Apparently Representative Stenholm is unaware of the projections that are in question. The issue is NOT whether the stock market will maintain its rate of return over the last ten years. Nor is the issue whether the economy will maintain its rate of growth over the last three years. I have never encountered anyone in this debate who has argued either position (mayber they do things differently on the Hill).
The question on stock returns is whether the market can maintain the average rate of return (approximately 7.0 percent above the rate of inflation) it has had over the last seventy five years. I have argued that it will not be possible, both because the stock market is at twice its historic price relative to earnings, and because the Trustees projected growth rate for profits over the next seventy five years is less than half its average over the last seventy five years.My projection for stock returns is just 3.5 percent above the rate of inflation, only slightly higher than the 3.0 percent yield projected for government bonds.
I have written out my argument in many places, and shared it with many of the leading economists who support investment in the stock market, such as Martin Feldstein (who provided the basis of the Archer-Shaw plan) and Henry Aaron who is one of the leading advocates of investing the trust fund in the stock market.
No economist has been able to show how you can produce higher returns in the stock market that are consistent with the Trustees projections. Before Representative Stenholm tries to implement a policy that assumes stock returns which I claim are not possible, I would hope that he (like Senator Gregg) would at least ask for projections from the Social Security Administration.
On the GDP growth projection, the average rate of GDP growth over the last seventy five years has been 3.0 percent. If we applied this average growth rate to the projections for the next seventy five years, it would virtually eliminate the projected shortfall in the fund.
The reason that liberal members of raised objections to the projections is because they DON'T extrapolate from the growth rate over distant past, not because they do.
One last point, if the Trustees growth projections are correct, the U.S. will be significantly poorer than every country in western Europe in fifty years. They might be right about that projection, but that prospect concerns me much more than the possibility that there might have to be an increase in taxes in twenty or thirty years.
