Privatization Pep Rally

John K. Taber jktaber at
Wed Jul 29 17:21:03 PDT 1998

Doug Henwood wrote:
> Seth Ackerman wrote:
> >I thought I remembered Dean Baker once saying that the rate would have
> >to be something like 3% at least to wipeout the projected SS shortfall
> >singlehandedly. Is this not right? Whence 2.5%?
> Dean said that there's a passage in the SS Trustees report arguing this,
> but I sure can't find it. I did the simulation myself. I assumed that the
> dollar obligation of SS pension checks remains the same, and had GDP grow
> at 2.5% rather than 1.5%. I also assumed that the system's revenue as a %
> of GDP would remain constant. If all those things happen, no shortfall.
> The Trustees have three scenarios, an optimistic, middle (official), and
> pessimistic. Their optimistic scenario uses a growth rate around 2.5%, but
> it also assumes higher immigration and lower unemployment (assumptions
> consistent with higher growth rates) than the middle scenario. No shortfall
> there, either, but I wanted to isolate the effects of GDP growth alone,
> leaving other assumptions untouched.
> Doug

Perhaps the 2.5% is a confusion of the GDP and the "actuarial imbalance" of the Trustee's report. Raising FICA from 6.2 to 7.4 for the employee and the employer gets rid of the projected shortfall. That's pretty close to 2.5% like the GDP.

Towards the end of the 75 year projection, the GDP is estimated at 1.3%.

My understanding of the forecasted GDP is that it is a function of number of workers times projected productivity. According to demographers, the fertility rate will fall to 1.9% while the SSA does not foresee enough immigration to compensate. 1.9% is below the 2.1% needed to maintain the population.

In my arguments in soc.retirement I have found it useful to give credit to the low SSA forecast of GDP in order to attack the misguided notion that the stock market will "rescue" Social Security if only we privatize. IMO it cuts the ground out from under the privatization argument.

Also, I have found a paper at the Fed Reserve, St. Louis, by Susan Miller, that casts a lot of doubt on the stock market "rescuing" SS.

More information about the lbo-talk mailing list