January 20, 2005
ANOTHER REASON TO BE THANKFUL FOR GENERAL PINOCHET:
Chile offers preview of privatization: As President Bush prepares to push for partially privatizing Social Security, lessons can be learned from Chile, which dumped its government pension system in 1981. (KEVIN G. HALL, 1/20/05, Miami Herald)
When Chile scrapped its old system, it faced the same problem the United States has: It eventually would owe retirees more than it could reasonably expect to collect in taxes from active workers.Chile, then a right-wing dictatorship, essentially forced citizens to be savers. It stopped collecting payroll taxes -- similar to the 6.2 percent that's collected from U.S. workers and matched by their employers. Instead, Chile began taking a straight 10 percent from salaried workers' pay. The deduction goes into a retirement account that's managed by one of six private pension fund-management companies.
Over the program's first two decades, returns averaged a healthy 10.9 percent. That's lower than the 16.51 percent average return that Chileans might have earned if they had invested in Wall Street's S&P 500 stock index between 1980 and 2000, but it's well above the 4 percent return that the system's architect, then-Labor Minister Jose Pinera, anticipated.
The true success of the system won't be known until the late 2020s, when the first workers who have spent their entire careers in the privatized system begin retiring. They're all but certain to earn more than the 20 percent of annual earnings that retirees averaged under the old system and are widely expected to earn at least 40 percent, roughly the U.S. Social Security rate. Some studies suggest that some Chilean workers could retire with benefits at 70 percent of earnings.
Critics of the Chilean model note that it isn't universal as the U.S. system is, and workers must pay into personal accounts a full 20 years to receive benefits. Also, participation by Chile's self-employed and temporary workers isn't required, and less than 3 percent of them participate.
The hard part of all this for conservatives is going to be accepting that the system has to be mandatory, has to be universal even if it means we pay in for the poor and unemployed, and has to offer rather few choices. Posted by Orrin Judd at January 20, 2005 10:17 AM
OJ:
Alas, you're right. This is a reminder of the difference between theoretical and practical interests.
Theoretically, I would love to slowly wind down the system and let people prepare for their retirement as they see fit. I don't believe using the government to force people to save "for their own good" is morally justifiable.
As P.J. O'Rourke once said in another context, my view of Social Security reform should prevail sometime during the second Trump administration.
So practically, we have to take whatever is available. And Bush's plan sounds damn good to me (particularly since I'm 23 and don't expect to see any S.S. money if we keep this clunker in place).
It's painful, but there it is.
Posted by: Matt Murphy at January 20, 2005 2:13 PM"I don't believe using the government to force people to save "for their own good" is morally justifiable."
Well, it is marginally better than forcing people who do save to pay for those who don't, or won't, which is all the Left is willing to offer.
I look at the Bush proposals as a nice first step. Once in place, the Law of Unintended Consequences will kick in, and one of the possibilities is that people will demand more freedom once they get a taste of what can be done. Demanding and expecting a perfect system to be put into place immediately ignores how we got to where we are.
Posted by: Raoul Ortega at January 20, 2005 2:29 PMThat article states that the self-employed are not required to participate and less than 3% of them do, as if it were a flaw -- its a feature.
Wait till the commercials run using Bill Clinton talking about Social Security in Crisis, and needing to fix Social Security. Its going to be amusing and GWB will once again surprise all the doubters and het his way.
Posted by: AML at January 20, 2005 5:04 PMYou have to force everyone to have an account, because we'll take care of them when they're old and poor regardless.
Posted by: oj at January 20, 2005 5:39 PM