The country's private pension system is broken, so there is nothing wrong with creating new systems of private accounts in addition to Social Security. However, there are grounds for suspicion about the motives of people who propose such accounts using public funds, esepcially when they make up numbers. As part of its ongoing Jihad against Social Security, the Washington Post published a column by Republican senator Jeff Sessions advocating such accounts, with the usual invented numbers. Basically, it allowed Mr. Sessions to use preposterous rate of return assumptions. Mr. Sessions claims that $1,000 invested at birth would grow to between $50,000 and $100,000 by age 65. This implies a rate of return of 6.2 and 7.3 percent. This would only be possible if we assume that all the money was invested stocks (the normal assumption for these calculations is 60 percent) and we assumed that stock returns would be substantially higher than future profit growth projections will allow. During the Social Security debate last year I challenged all the supporters of President Bush's plan to produce a set of projections for capital gains and dividend yields that would equal the 6.5 percent to 7.0 percent return for stocks assumed in their calculations. (This was the famous "no economist left behind test.") No one could produce the 3rd grade arithmetic that could reconcile these numbers. (Steve Goss, the chief actuary for SS said that he could do it, if stock prices first fell by 16.5 percent -- an assumption that he neglected to include in his projections.) Anyhow, the invented numbers are back in the Washington Post. For these interested in reality, using plausible return assumptions (given the SS trustees or CBO profit growth projections), the $1,000 will grow to about $12,000 to $13,000 by age 65. Maybe we should collect the difference from the Washington Post editors.
--Dean Baker
