"Fred Stone" <fstone69@earthling.com> wrote in message
news:Xns95F1CF98EC5B8fstone69@205.188.138.161...

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.

Stocks are somewhat
more highly valued today than they have been on average in the past

On Thu, 3 Feb 2005 01:24:16 +0000 (UTC), Fred Stone
<fstone69@earthling.com> wrote:

"Michelle Malkin" <hypatiab7@comcast.net> wrote in
news:xsWdnSLPJqpgxJzfRVn-qg@comcast.com:

Many Unhappy Returns
By PAUL KRUGMAN

Published: February 1, 2005


he fight over Social Security is, above all, about what kind of
society we want to have. But it's also about numbers. And the numbers
the privatizers use just don't add up.

Let me inflict some of those numbers on you. Sorry, but this is
important.

Schemes for Social Security privatization, like the one described in
the 2004 Economic Report of the President, invariably assume that
investing in stocks will yield a high annual rate of return, 6.5 or 7
percent after inflation, for at least the next 75 years. Without that
assumption, these schemes can't deliver on their promises. Yet a rate
of return that high is mathematically impossible unless the economy
grows much faster than anyone is now expecting.

The Krugman Truth Squad strikes again:
http://www.nationalreview.com/nrof_luskin/kts200502021117.asp

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.

Not so fast. You forgot inflation - he said that it had to grow 3.5
percent OVER INFLATION, which averages 3 percent a year.

so you are shy 3.1 percent on average, less if inflation starts
growing again.

On Thu, 3 Feb 2005 01:24:16 +0000 (UTC), Fred Stone
<fstone69@earthling.com> wrote:

"Michelle Malkin" <hypatiab7@comcast.net> wrote in
news:xsWdnSLPJqpgxJzfRVn-qg@comcast.com:

Many Unhappy Returns
By PAUL KRUGMAN

Published: February 1, 2005


he fight over Social Security is, above all, about what kind of
society we want to have. But it's also about numbers. And the
numbers the privatizers use just don't add up.

Let me inflict some of those numbers on you. Sorry, but this is
important.

Schemes for Social Security privatization, like the one described in
the 2004 Economic Report of the President, invariably assume that
investing in stocks will yield a high annual rate of return, 6.5 or
7 percent after inflation, for at least the next 75 years. Without
that assumption, these schemes can't deliver on their promises. Yet
a rate of return that high is mathematically impossible unless the
economy grows much faster than anyone is now expecting.

The Krugman Truth Squad strikes again:
http://www.nationalreview.com/nrof_luskin/kts200502021117.asp

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.

Not so fast. You forgot inflation - he said that it had to grow 3.5
percent OVER INFLATION, which averages 3 percent a year.

so you are shy 3.1 percent on average, less if inflation starts
growing again.

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...

johac <jhachm@ixpres.com> wrote in
news:jhachm-293994.23170503022005@news.giganews.com:

In article <xsWdnSLPJqpgxJzfRVn-qg@comcast.com>,
"Michelle Malkin" <hypatiab7@comcast.net> wrote:

Many Unhappy Returns
By PAUL KRUGMAN

Published: February 1, 2005


he fight over Social Security is, above all, about what kind of
society we want to have. But it's also about numbers. And the numbers
the privatizers use just don't add up.

Let me inflict some of those numbers on you. Sorry, but this is
important.

Schemes for Social Security privatization, like the one described in
the 2004 Economic Report of the President, invariably assume that
investing in stocks will yield a high annual rate of return, 6.5 or 7
percent after inflation, for at least the next 75 years. Without that
assumption, these schemes can't deliver on their promises. Yet a rate
of return that high is mathematically impossible unless the economy
grows much faster than anyone is now expecting.

Advertisement


To explain why, I need to talk about stock returns. The yield on a
stock comes from two components: cash that the company pays out in
the form of dividends and stock buybacks, and capital gains. Right
now, if dividends and buybacks were the whole story, the rate of
return on stocks would be only 3 percent.

To get a 6.5 percent rate of return, you need capital gains: if
dividends yield 3 percent, stock prices have to rise 3.5 percent per
year after inflation. That doesn't sound too unreasonable if you're
thinking only a few years ahead.

But privatizers need that high rate of return for 75 years or more.
And the economic assumptions underlying most projections for Social
Security make that impossible.

The Social Security projections that say the trust fund will be
exhausted by 2042 assume that economic growth will slow as baby
boomers leave the work force. The actuaries predict that economic
growth, which averaged 3.4 percent per year over the last 75 years,
will average only 1.9 percent over the next 75 years.

In the long run, profits grow at the same rate as the economy. So to
get that 6.5 percent rate of return, stock prices would have to keep
rising faster than profits, decade after decade.

The price-earnings ratio - the value of a company's stock, divided by
its profits - is widely used to assess whether a stock is overvalued
or undervalued. Historically, that ratio averaged about 14. Today
it's about 20. Where would it have to go to yield a 6.5 percent rate
of return?

I asked Dean Baker, of the Center for Economic and Policy Research,
to help me out with that calculation (there are some technical
details I won't get into). Here's what we found: by 2050, the
price-earnings ratio would have to rise to about 70. By 2060, it
would have to be more than 100.

In other words, to believe in a privatization-friendly rate of
return, 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.

Social Security privatizers usually defend their bullishness by
saying that stock investors earned high returns in the past. But
stocks are much more expensive than they used to be, relative to
corporate profits; that means lower dividends per dollar of share
value. And economic growth is expected to be slower.

Which brings us to the privatizers' Catch-22.

They can rescue their happy vision for stock returns by claiming that
the Social Security actuaries are vastly underestimating future
economic growth. But in that case, we don't need to worry about
Social Security's future: 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.

Alternatively, privatizers can unhappily admit that future stock
returns will be much lower than they have been claiming. But without
those high returns, the arithmetic of their schemes collapses.

It really is that stark: any growth projection that would permit the
stock returns the privatizers need to make their schemes work would
put Social Security solidly in the black.

And I suspect that at least some privatizers know that. 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?


E-mail:

There are only two things that you need about stocks.

Sometimes they go up.

Sometimes they go down.

the only ones sure to benefit from Dumdum's plan are the big stock
market broker friends of W.

Long-term returns on the stock market, adjusted for inflation, are
positive. Yes, there are downturns, but the general trend is *up*.

"Daniel Kolle" <DKolle@hotmail.com> wrote in message
news:oc4301d0sq888po167q8qife51oh2cifao@4ax.com...

On Wed, 2 Feb 2005 17:54:00 -0500, "Michelle Malkin"
<hypatiab7@comcast.net> thought hard and said:

Many Unhappy Returns
By PAUL KRUGMAN

Published: February 1, 2005

<snip rest>

Even if (and that is a big if) Social Security is not as in much
trouble as Bush would like us to believe, I am not going to be some
fucking moron and attempt to live off of my SS benefits come
retirement time. It is unfortunate that few people invest.
Aliens from the planet Umquay have a better change of coming to Earth
than I do receiving a return on my SS contributions.

Then, make sure that you get a job with a pension, like I did. If
both the pension and Social Security come through, I should be
very comfortable. Of course, I''ll have to make do with the pension
alone for about five or six years, but that shouldn't be so bad. In fact.
I may even take part of my pension and invest it. Getting a job with
the state, and not the Federal government, was probably one of the
smartest things I ever did.

"Daniel Kolle" <DKolle@hotmail.com> wrote in message
news:oc4301d0sq888po167q8qife51oh2cifao@4ax.com...

On Wed, 2 Feb 2005 17:54:00 -0500, "Michelle Malkin"
<hypatiab7@comcast.net> thought hard and said:

Many Unhappy Returns
By PAUL KRUGMAN

Published: February 1, 2005

<snip rest>

Even if (and that is a big if) Social Security is not as in much
trouble as Bush would like us to believe, I am not going to be some
fucking moron and attempt to live off of my SS benefits come
retirement time. It is unfortunate that few people invest.
Aliens from the planet Umquay have a better change of coming to Earth
than I do receiving a return on my SS contributions.

Then, make sure that you get a job with a pension, like I did. If
both the pension and Social Security come through, I should be
very comfortable. Of course, I''ll have to make do with the pension
alone for about five or six years, but that shouldn't be so bad. In fact.
I may even take part of my pension and invest it. Getting a job with
the state, and not the Federal government, was probably one of the
smartest things I ever did.