I am sorry to bug people about this again, but I think it is important to have this debate grounded in real numbers. Representative Stenholm just made a comment where he assumed that individuals will get a 4.5 percent return on individual accounts, after paying administrative fees. This implies a return on stocks in excess of 6.0 percent annually. (Under standard assumptions half the funds are assumed to be in bonds, which pay 3.0 percent and half are assumed to be in stock. To get a 4.5 percent return, after adminstrative fees, the stock return would have to be in excess of 6.0 percent.)
There is no economist in the country who has been able to show
how the stock market can generate returns of more than 6.0 percent, given current price to earnings ratios and the Trustees projections of profit growth.
I have urged that the Social Security Administration make projections of stock returns derived from the two components of returns (dividends and capital gains). This has not been done to date.
In the absence of such projections, Rep. Stenholm's 4.5 percent return is simply an invented number. It is always possible to solve problems by just inventing numbers. However, it is not a good basis for policy.
If people want to build a Social Security plan around the stock market (whether through the trust fund or individual accounts), let's get projections that provide some real basis for talking about returns. In the absence of these projections, no claims about returns should be taken seriously.
