CBS Evening News has presented two segments in recent weeks (2/9/05, 3/4/05) that purport to show how typical American workers would fare under George W. Bush's plan to privatize Social Security. But the segments rely on stock market projections that, if true, would make any "crisis" in Social Security almost impossible.
CBS reporter Jim Axelrod first profiled (2/9/05) Jama Whitesell, a 28-year-old receptionist making $32,000 a year. Axelrod went to a financial planner who predicted that a private account would be a safe bet for this worker--based on a projected 8 percent return on the private account. Why did CBS choose this figure? Axelrod claimed that is "an assumption based on how the market's done the last 80 years," though he did add that "in the next 40, Jama could do worse. Of course, she could do better."
Axelrod returned to this theme more recently (3/4/05), profiling a 48-year-old worker earning $98,000 a year who would also benefit from a private account--again, relying on an 8 percent return on his private account. Axelrod again pointed out that "nothing's guaranteed, certainly not an 8 percent return." (Interestingly, an earlier CBS Evening News report--2/5/05--estimated a 9 percent return on a private account).
It's true that stock prices in the past have fluctuated markedly; looking at 35-year spans, which is the length of a typical working life, stock returns over the past 100 years have fluctuated between 3 and 10 percent (Center for American Progress, 2/10/05). Including a range of results would give viewers a better sense of the range of potential outcomes.
But even suggesting that 8 percent will be the most likely growth rate for private accounts over the next 40 years is problematic. For one thing, the projections made by the Social Security actuaries and touted by the Bush administration estimate a lower return (about 4.6 percent), both because they expect stock prices to rise more slowly and because private accounts would likely be balanced between stocks and bonds (Economic Reporting Review, 3/7/05; NPR, 2/4/05; Washington Post, 2/27/05).
And there are good reasons to think that stocks will grow more slowly in the future than they have in the past. Though CBS explained that they're using the 8 percent figure because it is a historical average, the Center for Economic & Policy Research (2/10/05) points out that "current price-to-earnings ratios are approximately 50 percent higher than their historic average." This means that stocks are valued more highly today, in comparison to how much money they make for stockholders, than they have been in the past; in order to match past growth rates, they would have to make a similar upward leap in the future, when history suggests that they're more likely to return to their earlier, lower valuation.
In any case, a stock market growing at a sustained rate of 8 percent would only be possible in a robust economy, a situation which would swell Social Security revenues, heading off any crisis or shortfall. The projected shortfall is based on gloomy forecasts that foresee the nation's economy growing at a much slower rate than it has over the past 80 years. It is unfair in the extreme to compare the future of Social Security with the return on private accounts by using two very different economic models.
Stories tracing the impact of policy on individuals can be helpful for viewers who do not follow the minutiae of public policy debates. But giving viewers an unrealistic view of the benefits of Social Security privatization only serves the interests of the White House and its allies.