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Challenge Issued to Proponents of Privatization

Challenge Issued to Proponents of Privatization

For Immediate Release: January 22, 1999

A challenge was issued to all the members of Congress who have publicly endorsed privatization proposals to produce an accounting of the expected returns in the stock market that has the same level of detail as the projections that appear in the Social Security Trustees Report. The challenge came in the form of a letter from economists Dean Baker and Mark Weisbrot.

Baker and Weisbrot made the challenge in the interest of provoking a more honest discussion of the potential returns from stock market. The letter notes that the 75 year projections from the trustees specify in great detail their assumptions about wage growth, unemployment rates, interest rates, life expectancies and other economic and demographic variables. The letter argues that:

If the public is to support a Social Security reform proposal that relies on high projected returns in the stock market, it seems incumbent on the proponents of such plans to produce an equally detailed description of their assumptions on stock returns.

The letter requests that this description present the year-by-year assumptions for the two components of the stock return, dividend payouts and capital gains, in precisely the same manner that the Trustees Report currently lays out its assumptions for wage growth or interest rates.

In addition to being sent to the 35 members of Congress who have endorsed a privatization proposals, copies of the letter were also sent to several prominent economists who have proposed privatization plans for Social Security.

In previous work, Dr. Baker has shown that the rate of return in the stock market assumed by advocates of privatization is inconsistent with the slow growth projected for the economy in the Trustees Report. (See Saving Social Security With Stocks: The Promises Don't Add Up, 1997, by Dean Baker, Century Foundation [formerly the Twentieth Century Fund]). The argument developed in this paper suggests that if the Trustees economic projections are correct, then the average rate of return in the stock market will be in the range of 3.5-4.0 percent, approximately half the rate generally assumed by advocates of privatization.

 

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