The CEA asserts that social security privatisation no I mean private accounts no no I mean personal accounts will, on average benefit no one while, of course, creating un-necessary administrative costs and allowing foolish people to bear diversifiable risk.

Bush claims that those who choose them will benefit financially from personal accounts. Many intelligent people have asked where the money will come from. The Bush administration has almost admitted that there are two possibilities. First I might be obtained by taking money from those near retirement (with price not wage indexation). Second the financial gain might be illusory wealth in the form of more treasury bills. Many intelligent people have asked where else the financial gain could come from.

I have a conceivable answer but it is based on my assumption that the CEA is totally wrong. I am, as usual, cribbing from Brad Delong whose blog seems to be a bit down right now. He quotes the CEA as predicting that the return investors rwill require on equities will remain high while economic growth will slow down. He notes that this can only happen if profits increase enormously as a share of GNP (very very unlikely) or the price of equities collapses.

This is relevant to the question of wether financial gains can be paid for. The way this could happen is the following :1) Stock is underpriced because people are silly 2) if you force them to buy a little stock they will be a little mad but better off 3) if you force them to buy a lot of stock they will be really mad because that drives up the price and drives down the return but they will still be better off (because stock is a great buy now) 4) the increase in the price of stock/decline in the return on stock means that corporations can raise money for less (the divicend yield is their marginal cost of capital) 5) so they will invest more 6) so everyone will be richer in the future.

The idea is that the economy without forced stock purchases is grossly inefficient because people are clueless about the true value of equity. The point is that the only way that social security privatisation could improve efficiency is by reducing the return on equity towards the level rational investors would require. If, as the CEA claims, the return on equity won't change, there is no way the plan can increase efficiency so the gains to some would have to come at the expence of others.