Tuesday, March 08, 2005

email of the day


CBS Offers Misleading Pro-Privatization Predictions

March 8, 2005

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

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
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

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.

ACTION: Please tell CBS Evening News to use a more realistic range of
numbers when projecting the returns from Social Security privatization.

CBS Evening News
Phone: 212-975-3691

As always, please remember that your comments have more impact if you
maintain a polite tone. Please send a copy of your correspondence to


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