> Moreover, the trustee's report calculates
> its figures at a 1.4% growth rate over the
> next 75 years, when the growth rate over
> the last 75 years has been twice that.
Of course, much of that slower GDP growth is due to slower growth in the labor force. An interesting aspect of this is that the Trustees have the gap between men's and women's labor-force participation rates, 16% today, closing by all of 2.8% between now and 2075. This rather conservative, to say the least, forecast hasn't gotten any attention, which is too bad: I'd love to see Pete Peterson announce that because of the crisis in Social Security, the country can no longer afford the luxury of housewives.
.> Stocks are very unlikely to earn even
>near the high rates of return being
>touted by privateers.
>. Privatization carries with it the prospect
>of a lot of folks who don't know stocks
>from Shinola sitting down to nightly
>meals of Tender Vittles.
There's another reason privatization won't bring those high returns, especially for folks who do know stocks from Shinola. If you believe that investors are rational (and who's going to deny that), then they've already allocated their assets, *including Social Security*, to what they perceive as the ideal balance of risk and return. Move some or all of their Social Security wealth (equivalent to US bonds) to stocks, and they'll simply move some of their other assets (held directly or through pension funds, etc.) the other way. In other words, the gains from privatizing Social Security are already available to everyone who holds U.S. bonds or similar assets--they're free to "privatize" them at any time by putting their money in a mutual fund instead. The only people who could even in principle benefit from privatization are those with no investments at all, or all their investments in stock, who would like to borrow at the bond rate to buy stock but are constrained from doing so. (These arguments are put forward by some actual economists at http://prc.wharton.upenn.edu/prc/prc.html, by the way.) It's doubtful whether most people would actually behave this way--pension fund trustees are another story--but as someone once said, the logic is impeccable.
On the other hand I don't much like anti-privatization arguments that put a lot of weight on the dangers of fraud and abuse, novice investors getting bamboozled, etc. They tend to give implicit support to some form of "partial privatization" without individual accounts, which seems to be what respectable opinion is gravitating towards.
Josh