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Monday, August 01, 2005
Real ownership society
Something tells me that the Bush administration would not consider this a bad result:
A lower future economic growth rate (as a result of slower labor supply growth) is likely to reduce corporate earnings, unless capital’s share of income rises continually. This could reduce the rate of return on equities.
The quote is from an CRS report discussing the likely returns of individual investment accounts in Social Security. The report concludes that a number of factors indicate that future equity return rates will be lower than the historical returns.
The analysis here focuses on how our total national income is distributed. In 2004, about 71% of the total national income went to workers, 23% went to the cost of land and corporate profits, the remainder went to interest. In order for Bush's Social Security scheme to work, then, corporate profits, as compared to wages, must increase. This will benefit everyone invested in the stock market, which is good, but will disproportionately benefit the mega-rich, a/k/a Bush's base, who have already received the lion's share of tax cuts and who continue to see their personal wealth spiral out of all relationship to the nominal condition of the American worker.
On another note altogether, this is my favorite conclusion:
While deficit-financed IAs would not change overall rates of return, it could change relative rates of return. The issuance of large additions to the public debt in order to purchase equities could alter the relative demand for those two assets, raising the rate of return on U.S. Treasuries and lowering the rate of return on equities.
According to this report, then, borrowing the money to fund the individual accounts would drive down the rate of return for the individual equity accounts and drive up the rate of return on treasury notes -- the traditional investment for Social Security funds.
It's impossible to forecast all the effects of Bush's radical plan to end Social Security, but all the warning bells are chiming. I just hope enough of America is paying attention.
