J Cullen wrote:
>I know Doug Henwood reported in 1995 that the Social Security "collapse"
>was based on low-balled projections of economic growth during the next 75
>years -- an analysis that is still overlooked in nearly all reports on the
>Social Security "crisis". My question: If Social Security were privatized
>and everybody bought mutual funds, and the economy still grew at the anemic
>rate of 1.5 percent that the system's trustees assumed in order to
>manufacture the crisis, would the stock market grow enough to finance the
>private pensions?
The privatizers assume that stocks will continue to perform at historical
levels, which means a real 7-8% a year (based on a total return index,
dividends reinvested). Nominally that's about 12% a year, with a third from
dividends and two-thirds from price appreciation. Here are some projections
of P/Es on various scenarios. "Macro" divides the market value of domestic
corporations (from the flow of funds) by total corporate profits (from the
NIPAs). The second uses prices and earnings for the S&P 500. The first two
columns project these two P/Es based on real profit growth of 1.5%
(assuming a constant profit share of GDP) and stock price appreciation
based on 1945-97 averages. The next two columns show P/Es based on
extrapolating 1990s average stock price returns.
Hey, they hit 75 in Japan in the late 1980s; maybe the U.S. can hit 64 by
2045! Of course 5,665 seems a bit implausible.
1945-97 average at 1990s rates
---------------- ------------------
macro S&P macro S&P
1997 13.1 21.5 13.1 21.5
2005 16.2 25.7 36.0 46.3
2010 18.5 28.8 67.8 74.7
2015 21.1 32.3 127.6 120.7
2020 24.0 36.1 240.1 195.1
2025 27.4 40.4 451.8 315.1
2030 31.3 45.3 850.2 509.1
2035 35.7 50.7 1,599.9 822.4
2040 40.7 56.8 3,010.7 1,328.7
2045 46.4 63.6 5,665.4 2,146.5
growth rates 4.2% 3.8% 15.2% 11.7%
Doug
--
Doug Henwood
Left Business Observer
250 W 85 St
New York NY 10024-3217 USA
+1-212-874-4020 voice +1-212-874-3137 fax
email: <mailto:[EMAIL PROTECTED]>
web: <http://www.panix.com/~dhenwood/LBO_home.html>
