•Press Release Growth Health and Social Programs
February 22, 1999
For Immediate Release: February 22, 1999
Senator Gregg agreed to submit a request for detailed projections of stock returns to the Social Security Administration after a month-long exchange with Dean Baker and Mark Weisbrot.
Senator Gregg agreed to submit the request after he acknowledged that he does not have a set of projections for the components of stock returns (dividends and capital gains) that has the same level of specificity as the other projections (e.g. wage growth, population growth, life expectancy) that appear in the Social Security Trustees Report (pp. 57-61).
The exchange with Senator Gregg was initiated last month, when Baker and Weisbrot challenged all the members of the House and Senate who have supported Social Security privatization plans to produce a set of projections for the components of stock returns that will support the 7.0 percent real returns assumed in these plans, and which is consistent with the other projections made by the Social Security Trustees. This challenge has more recently been extended to Treasury Secretary Robert Rubin and Janet Yellen, the Chair of the President's Council of Economic Advisors, since the President's Social Security proposal also relies on high returns from the stock market.
Baker and Weisbrot argue that it is impossible to produce such projections because the 6.75-7.0 percent real returns assumed by advocates of investing in the stock market are inconsistent with the 1.5 percentage growth rate for the economy and profits assumed by the Social Security Trustees. They argue that a 3.5 percent return on stocks is more consistent with the current dividend payout rate and projected growth of the economy (2.0 percent dividend payout and 1.5 percent growth of the economy and profits). The difference between a 3.5 percent rate of return on stocks and the higher returns assumed by advocates of privatization could have an enormous impact on the retirement income provided by an individual account.
Baker and Weisbrot commended Senator Gregg for agreeing to pass along a request for projections of stock returns to the Social Security Administration: "If your intervention results in the adoption of more realistic assumptions about stock returns, you will have made a tremendously valuable contribution to the debate."