Friday, January 21, 2005
Yet again Paul Krugman attacks private accounts for Social Security with the claim that returns in stocks will be not high enough and "risky".
And yet again he willfully fails to mention how these not-high-enough returns compare to the negative returns that are assured for today's young workers from Social Security as it is -- as per the numbers from Social Security's actuaries presented here before.
But today he tops such rhetorical misdirection with this outright ... well, what shall we call this?
Krugman invokes the Kinsley argument that going forward returns on stocks will fall and those on bonds rise -- with the diminished spread between them defeating the entire purpose of private accounts.
[reformers] point out that stocks on average were a very good investment over the last several decades ... But high returns always get competed away, once people know about them: stocks are no longer cheap...And who does Krugman choose to invoke as an authority for his argument? Why, who could be more impressive than the academic world's most noted advocate of stocks as a long-term investment, Prof. Jeremy Siegel of Wharton...
That's why even Jeremy Siegel, whose "Stocks for the Long Run" is often cited by those who favor stocks over bonds, has conceded that "returns on stocks over bonds won't be as large as in the past."Yet wait a minute. With Krugman (not to mention the other NY Times op-eders) you can never trust a quote. Let's do a quick Google search.
But a very high return on stocks over bonds is essential in privatization schemes...
Yes, here's what Siegel actually said ...
"I agree that returns on stocks over bonds won't be as large as in the past. But I'm more optimistic than Rob. Looking over the next quarter-century, I see a 5%-to-6% return on stocks, adjusted for inflation. I'm pessimistic about real bond returns. I think they're likely to be in the 0%-to-1% range over the next five years, and closer to 3% after that..."My gosh! In support of his argument that the spread between bond and stock yields must close so that stocks cease to be a more attractive investment than bonds, Krugman quotes Jeremy Siegel arguing exactly the opposite in Forbes, making the case for stocks as a better long-term investment than bonds.
You know, at least Maureen Dowd puts in ellipses [...] where she cuts the words in a quote that reverse the meaning she attributes to it. Do you suppose Krugman might have put in a trailing ellipses for the part of the Siegel quote he cut...
Looking over the next quarter-century, I see a 5%-to-6% return on stocks, adjusted for inflation. I'm pessimistic about real bond returns. I think they're likely to be in the 0%-to-1% range over the next five years, and closer to 3% after that..."
And by the way, the fall to a "5%-to-6% return on stocks" that Siegel projects in that quote is a fall all the way down from 6.7%. Krugman doesn't give those numbers either.
Does "honest in argument" describe Paul Krugman?
As to Kinsley's argument, it was recapped with a couple observations here previously (and before that, in more detail). Does it impress you as much as it does Krugman? You can decide that for yourself as well.