social security catch 22

It is pretty clear Bush and fellow social security privatizers just want to do away with the whole program, not save it, but regardless it is fun to poke holes in the argument.

One of the best ones I’ve seen is this gem of an NYT Op-Ed from Paul Krugman.

The gist of the article is this: Bush & Co are arguing that the stock market will net better returns that the current government managed fund. Paul calculates that in order for the stock market to outperform today’s fund over the next 75 years, stocks will either be ridiculously overpriced (more than 100 P/E ratio) or the economy as a whole will grow enabling stocks to reap big returns. The catch 22 is if the economy grows that fast payroll taxes will swell and keep social security well in the black exactly as the system is today, no changes needed.

Pauls more eloquent version:

Which brings us to the privatizers’ Catch-22.

They can rescue their happy vision for stock returns by claiming that the Social Security actuaries are vastly underestimating future economic growth. But in that case, we don’t need to worry about Social Security’s future: if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.


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