From Michael Hiltzik at the Los Angeles Times (emphasis added):
Promoters of privatizing the U.S. Social Security system have never tired of holding up Chile’s privatized program as an example of how this can make workers rich. The trick is that they never ask ordinary Chilean workers and retirees how they feel about it.
That may be because they know what the answer would be. It was visible last month in the streets of the capital, Santiago, where crowds estimated at 100,000 to 200,000 marched to demand reform. ...
The Chilean program was promoted relentlessly by its creator, Jose Pinera, who got himself a sinecure at the Cato Institute [a right wing think tank in the United States, not Chile] out of the deal. From there he fed American conservatives’ fantasies of “an obvious free market solution that works,” he wrote for a Cato audience in 1997. (In that same article he declared that “America’s Social Security system will go bust in 2010.” Umm, no.) He boasted of how he single-handedly “decided to undertake a structural reform [of Chile’s bankrupt retirement system] that would solve the problem once and for all.” ...
Pinera and his fans talked up the Chilean workers’ apparent gains during the system’s early years, when it seemed to be delivering double-digit returns and lavish pensions to its lucky beneficiaries. What the promoters never much emphasized was how the program actually had been made to work. As I explained in a 2005 book, everyone entering formal employment after 1981 was required to deposit 10% of earned wages into individual accounts managed by a handful of investment companies appointed by the Pinochet regime. Workers enrolled in the old system were goaded into abandoning it by cuts in existing benefits. Chile financed the transition by draining its large government surplus. An unprecedented bull market in Chilean stocks did the rest.
But the seams soon showed. The World Bank determined that fees charged by those favored investment firms consumed fully half the pension contributions of the average worker retiring in 2000. The government surplus disappeared, and those outsized stock market gains faded away.
12 comments:
What the privatization proponents don't get is the "Security" part of Social Security. Making it a defined government benefit is secure. Privatizing means more broke and homeless seniors with more money lining the pockets of rich investment bankers.
The US S&P index is up about 68% over the last 10 years, so any trust fund dollars invested in that way would have far outperformed US treasuries and the trust fund would be in better shape. Is there risk, sure, but we should not completely rule out the stock market when looking for solutions for this very complex and important problem.
The stock market is rigged in favor of those in the know, nothing more than legalized gambling. To trust any government program to the stock market would only line the pockets of Wall Street and their cronies.
Social Security is an insurance program, not a piggy-bank for Wall Street.
It has performed that well, but for long periods within that long history it has tanked. And if the gov't is as good about socking away (i.e., actually leaving cash on hand) big gains in the fat times as they have been with trust funds, a privatized system would run into a huge crisis with the first major stock market drop and we would have another "Congress needs to come up with a lot of money out of the general fund because we didn't save SSA money like idiots" situation, and guess how deeply Congress would dig to keep payments flowing as normal? Not hard--they would slash benefits or otherwise make SSA or beneficiaries pay for their failure to play the long game and stash when they're flush.
Those of you advocating privatization are grifters trying to sucker in the American public by appealing to their greed! When the Bush-43 administration was pushing for "privatization," a sobering event occurred--remember Enron and the bursting of the tech bubble? Suddenly, all those free-market conservatives realized what would have happened to their retirement if SSA had been "privatized."
It's my understanding that when you pay FICA, it all goes into benefits and not "overhead" or operating funds.
The "Trust fund" is now about 2.8 Trillion dollars. Typical brokerage fees for maintaining and managing accounts run 1-2% per year. My retirement investments are paying the brokerage firm 1.5% per year. 2 per cent of 2.8 trillion comes out to 56 BILLION per year in brokerage fees. That is why we're hearing so much about privatization!
Additionally, paying FICA to SSA gets eligibility for a disability program. Proponents of privatization forget to mention that program, which I'm sure would be slashed, if not eliminated under a privatized plan.
All you free marketers go ahead and privatize your funds, I'll choose the dependable SSA programs.
@10:45
The purpose of the social security trust funds is not to provide a good return on investment, but rather to provide financial assistance to individuals who are incapable of sufficiently providing for themselves either due to disability or natural aging.
"The World Bank determined that fees charged by those favored investment firms consumed fully half the pension contributions of the average worker retiring in 2000. The government surplus disappeared, and those outsized stock market gains faded away."
Wow! Think about how great this will be for the guys on Wall Street.
The difference between myself and my conservative friends is that I support the free market but they WORSHIP the free market. They just lack any ability to distinguish between areas where the market works well and where it does not. I was happy to see the federal government ending what is a really bad idea - private prisons.
One commenter noted that if the Trust Fund had been invested in the stock market instead of US Bonds, it would have done better over the last ten years. Maybe. I haven't checked the numbers for that segment but as others have noted, there have also been times it has done worse. Stocks are more of a risk than bonds, especially US bonds, and it is for that reason that pension funds, private or public, never invest more than a small percentage of their funds that way.
But that kind of privatization ignores the fact that it was Republicans, not Democrats, that opposed that investment choice for a small part of the Trust Fund when Clinton proposed doing just that. The idea was that the US Government investing many Billions or even Trillions in the Stock Market meant the US Government was buying up private assets. They called this Socialism. In this case, they were actually closer to correct than their usual claims of Socialism.
If you ever wonder whether a politician is deep in the pockets of the big banks and willing to sell out their constituents' best interests for a relatively paltry brib...[cough] I mean campaign contribution, ask them their position on privatization of Social Security.
7:29 AM Do you mean like the $145 million donated to the Clinton Foundation from Uranium One board members right before they sold the company to the Russian government? The sale was approved by the Obama administration soon after, meaning Russia controls 20 percent of the US uranium reserves! These are just some of many "donations" to the Clinton Foundation.
FOR WHAT the pols do like the Clinton's (I'm a lifelong democrat) have done, would it be for anyone else, they would be in jail just for the smell or appearance of the connections and contributions they've taken and then got approved by Obama. The Clinton's HAVE DONE MORE DAMAGE to the American people than even the tea party, which is my belief. It is no wonder that now ALL we have for both parties is reckless and ruthless.
Any politician who uses the American people's money for investment on the thieving Wall st. Ponzi schemers, ought to be in jail as should the Clinton's A LONG TIME AGO. Her coming from my hometown... she learned quick how to help rig the system for herself;(. How many mobsters lived in her suburb?
I'll be writing in MY vote for a person who actually has the record in helping people. So are many others. Let the games begin!
God help those of us who worked our fannies off and barely living on the meager SSA benefits the pols eked out for us, even though it is our money.
@10:50 and 1:56
The issue in this thread is privatization of Social Security. I think most people realize that the remaining presidential candidates have a lot of negative baggage in general. No need to get on a soapbox about that here.
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