CNN's Bash vastly overstated projected return on Social Security private accounts
During the pre-State of the Union edition of CNN's Paula Zahn NOW, CNN White House correspondent Dana Bash overstated the projected rate of return on private investment accounts, the centerpiece of Bush's Social Security plan, claiming that the stock market yields "an average 10 percent return," and understated the rate of return that the Social Security trust fund currently earns as "about one-tenth of that."
From the February 2 edition of Paula Zahn NOW:
BASH: The stock market does yield an average 10 percent return; the Social Security trust fund, about one-tenth of that. But ... what if the market tanks at the wrong time?
In fact, the chief Social Security actuary has estimated  the rate of return on equities at only 6.5 percent. And many other economists have argued  that even this estimate is overly optimistic and that Bush's proposal will increase retirees' exposure to risk without producing a better rate of return than the current system. Further, Princeton University economist and New York Times columnist Paul Krugman argued  on February 1 that White House projections being used to promote privatization are contradictory, as they rely on a low long-term economic growth rate occurring in conjunction with a high rate of return on equities -- a combination that Krugman calls "mathematically impossible." Krugman explained that if economic growth is robust enough for the stock market to yield the projected 6.5 percent rate of return, then Social Security in its current form would not experience a shortfall. It would take in enough revenue through payroll taxes to provide the promised benefits, thereby rendering changes to the system unnecessary.