Martin S. Feldstein
George F. Baker Professor of Economics
Harvard University
Cambridge, MA 02138

May 11, 1999

Mr. Dean Baker
Preamble Center
1737 21st Street, N.W.
Washington, D.C. 20009

Dear Dean:

You recently sent me a petition requesting that the SSA make projections of stock returns.  You also called for this in your earlier letter to me.

I don't know if you are serious about this or doing it to confuse the debate.  While it may be perfectly reasonable to estimate the average rate of return on stocks over some future period, it makes no sense at all to forecast year-to-year differences in that rate of return.  If stock markets are efficient, it is not possible to forecast annual differences in stock returns.

I know you think that the historic average rate of return is not likely to hold in the future.  Do you have a forecast of annual future returns?   Or do you simply want to be able to say that the proponents of stock investments (including presumably the administration) have not been willing to make estimates of the year to year future annual returns?


Martin Feldstein