Trump Accounts and the No Economist Left Behind Test – OpEd
In this Op-Ed, economist Dean Baker critiques the unrealistic stock return assumptions used to justify the privatization of Social Security, drawing parallels between current proposals and George W. Bush’s earlier initiatives. Baker introduces the "No Economist Left Behind Test," challenging proponents to specify realistic dividend and capital gain figures that sum to the assumed 7 percent real return. He argues that given current high price-to-earnings (PE) ratios and modest profit growth projections, achieving such returns is mathematically implausible without assuming unsustainable PE expansions. With current PE ratios around 33, profits constitute only 3.3 percent of share prices, yielding significantly lower dividends than required. Consequently, stock prices would need to rise far faster than underlying profit growth, leading to absurdly high future PE ratios. Baker emphasizes that stock returns are tied to real economic fundamentals, not arbitrary assumptions, and urges serious scrutiny of financial projections in policy debates rather than accepting optimistic but baseless claims.