White House Considering Lower Offset Rate for Privatized Accounts
Did the Social Security deformers read Robert Schiller’s paper? This story from CNN suggests they may have:
Hubbard told the Journal that 3 percent was chosen because that is what actuaries estimate will be the government’s cost of long-term borrowing, making the accounts “fiscally neutral.” “One could argue 2 percent is more appropriate. But that actually changes over time, it’s not fixed,” Hubbard said. “If there’s a consensus [that] it’s appropriate that it is a lower rate, obviously we’d be open-minded to that.” A former administration official told the paper that the White House has discussed an offset rate between 2 percent and 3 percent, with particular focus on a rate of 2.7 percent. Lowering the offset rate would improve worker’s chances of doing better with an individual account. But it may increase the costs of creating the accounts in the first place.
Update: Now I’m wondering if Alan Reynolds understood Robert Schiller’s paper. At one point, Alan talks about adjusting for risk but the thrust of his writing seems to focus on higher expected returns as if risk did not matter.