The three economists also agreed there are "plenty of things for even the most optimistic economist" to fret about this year.

Nearly 150 alumni rebuffed frigid temperatures to attend the sold-out seminar forecasting the 2005 economic outlook. The event was hosted by the Georgia Tech Alumni Association at Atlanta's Captial City Club in Brookhaven and sponsored by Flag Financial Corp. and Morgan Keenan & Co.

Joseph W. Evans, IM 71, chairman and CEO of Flag Financial Corp., moderated the panel discussion featuring Ratajczak, consulting economist for Morgan Keegan & Co. and Regents' professor of economics emeritus at Georgia State University; Thursby, professor in the College of Management at Georgia Tech where she holds the Hal and John Smith chair in entrepreneurship; and Eisenbeis, senior vice president and director of research for the Federal Reserve Bank of Atlanta.

"We've had real economic growth over the last six quarters. We've averaged over 4 and a half percent," said Eisenbeis, adding that the "real side of the economy" is performing well and inflation has been "relatively benign."

Thursby said there are a number of questions about the economy "that we're not sure what the answers are." She drew a laugh from the audience when she said economists have studied signals influencing the economy and determined No. 1, it's bad. No. 2, it's good. No. 3, it's neither.

All three economists agreed there are uncertainties that could prevent a strong stock market performance in 2005, including inflation, bond yields, economic growth and profit margins. None were convinced inflation would be held to last year's rate of 3 percent.

"Most people assume that the economy this year will grow between 3 and 4 percent," Ratajczak said. "It's hard to find forecasts that are significantly higher than 4 percent or significantly lower than 3 percent in real economic growth. I'm in the upper range, but I'm in that range as well."

Observing that last fall profits grew faster than the "robust" growth in stock prices, he said earnings are about 5.3 cents per dollar of stock value. At current interest rates, Ratajczak believes stocks remain "sharply undervalued."

Ratajczak forecast a 10 percent increase in operating profits, which at current market prices puts earnings at 5.8 cents per dollar in stock value.

"If the 10-year yield remains below 5 percent, as I expect, then there is substantial room for stock prices to rise," Ratajczak said. "I project a 10 percent total return in stock investments for 2005."

Questions from the audience expressed areas of concern including trade deficits, job outsourcing, energy problems, fluctuating oil prices and a weak dollar.

Evans asked the panel what should be done concerning the woes of the Social Security system.

"We have a government-sponsored insurance program at the present time that is actuarially in deficit of $12 trillion. That's a fact," Ratajczak said.

"Can we solve the Social Security problem now?" he asked. "Yes."

But Ratajczak warned the longer the wait the larger the impact.

"The reality is that Social Security has a problem," he said. "Let's deal with it the way we require IBM, General Motors and GE to deal with their problems. Make it actuarially sound. Make it an insurance program and operate it as one. If that means extending the age, if that means raising taxes — I wrote a column that said, ‘Do to Social Security what you've done to Medicare.'"

Increasing the retirement age to 70 would come close to solving the Social Security deficit, he said. The $2 trillion surplus in Social Security "should not be invested and paid for by the interest of government debt but run in an actuarially sound basis."

"We ought to be able to do better than 100 percent investment in government bonds. That is not a fiducially responsible insurance program. Any program in a thriving economy that put 100 percent of its assets into government bonds — those people would be in jail," he said, prompting a laugh from the audience.

"Can we have choice?" Ratajczak asked. "Yes, we can. "In 1935, when the act was passed, we didn't have any choice. There wasn't any alternative tax-deferred program out there. We have tax-deferred programs today. We can allow people to have that choice."

©2005 Georgia Tech Alumni Association