Privatizers' Catch-22

Paul Krugman strikes the core of the privatization paradox in today's NY Times editorial: it is the "privatizers' Catch-22."

They [privatizers] can rescue their happy vision for stock returns by claiming that the Social Security actuaries are vastly underestimating future economic growth. But in that case, we don't need to worry about Social Security's future: if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.

Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.

It really is that stark: any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.

This is really all anyone needs to know regarding the whole issue. It turns out we are comparing apples and oranges when we imagine the outstanding conditions necessary for privatization schemes to work--these are the apples--and the dismal conditions necessary for Social Security to fail--those are the oranges. The future can't be both apples and oranges at the same time; there's an Aristotelian principle of non-contradiction to be met here. It is simply not logically possible for the economy to be both an apple and a non-apple for next 75 years.