Found this little thing.






December 17, 1998

Chile's Social Security Lesson For The U.S.
by José Piñera

José Piñera is Chile's former secretary of labor and social security and is co-chairman of the Cato Institute's Project on Social Security Privatization.

America's Social Security system will go bust in 2010. As political leaders scramble to save it, they've overlooked an obvious free-market solution that works. They need only look at Chile.

Pay-as-you-go social security systems destroy the link between contributions and benefits, between effort and reward. Everyone tries to minimize what he puts into the system while trying to maximize through political pressure what he can get out of it. That's why pay-as-you-go plans are going bankrupt all over the world.

Chile faced that problem in the late '70s. As secretary of labor and social security, I could have postponed the crisis by playing at the edges, increasing payroll taxes a little and slashing benefits a little. But instead of making some cosmetic adjustments, I decided to undertake a structural reform that would solve the problem once and for all.

We decided to save the idea of a retirement plan by basing it on a completely different concept -- one that links benefits and contributions.

Chile allowed every worker to choose whether to stay in the state-run, pay-as-you-go social security system or to put the whole payroll tax into an individual retirement account. For the first time in history we have allowed the common worker to benefit from one of the most powerful forces on earth: compound interest.

Some 93% of Chilean workers chose the new system. They trust the private sector and prefer market risk to political risk. If you invest money in the market, it could go up or down. Over a 40-year period, though, a diversified portfolio will have very low risk and provide a positive rate of real return. But when the government runs the pension system, it can slash benefits at any time.

The Chilean system is run completely by private companies. We now have 15 mutual funds competing for workers' savings.


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The whole working population of Chile has a vested interest in sound economic policies and a pro-market, pro-private-enterprise environment.


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We guaranteed benefits for the elderly -- we told those people who had already retired that they had nothing to fear from this reform. We also told people entering the labor force for the first time that they had to go to the new system.

Today, all workers in Chile are capitalists, because their money is invested in the stock market. And they also understand that if government tomorrow were to create the conditions for inflation, they would be damaged because some of the money is also invested in bonds -- around 60%. So the whole working population of Chile has a vested interest in sound economic policies and a pro-market, pro-private-enterprise environment.

There have been enormous external benefits: the savings rate of Chile was 10% of gross national product traditionally. It has gone up to 27% of GNP. The payroll tax in Chile is zero. Of course we have an estate tax and an income tax, but not a payroll tax. With full employment and a 27% savings rate, the rate of growth of the Chilean economy has doubled.

That does not mean that we do not have any problems in Chile, but I believe that a society based on individual freedoms -- economic, social and political -- is a much more prosperous and lively society.

Could something like this be done in the U.S.? People have said it's utopian and that nobody in the establishment would support privatization, but I believe the situation is changing.

Recently, I was invited by Sen. Phil Gramm, R-Texas, to testify before the Senate Subcommittee on Securities. Basically, everyone agreed that a system like this is much more consistent with American values than a system created by a Prussian chancellor in the 19th century.

Of course, that does not mean that the reform will be done in the next month or the next year. I believe there's still a lot of education yet to go. But there's also a great opportunity here, and I think it's a very responsible thing to give your children and grandchildren.

Mind if I rip into it a bit? Thanks.


*counts on fingers* That's over 6 years old.

Not much question about where this guy stands on the subject.

Now there's no question at all after that flat out lie.

Chile faced A LOT of problems in the 70's, not the least of which was the fascist dictator Pinochet, and this guy was a high ranking member of that murderous regime.


In all that vague propaganda, nowhere does it say that the Chileans are doing any better than they would have under a government run centralized SS system. All it says is that they are privately invested. Big fucking deal. I've heard interviews with Chileans who say that they've watched savings go down the tubes in the past 15 years as well.

Yeah, George Bush is TELLING us all that too. I don't believe he's TELLING me the truth, and neither is Jose here.

This is key. Chile was a disaster in the 1970's. ANY policy by any Chilean government that did not actively discourage economic growth and savings by the people would have been an improvement. For a situation like they were in, this idea was a good fit. But the Untied States in 2005 is NOTHING like Chile in 1975 economically and Chile is a poor model to point to for our future. You want a good model? Look at the UK and their privatization scheme instituted under Thatcher in the 1980's. That is the closest model to the US today. I'll let you do your own research on how the Brits are feeling about that decision these days.

Owned? How so? This is why arguing with liberals about shit like this is absolutely pointless. This is the game you guys play. All come up with is, "Well, it would have happened anyway," and, "how can you prooooove it."

You guys believe in global warming when not one fucking global warming study has ever included the SUN! Yet, time and time again, when we bring up stuff like the progress in the middle east, or Chile's economy, you just pass it off with the above excuses.

See, the best part about Chile, is that Chile used to be the worst. The absolute worst country in South America. It was the epitome of bad, a third world nation that was brought to its knees because of socialism. Conservative economics brought it back up. Meanwhile all the nations surrounding it, in particular Brazil and Argentina were at the top of the heap due to conservative economic policy. Now, they have sunk into the rhealm of the third world because they embraced socialism. The same can be said for liberal economic policies in Europe. But no, it's just excuses excuses excuses, and we can't prove this, and this would have happened anyway and blah, blah, BLAH, blah, blah.

And I love the argument. The fact that this was written in 1998 proves it wrong. Nope, not true. The Cato Institute means that all the facts found within the report are wrong. Hey, newsflash, have you guys ever taken a look at the asanine shit you guys post? You guys will believe anything so long as it makes Bush and conservatism look bad in any way shape or form.

You're hopeless.

Anybody else think LittleWing is awesome?

I think it's awesome that he got 8 words into his commentary before bringing in the "L" word.

http://www.theskyiscrape.com/phpBB2/viewtopic.php?t=2169

I can never forget this LittleWing commentary.

Sometimes it seems like Littlewing and I Hail Randy Moss are one and the same.

I read that the people in charge of the trust for Social Security say S.S. will actually run out in 2042 or some such number as that. I'll check around for it and perhaps link it up here.

I believe that yesterday they released an updated year that Social Security would run out...2041. Moved it up by one year.

IT'S A CRISIS!!! WE HAVE TO ACT NOW!!

It's bad for me! It'll be gone by the time I should be retiring!!
--
Actually, I should state that hopefully it won't be a problem for me since I should have some sort of substantial savings by the time I retire.

At least with that statement, they are merely overinflating the degree of the crisis as opposed to Jose the Nazi who said we'd all be attacked by flying monkeys in 2010.

Ah, Jose the Nazi. He never ceases to amaze me with his flying monkey army hypotheses.

go right ahead. there is little i enjoy more than a lawyer's opinion on economics.



i hate this game. no need to address the substance of what the man says. no, ad hominem is the way to go. disregarding anything that he says because the Cato Institute signs his checks is blatantly anti-intellectual.

i make no bones about disliking your economic messiah Paul Krugman. but i don't disregard him because he's liberal, i disregard him because he has little clue as to what he is talking about. i put a great deal of effort into limiting my comments to only the substantive appeals of krugman, not his politics.



i don't know that it's an out-and-out lie, but i do agree that it is a serious misrepresentation as to the urgency of reform. it will only go "bust" in 2010 if "bust" means paying out more than is coming in.

i don't want to get bogged down in a debate about minutia. it has always amused me that those who oppose privatization don't disagree about the inevitability of the shortfall. they instead simply say it won't be a crisis until 2041 or 2052 or 2088, or whatever. again, you seem to be in agreement that this is not a problem of "if," but rather "when."

if you actually believe that waiting until it becomes a full blown crisis is the correct course, well, i guess i just disagree. i've never known a doctor to tell a patient who is 20 lbs. overweight to wait until they are 50 lbs. overweight before addressing the problem. or better yet, wait until you become morbidly obese and need your stomach stapled.

come on. the reason to do something now is because there is no crisis.



and the source of those problems? the state. too much of it to be precise. allende was not known for his laissez-faire attitude. not too many marxists are.



your rhetoric is tired. "propaganda" this, "liar" that. i don't think you've ever met a logical arguement you were unwilling to demagogue.

and i've heard interviews with chileans who say they've seen their savings balloon from privatization and compound interest. personal story anecdotes are useless for debate. it's futile, circular, and goes nowhere.



look, it's not my contention that privatization will suddenly make social security solvent. that was bush's problem - he sold private accounts as the way to ensure a solvent program. they won't because they're two different animals.

but such a program must and will become insolvent. as long as incomes rise (which is the implicit product of capitalism and productivity), the opportunity cost of children also rises. in other words, people must give up more and more income in order to have children. and as that pesky law of demand shows us, any time a good, service, activity, etc is made more expensive, you get less of it. as children become more expensive, there will be fewer of them. this is an economic reality. there is no politicizing here.

i oppose conscripted private market accounts nearly as much as i oppose conscripted social security taxes. the confiscation is still present - the only thing changed is its destination.

drop a bomb on social security. give me my money. and i want you to have your money. that is the only real and efficacious solution.

do you really have more faith in the government's ability to be a better steward of your money than you yourself? and this is not a rhetorical question. i am actually asking you, punkdavid, if you are more comfortable turning over a portion of every one of your paychecks to politicians than to your own good judgements?

That's not the first time I've seen someone tell us that it's not a valid argument to look at a conflict of interests. Is your argument that anyone can be trusted regardless of how much they may benefit if we take the advice that they provide? If the shareholders of Merck told us that, "we have found evidence that Vioxx is best medication for pain relief," should we say, well, some of them are doctors, I don't need to see documentation on that, let's burn the other medications.

If someone gives me advice that directly benefits them, I will distrust that advice. I'm sorry you don't find that a valid plan.

As promised:

http://www.businessweek.com/ap/financia ... _home_down

i'm not talking about a conflict of interest. i'm concerned with the immediate discounting of an arguement for no other reason than its source. concentrate on the message, not the messenger.

a perfect analogy is jose canseco. do you disregard his message because he is an advocate for moderate steriod use? do you disregard his message because he is an admitted steriod user? i don't know. it should probably be a factor. but it should not be the deciding factor in whether or not you accept his arguement. it should be the subtle thumb on the scale, as it were. you have to look at everything. an outright condemnation of his message just because jose canseco is who he is does a tremendous disservice to all parties involved as well as the issue as a whole.

what i'm saying is this: i don't take into account the messenger near as much as the message. if i disagree with jose canseco, lou dobbs (how does this blowhard get a TV show?), or paul krugman, it is not first and foremost because of who they are. it is because, upon deliberation, their message is less than meritorious. i have a problem with those who forsake deliberation for the convenience of relying on the reputation of pundit X or institution X that traditionally espouses ideals that might be most convenient or amenable to their arguement. in short, don't be H20 and take the path of least resistance. do some thinking for yourself.

a broken clock is correct twice a day. every once in a while, i find myself in agreement with dobbs or krugman or whoever. to have completely neglected their opinions would have reflected poorly upon me. my mind is not so closed as to completely discount the possibility that those i disagree with may be right from time to time.



some skepticism is good. but if this is your wholesale philosophy, you're going about things all wrong, in my opinion. it's okay to acknowledge the spuriousness, perceived or not, of a source. but don't let that and that alone limit the breadth of your inquiry.

i just wish this debate could be limited to logic, economics, and dispassionate analysis. i'm not holding my breath.

Little Wing you're my hero.

I've been waiting for you. Thanks for stopping by.





Not much difference between those two statements are there? But I'll make the truce we both want. I won't jump on your source just for who they are and you won't jump on mine. Let's get to the real issues.



I think that there are a lot of liberals who do that. People who say, "there won't be a crisis for another 40 years, why deal with it now?" They would be wrong of course, and you are right, the problem should be addressed now while there is NOT a crisis yet, just on the horizon.

The issue that those who are responsible on the left have a problem with (Krugman included) is that those on the privatization bandwagon are mischaracterizing the urgency of the crisis IN ORDER to build support for the proposal they are floating right now. I don't believe in that proposal, but its proponents act as if it is the only possible solution to the problem, when it is in fact not a solution to the problem at all. It is a parallel alternative that leaves the problem to fester and die just as much as those who propose doing nothing at all. That's why we on the left are alway crying foul when someone on the right claims that SS's collapse is imminent.



Allende was in power for what, a few months? Would his policies have made things worse? Perhaps. But the Chilean crisis was caused more by the exploitation of the country by imperialist capitalists in America and Europe than anything that Allende did in his short tenure.


Now that's not fair to me. I'm all for logical arguments, like ours, but the author of this piece spoke in broad terms about what he did in Chile with absolutely no specifics about the end results for the people. It was all political buzzwords, akin to "ownership society" and "invested in society" and bullshit like that. Anyone can get behind those concepts, the proof is in how those goals are accomplished, and my bullshit detectors just go haywire when rich industrialist tell me about how privatization is going to be good for the working man.


Agreed.



Yeah, I do, and I'll tell you why. You ask this in terms of me, PunkDavid, and whether I think I'm a better steward than the government for my money. For argument's sake, let's say that I think that I'm a better steward personally (and I'm not so sure that I am since I'm not the most fiscally responsible person around). I still think that there are a great many people who are not better stewards and will squander the money they are left to be responsible for. In addition to this, we live in a society where we are bombarded from all sides all the time by the forces of materialism. Even responsible people will inevitably spend some of the extra money that they should be saving or investing, and the irresponsible people will spend all of it, and on depreciatable goods as well. What you'll end up with is a large underclass who have zero social security (small s) rather than the meager Social Security they have now. We responsible folks will have to care for the underclass in their old age one way or another, or let them starve to death, a non-option in most people's estimation.

The government is big and monolithic and often inefficient, although they are not in the area of SS management. However there is one thing that the government is that the private sector will never be, and that is RESPONSIBLE TO THE PEOPLE. You may argue that they are non-responsive or slow to respond, but they are legally bound. The private sector is not, and when unbound by regulation, the moneyed will fuck the workers where the government may at worst spill soup on them.