The No Economist/Policy Analyst Left Behind Test for Social Security
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The No Economist/Policy Analyst Left Behind Test for Social Security
By Dean Baker
November 12, 2004
(President Bush believes in testing. President Bush has a
mandate.)
President Bush's Social Security Commission assumed that stocks would give an
average return of 6.5 percentage points above the rate of inflation over the
next seventy five years. The commission uses the Social Security trustees
projections, which show that profit growth will average 1.6 percent above the
rate of inflation over this period. The current ratio of stock prices to
corporate earnings is 25.8 to 1, which means that corporate earnings are on
average equal to 3.9 percent of the price of a share of stock.
Use this information to show a set of capital gains and dividends that
produces the 6.5 percent rate of return assumed by President Bush's Social
Security commission.
Avg. capital gain
Avg. Dividend Yield
Total Return
2005-2015
2015-2025
2025-2035
2035-2045
2045-2055
2055-2065
2065-2075
Any economist/policy analyst unable to complete this
exercise in less than 1 hour must be retrained until they are competent.
CEPR Projections
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Average
Capital Gain
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Average
Dividend Yield
|
Total
Return
|
2005-2015
|
2.2% |
2.3% (@60% of earnings) |
4.5% |
| 2015-2025 |
1.5% |
2.3% (@60% of earnings) |
3.8% |
| 2025-2035 |
1.5% |
2.3% (@60% of earnings) |
3.8% |
| 2035-2045 |
1.5% |
2.3% (@60% of earnings)
|
3.8% |
2045-2055
|
1.5% |
2.3% (@60% of earnings) |
3.8% |
2055-2065
|
1.5% |
2.3% (@60% of earnings) |
3.8% |
| 2065-2075 |
1.5% |
2.3% (@60% of earnings) |
3.8% |
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