Chile in 2005 = USA in 2055
From today's American Progress Report:
SOCIAL SECURITY – CHILEAN SYSTEM COMING UP SHORT
President Bush has said the U.S. needs to "take some lessons from Chile" – which initiated private accounts nearly 25 years ago – in its quest to modernize Social Security. But the lesson may be that privatization works less well than the traditional system. The New York Times reports, "Now that the first generation of workers to depend on the new system is beginning to retire, Chileans are finding that it is falling far short of what was originally advertised under the authoritarian government of Gen. Augusto Pinochet." The government has had to direct billions of dollars to a safety net for those whose contributions were too small and "[e]ven many middle-class workers who contributed regularly are finding that their private accounts – burdened with hidden fees that may have soaked up as much as a third of their original investment – are failing to deliver as much in benefits as they would have received if they had stayed in the old system."
It's bad enough that social policies of Pinochet's Chile are being held up for emulation here and now, but for me, this little piece begs a question I haven't yet seen addressed anywhere in the florescing coverage of the Social Security debate: what's going to happen when today's 20-year olds (you know, the ones Bush is always saying should know that the system's "bankrupt") retire in 40 or 50 years and find out that their savings aren't as great as they should have been?
Given that they'll (probably) still be Americans, they'll probably sue and petition the government for redress. This, in turn, seems likely to lead to a bailout by the government of the investment companies who will have had to pay damages for not returning enough on the private accounts, of the irate and borderline-impoverished citizens themselves, or both. It'll be like the 1980s S&L crisis, only far larger, since conceivably every American will be affected by the market's inability to return 10% on every privatized dollar.
SOCIAL SECURITY – CHILEAN SYSTEM COMING UP SHORT
President Bush has said the U.S. needs to "take some lessons from Chile" – which initiated private accounts nearly 25 years ago – in its quest to modernize Social Security. But the lesson may be that privatization works less well than the traditional system. The New York Times reports, "Now that the first generation of workers to depend on the new system is beginning to retire, Chileans are finding that it is falling far short of what was originally advertised under the authoritarian government of Gen. Augusto Pinochet." The government has had to direct billions of dollars to a safety net for those whose contributions were too small and "[e]ven many middle-class workers who contributed regularly are finding that their private accounts – burdened with hidden fees that may have soaked up as much as a third of their original investment – are failing to deliver as much in benefits as they would have received if they had stayed in the old system."
It's bad enough that social policies of Pinochet's Chile are being held up for emulation here and now, but for me, this little piece begs a question I haven't yet seen addressed anywhere in the florescing coverage of the Social Security debate: what's going to happen when today's 20-year olds (you know, the ones Bush is always saying should know that the system's "bankrupt") retire in 40 or 50 years and find out that their savings aren't as great as they should have been?
Given that they'll (probably) still be Americans, they'll probably sue and petition the government for redress. This, in turn, seems likely to lead to a bailout by the government of the investment companies who will have had to pay damages for not returning enough on the private accounts, of the irate and borderline-impoverished citizens themselves, or both. It'll be like the 1980s S&L crisis, only far larger, since conceivably every American will be affected by the market's inability to return 10% on every privatized dollar.
posted by Christopher Tassava at Thursday, January 27, 2005
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