to
the Social Security Trustees.”

       White House Press Statement 10/02/04
To reach $10 trillion, the Trustees went beyond their
75 year projection to what they call “the infinite
horizon.” This, they claim, is what the System will be
short over an infinity of years.
Not only is this silly, it isn’t even as bad as it sounds.
They added that the $10 trillion is only 3.5% of the
infinite taxable wages over the same period. In other
words, an infinite 3.5% tax increase would solve the
whole problem for all eternity.

   “Romeo, Romeo! Wherefore art thou Romeo?”
“Well, the $10 trillion is the closest
you can get to pulling a number out of
the air. Make that the ether.”

          --The NY Times. Editorial 1/3/05
                      What does it
                      really mean?
• We should be just as cautious about accepting
these projections as the Social Security Trustees
once urged us to be.

• A solution to the “crisis” achieved under current
political conditions will not be one that we want. Any
necessary adjustments can be made after the Bush
administration is over.
  And Therefore:
Consistent with progressive taxation, we should
advocate that Social Security taxes be paid on
currently excluded wages over $90,000 . This
would eliminate roughly 75% of the projected
shortfall if indeed there is one.*

We should resist any effort to privatize Social
Security, no matter how small. Taking money out
of the system will only create the very crisis that
it claims to solve.

We should work to increase benefits for low wage
workers, and to eliminate rules that disadvantage
women recipients.
                            * Economic Policy Institute.
Center on Budget Priorities

CBO Report

Trustees Reports

Our Future

National Committee to Preserve Social Security

Century Foundation

Economic Policy Institute
That’s All Folks

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