ABOUT THE ONLY GOOD THING NIXON AND KISSINGER DID...:

A working model (Richard W. Rahn, 5/15/08, Washington Times)

Thirty years ago, a young Jose Pinera, who had earned a Ph.D. at Harvard, was Chile's labor minister. He saw the coming disaster in the government old-age pension system.

Inspired by an idea from the late Nobel Prize winning economist, Milton Friedman, he developed a solution that empowers workers and gives them real financial security. Pinera-type social security systems have now been adopted by more than 30 countries and cover several hundred million people — for a very simple reason — it works!

Under the Pinera-type social security systems, workers are required to invest in highly diversified, qualified funds. Because they actually own their pension funds (like 401(k) funds in the United States), workers can choose their age of retirement, whether it is age 50 or 80. The longer they work, the more money they will have — but again each individual determines his or her own retirement age. (The very poor and those unable to work are still covered by a government system.)

Mr. Pinera is here in Berlin, selling his concept to German opinion leaders, as part of a multi-country "Free Market Road Show" sponsored by the European Center for Economic Growth and the Hayek Institute of Vienna, Austria.

The Chilean privatized system began in 1981, exactly 100 years after Bismarck instituted his system in Germany. It has been 29 years since the system went into effect in Chile so Mr. Pinera now can answer his critics, not only with theoretical arguments, but with hard data.

The results are remarkable. Chile's citizens have on average experienced a 10 percent per year, above inflation, compounded growth rate in their pension funds for the last 29 years. The result is most Chileans are no longer poor, but are, in fact, "small capitalists."

The Chilean government, increasingly freed from paying pensions out of tax funds (almost all Chileans have moved into the private accounts, though they could have stayed in the old government system), is now running a budget surplus of 10 percent of gross domestic product (GDP), which could pave the way for the abolition of the income tax.

The new Chilean system has provided so much investment capital that Chile moved from being a poor country to being a solid middle-income country with the highest per capita income in South America.

...was whack Allende.

Posted by Orrin Judd at May 17, 2008 6:43 AM