I mean, the description right now is that it's going to have very little to do with actually investing your own money. That what's actually going to happen is that the Social Security Administration is going to invest on your behalf in a mixture of stocks and bonds, and sort of end of story. The big question that everyone wants it to know is really, how are these accounts, if they exist, going to be managed. We didn't hear anything about that, except that Mr. Bush did insist that it was going to be run like the thrift savings plan which is for federal employees, which is something in which it is basically the government managing your money.

Hasn't Krugman read any of the many description of the TSP that have  been in the press lately (here's mine)? TSP offers a completely free choice of five fund options, only one of which is managed by the government. It's all completely up to the employee -- nothing even remotely like "basically the government managing your money."

This just in from the National Conference of Editorial Writers, a nonprofit professional organization that exists to improve the quality of editorial pages and broadcast editorials, and to promote high standards among opinion writers and editors. It's all about how local newspapers can respond to the escalation of uncorrected errors and misinformation coming from syndicated columnists like Paul Krugman, Maureen Dowd and Molly Ivins -- and out-of-control cartoonists like Ted Rall. This is real progress.

I am pleased to announce that NCEW has set up a task force on syndicates to seek answers to our questions of ethics and corrections.

Heading up the panel is Jerry Ausband, retired editorial page editor of Myrtle Beach.

The task force will contact all of the syndicates to go over questions that have been raised on this groupserv and elsewhere. This will allow us to compare how syndicates are set up to deal with issues like those that have come to the forefront this year and also ascertain how we can be effective in correcting factual errors.

Among the questions:

• How do you screen columnists and editorial cartoonists?

• Do you have an ethics policy?

• What policy do you follow if contracted columnists/cartoonists violate standard journalism ethics (regardless of where you have an individual ethics policy)?

• Do you have a fact-checking process for columnists? How does it work?

• When editorial writers or editors find a factual error in a column or cartoon, what effective means can be used to communicate that error and have a correction made?

Kay Semion
NCEW President

Personally, I think the Social Security story is best summed up in an Ann Landers letter:

Dear Ann,
My Uncle Samuel (also my employer) demanded years and years ago that I put some money aside. Finally he made it a condition of my employment: either put aside a savings plan for my retirement or look for another job. Now I just learned that he spent all the money. What should I do?

Signed,
Worried in Wisconsin

Dear Worried,
Your uncle is a bum. Divorce him and get counseling. Good luck!

• The survey includes no respondents under age 30 even though voters age 18 to 29 made up 17% of the 2004 electorate.
• Those age 60+ constitute 34% of the sample, yet they were 24% of the 2004 electorate.
• 20.7% of adults receive Social Security benefits. Yet 33% of AARP’s respondents report receiving benefits.  This biases results against plans to strengthen Social Security since all surveys show resistance to change among Social Security recipients.
• AARP’s sample gives Democrats a six-point advantage over Republicans (37% to 31%). However, the parties made up equal percentages of the 2004 electorate (37% to 37%).
• AARP finds a right direction/wrong track margin of 32% to 60%, far below those of other recent major surveys: 46% to 53% in January 3-5 Gallup survey; 44% to 51% in January 3-5 AP/Ipsos survey; and 40% to 54% in January 5-9 Pew survey. This indicates a sample far more Democrat than are American adults.
• A 47% to 48% margin trust the President, similar to the Democratic party’s 48% to 43%.
• AARP finds all those age 30+ holding a favorable view of Social Security.  Yet other national surveys have shown those under 55 hold a decidedly unfavorable view, again raising questions about the partisan composition of AARP’s survey.
• AARP asks respondents whether they favor or oppose allowing workers to invest some of their Social Security payroll taxes in the stock market -- never mentioning other options, such as bonds, that are seen as safe and win higher support. Even with the slanted wording, a majority of those under 50 favor the idea, and even with the skewed sample composition, the idea only loses by a slim 43% to 48%.
• AARP asks respondents whether they agree “Social Security should be protected as a guaranteed benefit, and should not be privatized.” Yet no one has proposed privatizing the Social Security system and Social Security benefits are not now “guaranteed.”
• AARP also asks whether respondents agree “We have a responsibility to meet our obligation to people currently on Social Security to protect their benefits.” This clearly implies to respondents that personal account proposals threaten retirees’ benefits even though the President and others have emphasized that no proposal would affect retirees or those near retirement."

"I'm not sure that the current value of the Nasdaq is justified, but I’m not sure that it isn’t."

But in the introduction to his 2003 book The Great Unraveling, Krugman wrote:

"There were stock market skeptics; I was one of them."

And:

"I...thought stock prices were way out of line."

It's typical Krugman. In that same introduction, he wrote,

"Who could have thought that famous companies, lauded in business schools as the very models of a major modern corporation, would turn out to be little more than Ponzi schemes?"

He failed to mention that he himself was doing the lauding. Here's in a 1998 article for Fortune, he used the same Gilbert and Sullivan reference:

I'm talking about the U.S. economy of the '50s and '60s, when General Motors was the very model of a modern major company.

By contrast, here is the concluding passage of a paragraph signing the praises of Enron:

"...the company's pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it."

That "end of the corporation" turned out to be something very different than Krugman meant. Of course Krugman was on Enron's payroll when he wrote that, as a member of their "advisory board." As Krugman himself said in concluding a column last week,

"...I remember what Upton Sinclair wrote: 'It is difficult to get a man to understand something when his salary depends on his not understanding it.'"

Washington, D.C. – This morning, House Democratic Leader Nancy Pelosi and Senate Democratic Leader Harry Reid delivered the pre-buttal to the State of the Union Address on the need to confront the urgent challenges facing our nation at home and abroad. Below are her remarks as prepared:

“Pre-buttal” is not a word. It is a gimmick to try to get noticed, like a child banging the pots and pans, interrupting the adults when they need to discuss something important.

“Thank you, Debra Silimeo, for the opportunity for the Democratic leadership to address the National Press Club today.

“It’s an honor to be here with the new Senate Democratic Leader, Harry Reid, who came to the leadership with the overwhelming support of his constituents, the full confidence of his Senate colleagues, and the respect of all who know him.

Of course, the real reason I’m here with Senator Reid is that he was standing in line behind Tom Daschle who was rejected by his own voters for ceaselessly obstructing President Bush in Washington while pretending to be the loyal opposition in South Dakota. Reid isn’t really the minority “leader.” The most powerful Democrats in the Senate are Kennedy and Clinton.

“At the start, let me say a word about this weekend’s elections in Iraq. Yesterday, because of the courage of the Iraqi people and the bravery of the American troops who provided security, Iraq took a significant step on the road to self-determination.

Had your policy choices prevailed, January 30 would be just another day under the brutal tyranny of Saddam & Sons.

“Now, it is time to take the additional steps that will improve Iraq’s economic and political stability, and allow our troops to come home.

So, are you now for the $87 Billion after you voted against it? Will you support the next round of financial assistance?

“That means changing our military focus from combat operations to training the Iraqi army.

Attention, Congresswoman Pelosi: that transition was made many months ago. Just because it’s hard and slow, doesn’t mean progress isn’t being made.

“It means intensifying our reconstruction efforts, with projects that give the Iraqi people hope for their future.

So, you’ll support new funding, without gimmicks or absurd conditions?

“And it means more aggressively pursuing diplomatic efforts with Iraq’s neighbors -- who have the greatest stake in Iraq’s security and stability.

Which are on-going, difficult as they are. What about Iran? Not all neighbors are nice.

“If those steps are taken, the elections scheduled for December can be held in a more secure atmosphere, with broader participation, and a much smaller American presence.

Is there an implied emphasis on “smaller” before “American?” Are we the problem? Are you aware that those Iraqis who voted are thanking us for the opportunity and hoping we stay until there is full democracy and security?

“Senator Reid will address the issues of Iraq and national security more fully. I will focus on domestic issues.

Because?

“On Wednesday evening, President Bush will deliver his State of the Union address to Congress.

Cue the ominous music.

“As the President begins his second term, it is fitting that we pause to look at where our nation stands, where we are headed, and what better course of action should be taken.

Get ready, pointing fingers.

“Today America faces the threat of terrorism, a war in Iraq, a ballooning budget deficit, and a society where too many people go without jobs, health care, educational opportunity, or retirement security.

How come the folks who poke holes in the bucket are the same ones who complain about the water level?

“To meet these challenges, the Democrats’ approach is based on America’s core values and the entrepreneurial spirit that is the legacy of our Party.

Please. First, you’re Chicken Little and then you’re Superwoman?

“Core values” and “entrepreneurial spirit” are not your “legacies.” Wearing the other team’s uniforms won’t win you games. Your legacies are regulating businesses into submission and then proceeding to tax and spend whatever earnings are still produced.

“On every issue our nation faces, our commitment is to see that the policies we pursue are consistent with the values we cherish.

That’s very Orwellian of you.

“To that end, House Democrats have put forward our New Partnership for America’s Future, which reaffirms our dedication to six core American values for a strong and secure middle class: national security, prosperity, opportunity, fairness, community, and accountability.

Oh, we can’t wait. We love those Democratic “Partnerships.” You get our money for your counter-productive programs. Or, did you mean that other kind of Partnership?

Hey, we can be in a Partnership if we didn’t sign, right? Or is “consent of the governed” not one of your “core values”?

“Our Partnership is with the American people, and honors the trust they have placed in us.

No, actually, we trust the other team…the team we voted for.

“Democrats are committed to a prosperity that includes many more Americans in the economic success of our country. By creating 10 million new jobs, we will advance the economic security of American families.

Ten million jobs! Wow, but, if it’s so easy for you, why not twenty million or seventy-nine gazillion!?

“Our sense of fairness demands that we expand access to health care, because health care is a right and not a privilege. And we can start by ensuring health care for all of America’s children.

Your first idea on creating jobs is to increase the cost of employing people. You guys know magic?

“We must expand opportunity, with a vibrant public education system which truly leaves no child behind, and with the chance for our young people to go to college without going deeply into debt.

Truly a vibrant sentence. Could you identify the problems with public education first? It might help if you came down off the soapbox and talked to the parents and students, not just to the union leaders who want more money for a broken system.

“We need to strengthen community – working to build safe neighborhoods free of crime and drugs, and by promoting a clean and healthy environment where polluters pay for the damage they cause, instead of children paying with their health.

News Flash! THIS JUST IN: Crime is caused by criminals. Criminals commit crime because that is what they do. Conservatives put them in jail longer than liberals do, a lot longer. UPDATE! Getting criminals off the street is linked to making the streets safer! For some heinous crimes, juries occasionally issue the death penalty. UPDATE! Dead criminals don’t commit crimes.

Pollution is bad and demands to be regulated. Pollution is sometimes a crime, but it deserves its own focus, doesn’t it, now? Don’t forget why pollution exists, if you really, really want to eradicate it--it is a by-product of economic activity. When you get yourself all fired up vigilante-style, you might forget your ten million job creation program, your core values and your legacy of entrepreneurial spirit and all. Besides, you need permits for torches and pitchforks these days.

How come you equated only pollution with killing kids? It does happen, but actually proving it is difficult. That pesky rule of law can sure slow you down!

Hmm, you got us thinking. What other policies kill kids, more directly – as in on purpose--by the hundreds of thousands? Clue: it begins with an “A.” Be sure to call us when you rethink that part of the “Partnership?”

“We must ensure accountability, by restoring fiscal discipline and holding those in power accountable for their actions. Democrats support pay-as-you-go budgeting that does not grow the deficit and heap decades of debt onto our children.

At least when Bill Clinton said stuff like that, he was winking.

"And, above all, we must guarantee national security, with a strong system of homeland security, a military that is second to none, and a commitment to stopping the spread of weapons of mass destruction. Democrats will never send our young people into harm’s way without the equipment they need.

Sigh. Please stop copying John Kerry’s redraft of Howard Dean’s speeches.

“Our New Partnership for America’s Future honors our commitment to make the future brighter for the next generation. America has always been about the responsibility of one generation to another.

Ready.

“That tradition is embodied in the Democratic Party’s commitment to Social Security.

Aim.

“Social Security is the most visionary example of what President Franklin Roosevelt called ‘bold, persistent experimentation.’ Its goal was to ensure that the prospect of retirement was not met with the specter of poverty.

Misfire!

“It has been an incredible success. It has enabled our seniors to enjoy independence. And it has enabled our country to obey the commandment: “honor thy father and thy mother.”

Hey, capitalize the word “Commandment,” so you can better pretend to mean it.

Reload!

“Not only does Social Security improve the lives of the more than 33 million senior citizens who receive its benefits, it also provides a measure of independence for workers who have become disabled, and the children and spouses of those who have become disabled or passed away.

Ready!

“Social Security does face problems down the road. We need to solve them. But we have the time to do it right.

At Ease!

“We can solve this long-term challenge without dismantling Social Security, and without allowing this Administration’s false declaration of a crisis to justify a privatization plan that is unnecessary, unaffordable, and unwise.

Sing it! “We can do it...but we don’t have to…because we care…about the Peoples!” Now, for our next number, “Oh yeah, take the money and run…”

“To be sustainable, any long-term solution must be bipartisan. And as a first step, we must work off the same set of numbers.

Nah-nah-nah, nah-nah-nah!

"The President talks about a crisis, but according to the nonpartisan Congressional Budget Office, Social Security will be solvent for nearly 50 years.

This is from the Comedian School of Economics: “I can’t be overdrawn! I still have checks left!”

“Democrats see strengthening Social Security as the cornerstone of independence for our seniors and people with disabilities. President Bush sees undermining Social Security as the cornerstone of his “ownership society.”

“Strengthening?” You mean setting up the young with huge taxes to pay for our retirements while pretending that magic will make the system “preserved” for them when they retire? Or, stopping any possible reform now which might countervail huge benefits cuts later? Or, what?

“Because so many people are touched by it, and so many resources are committed to it -- it is right that we are having a discussion about the future of Social Security.

Third Rail!

“It is also right that Democrats stand up for our values – the values that created, defended, and will strengthen Social Security.

Tell us against about how ole Uncle Claude Pepper got ta fixin’ ‘n’ confabbin’ with lanky ole Lyndon and Trusty Teddy and they added all those extra nice shiny benefits and all! And it’s all free! Free!

“First, Democrats insist that changes to Social Security not add to the deficit. Any plan for Social Security needs to begin by paying back the money that has been borrowed from the trust fund, just as President Clinton did in the late 1990s.

Democrats hate deficits ‘cause it’s made of red ink!

“To establish private accounts requires borrowing more than $2 trillion from foreign countries over the next 10 years, $6 trillion over the next 20, and $15 trillion over the next 40 years.

Fereigners!

“That is a staggering price tag for privatization, and it will make the problem worse, not better.

Staggering? We thought you liked staggering.

“As the Concord Coalition stated, quote, “establishing personally owned accounts and funding them with borrowed money would, send a dangerous signal to the markets that we are not taking our fiscal problems seriously.”

Concord, as in Grapes? Oh, yeah, we remember the Concord Coalition folks now. You hang with them, OK? And don’t forget to floss!

“Increased debt also means increased interest rates, which makes mortgages, credit card payments and student loans more expensive.

…And lions and tigers and bears!

Of course it’s true that putting off paying for government programs only adds hugely to its ultimate cost. We are the ones who want to face up to it now while incremental changes can help in a big way twenty years hence. We hope to be alive and free then, by the way.

You can’t simultaneously claim there is no fire brewing and then tag the other guy as irresponsible for calling the fire department.

“Nor should we be mortgaging our future to foreign investors who would finance that debt.

Fereigners, again!

“That is why every American deserves to know the true cost – and necessary tradeoffs – of the President’s Social Security overhaul.

We like those overhaul shows on cable, ya know, the ones with the trucks, cars and motorcycles.

“If this is indeed one of his top priorities, it must be accounted for – without gimmicks – in the budget the Administration submits to Congress next week.

Ready with the whistles!

“Democrats insist upon fiscal discipline with budgets that pay as we go, and we want to strengthen Social Security for future generations. That cannot be done by increasing the debt we leave to those same future generations.

It can only be done by speaking in pretzel logic, doing nothing to help, offering no alternatives, pointing fingers and shouting loudly!

“Second, Democrats insist any changes not slash benefits. The average Social Security check today is $950 a month. That is not a great deal of money for those who depend on that check to pay for food, rent, heat, and medicine.

No to slashing benefits, not now! Not ev--er, that comes later when these voters get older and…forget!

“Under the leading privatization plan proposed by the President’s Social Security commission, the Social Security benefit could be cut by more than 40 percent.

Four out of five fibbers like quoting percentages!

"Even considering a cut of that magnitude is unconscionable.

“Magnitude is unconscionable.” What a bumper sticker!

“Workers who have paid into Social Security with every paycheck must receive the guaranteed benefit they were promised.

Guaranteed! Drive it off the lot!

“It is the knowledge of that guaranteed benefit that allows more people in our society to pursue the entrepreneurial dreams that fuel so much of our economy.

There’s that word “entrepreneurial” again! We love it when you speak French!

“The burst of the Internet bubble in 2000 wreaked havoc on private investments.

Bubble! Burst! Havoc! (And, please, ignore who was President then!)

“We won’t let a guaranteed benefit become a guaranteed gamble.

Leave that to the Democrats!

“Third and finally, any changes to Social Security must be fair.

By “fair” do you mean “time to tax again?”

“The president has suggested a two-tiered system that treats current retirees differently from younger workers.

Two tiers! Sounds like fereigners again!

“President Bush likes to say that young people have the most to gain under his plan, but the truth is that young people have the most to lose. Social Security will be there for today’s young people, unless the President gets his way.

Have you actually asked today’s young people? They might recall what Groucho Marx once said, ‘what are you going to believe? Me or your own two eyes?”

“According to the Center on Economic and Policy Research, under the leading privatization proposal, a young person entering the workforce today can expect to lose more than $150,000 in benefits over the course of a 20 year retirement.

Quotes from Centers with Words and Numbers! Your getting help making this stuff up, aren’t you?

“Incredibly, there was even a Republican suggestion to provide women and minority workers with a different level of benefits.

To the Lifeboats!

“Women are the majority of Social Security beneficiaries, and are less likely than men to have pensions or retirement savings to supplement their Social Security checks. And Social Security is extremely important for the millions of minority families who heavily rely on its survivor, disability, and retirement benefits.

We like women. Some of us are women. You like scaring them.

“Fairness demands that changes to Social Security not undermine entrepreneurial opportunity for our young people, and the independence of women and minorities.

Now that sentence is a big bee hive of buzz words!

“These standards: fiscal responsibility, fairness, and not slashing benefits, should guide us in the debate on Social Security.

Cue the song from Peter Pan!

“Democrats will not allow this Administration to turn this proud, entrepreneurial achievement of the New Deal into a raw deal for millions of Americans.

Do you prefer your books cooked medium-well?

“Let there be no doubt in anyone’s mind -- Democrats will fight to see Social Security strengthened, not destroyed.

We like that part in the film “You’ve Got Mail” when Meg Ryan says “Fight! Fight! Fight!”

“Further, strengthening Social Security must be viewed in the context of the larger retirement picture.

Retirement pictures are so much cheaper than actual retirements.

“We need to do more to promote pension portability, and to help people save and create wealth by strengthening and expanding access to 401(k)s, IRAs, and other types of pensions.

Yes, you’re known for creating wealth. I think you call it “taxes.”

“These measures are crucial to guaranteeing greater flexibility for our young people, and, again, greater independence for our seniors in retirement.

Crucial guarantees of greater flexibility! For the Young and the Seniors! Wow. You guys are so good at promising! So, what about those between the young and the senior, do they pay for everyone except themselves?

“Democrats believe that Social Security must form the foundation of a comprehensive plan for retirement security.

Comprehensive! Sounds so big it’s hard to comprehend what you mean.

“Social Security is a promise, kept from generation to generation, a guarantee of dignity and independence.

Where can the Today’s Young People cash their Promises of Dignity when it is their turn for the Retirement Picture?

By the way, did you accidentally hire some former Soviets as speechwriters? Or just reading them?

“Social Security is the closest thing our government has to a sacred trust. Mr. President, do not betray this trust.

It is an important program and it will fail one day – for this generation and all which follow -- if it is not fixed soon. It is devilish to play political games with Social Security. When you use the word “scared,” please refer to something bigger than a government program, even an important one.

“Truth and trust are essential to our democracy. Yet in President Bush’s Administration, we have seen a propensity to manufacture crises where none exist, and then turn to preordained ideas as the solutions to them.

“Words beginning with T for a thousand, Alex.”

“As a result, this Administration has often pursued solutions that only deepen the problems, and undermine the trust of the American people.

You lost a lot of elections saying things like this. Could it be that the American people have more trust in President Bush than in the Democrats?

“Right now, in so many of the areas where we should be making progress, we are either backsliding or simply holding the line. That is unacceptable in a country such as ours, where progress is our hallmark.

More Words!

“There are some people in Congress and across the country who see what we’re advocating – access to health care for all, a prosperity that creates good-paying jobs and lifts every child out of poverty, and the promise of higher education for all – as inconceivable. Democrats are optimists. We see them as inevitable.

Optimists usually act happier. Also, they are quieter and less self-absorbed.

“By embracing the “bold, persistent experimentation” that is the legacy of the Democratic Party and our country, we can bridge the gap between the inconceivable and the inevitable.

You said “inconceivable?” I do not think that word mean what you think it means.

“In so doing, we can build a future worthy of the trust of the American people, the sacrifices of our men and women in uniform, and the aspirations of all of America’s children. Thank you.”

Don’t stop thinking about tomorrow!!! Party like it’s 1999!!!

Of course, the bill usually comes in the mail the day after tomorrow.

TTFN.

• Americans are Getting Older
• Seniors are Living Longer
• Fewer Workers, More Retirees
• Social Security’s Costs Exceed Revenue
• Social Security Can’t Pay Promised Benefits
• A History of Payroll Tax Rate Increases
• A History of Payroll Tax Base Increases

Take the Krugman 6.5% Challenge
It’s dirty work (not really), but someone has to do it.

Paul Krugman and Dean Baker have a challenge for those of us who advocate Social Security reform with personal accounts.

Krugman, of course, is America’s most dangerous liberal pundit — but maybe you’ve never heard of Baker. He’s co-director of the Center for Economic and Policy Research, a leftist think-tank funded by George Soros. Krugman and Baker were recently cited as “excellent sources” on Social Security reform by the Communist Party USA.

Here’s the challenge, from Krugman’s New York Times column Tuesday:

Mr. Baker has devised a test he calls “no economist left behind”: he challenges economists to make a projection of economic growth, dividends and capital gains that will yield a 6.5 percent rate of return over 75 years. Not one economist who supports privatization has been willing to take the test.

But the offer still stands. Ladies and gentlemen, would you care to explain your position?

Krugman is using Baker’s test to try to suggest that stocks can’t possibly have the kind of returns in the future that they’ve had in the past — so Social Security reform with personal accounts that could invest in stocks is bound to fail. And he’s suggesting that Baker’s brilliance has stunned the opponents of reform into silence. Hardly — it’s just that none of us would have bothered to pay attention to someone like Baker if Krugman hadn’t elevated him to the pages of America’s so-called “newspaper of record.”

It’s dirty work, but someone has to do it.

Actually, it isn’t especially difficult. But to make the exercise interesting, I’ll limit myself to data Krugman himself offers in his very same Times column. Stand back, everybody — here goes.

Krugman states that the return on stocks from dividends and share repurchases is 3 percent. He states that “profits grow at the same rate as the economy,” and notes that “economic growth ... averaged 3.4 percent per year over the last 75 years.” It’s simple arithmetic that if dividends grow at the rate of earnings growth, and earnings grow at the rate of GDP growth, and if the dividend and repurchase yield stays at 3 percent, then stock prices must rise each year by 3.4 percent.

That’s 3 percent per year in yield plus 3.4 percent in capital gains. Sounds like a 6.4 percent return, to me. Just a hair shy of the 6.5 percent Krugman and Baker asked for, but I am still going to declare victory.

Even without the arithmetic, there’s nothing so unusual about thinking that stocks could return something like 6.5 percent, after inflation, over the next 75 years. After all, they’ve returned exactly that over the last 75 years, according to Ibbotson Associates. Stocks are somewhat more highly valued today than they have been on average in the past, but that may well be nothing more sinister than a reflection of the risk-reduction opportunities in today’s globalized economy. Besides, today’s valuations are fully reflected in the 3 percent dividend and repurchase yield that Krugman himself posited.

What does the guru of long-term stock investing — celebrated Wharton professor Jeremy Siegel — have to say about it? According to a Krugman column two weeks ago, “even Jeremy Siegel, whose ‘Stocks for the Long Run’ is often cited by those who favor stocks over bonds, has conceded that ‘returns on stocks over bonds won’t be as large as in the past.’” The point being that Americans would be better off leaving their Social Security taxes invested in the bonds held by the system’s trust funds, rather than investing in stocks through personal accounts.

But Krugman Truth Squad member Jim Glass, on the Scrivener.net blog, caught Krugman “Dowdifying” that quotation. What Siegel really said, after the sentence Krugman deceptively selected was, “I see a 5%-to-6% return on stocks, adjusted for inflation. I’m pessimistic about real bond returns.”

Okay, 5 to 6 percent isn’t quite 6.5 percent. But it’s close. And it’s a heck of a lot better than the rates of return offered by today’s Social Security system. According to the Congressional Budget Office, Social Security offers very poor returns for the median quintile of household earners — the present value of their payroll taxes is greater than the present value of their future benefits.

But Krugman does make one good point in Tuesday’s column. He states that stock returns in the neighborhood of 6.5 percent will not be possible over the coming 75 years if economic growth is as low as the 1.9 percent rate used by the actuaries of the Social Security Administration in their solvency estimates. He says that for that to occur, “you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble — and that stock prices will nonetheless keep on rising.”

How did Krugman figure that out? The Princeton economics professor — who some people think could someday win the Nobel Prize — had to ask Dean Baker to “help me out with that calculation (there are some technical details I won’t get into).” Indeed, Krugman probably needed the help — he never has had a very firm grasp of stock market valuation. During that “height of the Internet bubble,” Krugman wrote in his Times column that “I'm not sure that the current value of the Nasdaq is justified, but I’m not sure that it isn’t.”

Hmmm. That wasn’t exactly the unambiguous call to sell techstocks that Jeremy Siegel issued at the height of the bubble, when he wrote a piece titled “Big-Cap Tech Stocks Are a Sucker Bet.” No, as new ex officio Krugman Truth Squad member James Neel put it in an e-mail, “Krugman was for the bubble valuation of Nasdaq before he was against it.”

Today, once again, Krugman wants it both ways. He’s sure that stocks will perform poorly in the future, but he says, “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.” But that’s simply not true.

Kent Smetters, the Wharton professor who has pioneered the analysis of Social Security’s solvency beyond the deceptively arbitrary 75-year timeframe most often cited, told me that faster economic growth amounts to “very little over the long term.” Krugman’s analysis — which focuses on the higher taxes collected in the near term — ignores the reality that correspondingly “higher benefits come outside the 75-year window.” So you collect more now, but you just pay it out later. That’s largely because a 1977 law, passed by a Democratic Congress and signed by Democratic President Jimmy Carter, indexed Social Security benefits to economy-wide wage growth.

I’d conclude by turning Krugman’s challenge back on him: “Ladies and gentlemen, would you care to explain your position?” But I can’t — I’ve been writing the Krugman Truth Squad column long enough to know that he’s no gentleman.

Correction: Reader Dean Jens pointed out that in the original text above I had spoken loosely of the "negative" returns implied by the fact that the the present value of payroll taxes is greater than the present value of future benefits. Such returns are only negative relative to the discount rate used in the calculation -- they may or may not be negative in absolute terms. The text above has been amended.

Posted by Donald L. Luskin at 1:02 PM | link    

Posted by Donald L. Luskin at 11:50 AM | link