Dean Baker

Recent Articles

Anti-Social Behavior:

W hen President Bush first described the war against terrorism, he warned that we may never learn of some of the victories therein. One such victory that has largely escaped public attention occurred last week, when the Bush administration kept the 2002 Social Security trustees report out of the hands of terrorists. Ordinarily, the annual trustees report, which provides detailed projections on the health of the Social Security program, is released at any early morning press conference. Copies are made available to anyone who wants one. The report is also posted on the Web, where the public (and terrorists) can freely download it. Reporters usually spend the day reading and digesting the report, contacting experts around the nation for assessments, and then filing their stories. This information is then transmitted by radio and television, across the country and around the world, where even al-Qaeda terrorists in caves along the Afghan border can pick it up. That didn't happen this...

Two Cheers for Clinton's Social Security Plan

President Clinton's plan to extend Social Security's solvency through 2055 preserves the existing benefit structure and rejects individual accounts. The plan relies primarily on placing most of the projected 15-year budget surplus into the Social Security trust fund. These aspects of the Clinton plan have been warmly welcomed by progressives who feared an imminent compromise that would have added individual accounts by diverting revenue from the current system. Partly to increase the projected rate of return, and partly to steal the privatizers' thunder, the President also proposed placing some $600 billion of the projected surplus into the stock market to earn a higher return. This part of the plan warrants a more wary reception. Placing some of the trust fund in the stock market raises both phony issues and real ones. Let's dispatch the bogus ones first. For one thing, the amount of money the administration proposes placing in the stock market will...

Behind the Numbers: The Privateers' Free Lunch

The flawed mathematical assumption behind privatizing Social Security.

B ehind the various proposals for privatizing Social Security, in whole or in part, is one seductive assumption. By investing their savings individually in financial markets, rather than collectively relying on the Social Security system, workers supposedly will get a greater return. This premise is the basis of the proposals by two factions of the Social Security Advisory Council for government-mandated individual savings. It seems a reasonable belief, particularly given the stock market's stellar growth in recent years. But it turns out the claim is based on inconsistent assumptions about economic growth and stock market returns. The Social Security Advisory Council's own projections of growth are far too pessimistic to justify the projections for the stock market. An accurate comparison of all the costs and returns of private savings plans with the costs and returns of the existing Social Security system shows that a mandated savings plan, in which retirees invested their money...

After the Fall

A lan Greenspan is known for his guarded pronouncements, carefully crafted in order to soothe financial markets. But in his semiannual testimony before the House Banking Committee this February, Greenspan did not mince words. He pointedly explained why stock prices should only rise as fast as disposable income. This would imply a growth rate for stock prices of just 5 percent annually. For investors who have come to expect double-digit returns, this is quite a letdown. On closer inspection, the situation looks even worse. Currently, dividend payouts are only slightly higher than 1 percent. So if Greenspan is right, the total return from holding stock (dividends plus capital gains) will be around 6 percent, approximately the same yield offered by perfectly safe government bonds. It makes no sense to hold risky stock if the return is no better than on government bonds. This year some air has already come out of the inflated market. The NASDAQ is down about 30 percent from its peak, and...

Bull Market Keynesianism

A s we wait for the dust to settle from the current global financial turmoil, it is a good time to assess the lessons to be learned from the nineties business cycle. First, it is important to get the basic numbers right. Although the economy experienced robust growth in 1996 and 1997, on the whole this business cycle has had the slowest growth of any in the postwar period. [See Jeff Madrick, "The Treadmill Economy," TAP, September-October 1998.] Growth rates are best judged from peak to peak, taking the entirety of the business cycle into account. The average growth rate since the last business-cycle peak in 1989 has been 2.3 percent. This compares with a growth rate of 2.7 percent in the eighties cycle, 3.2 percent in the seventies cycles, and 4.4 percent in the sixties cycle. The rate of job growth has also been slower than in previous cycles. The economy added jobs at the rate of 1.6 percent annually in the nineties. This compares with rates of 1.8 percent in the eighties, 2.5...

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