Social Security the Chilian Way - Privatize IT

GHook93

Aristotle
Apr 22, 2007
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All the hoopla about Brazil being the leader of Latin America leaves out the fact that its a poor country, with a small middle class, high poverty and unemployment rates, with substantial debt and it is still very much a 3rd world country.

Chile by far is the most successful pound for pound country in Latin America. It is an emerging first world country. This country should be the model for America to follow when tackling our Social Security Crisis. And YES its a crisis. We are putting in 12% of our income and that money is drying up. The problem needs to be addressed before it sucks in the entire US economy. So what is the answer? Follow Chile, as 31 other countries have done. They have privatize the social security system and its created 10 fold greater returns and evaporated the Chilean debt crisis, which was similar to our crisis. Not to mention it created countless jobs.

Insanity is doing the same thing and expecting a different result. Keeping with the current social security system is the definition of insanity. Everyone sees the coming storm, but won't do anything to prevent it!


Chile's Private Social Security System Turns 30 - Investors.com
May 1 marks the 30 years since Chile became the first nation to privatize its social security system. By turning workers into investors, the move solved an entitlement crisis much like the one America faces today.

"I like symbols, so I chose May Day as the birth date of Chile's 'ownership society' that allowed every worker to become a small capitalist," wrote Jose Pinera, former secretary of labor and social security and the architect of this pension revolution. He is now a senior fellow at the Cato Institute in Washington, D.C.

What he designed has succeeded beyond all expectations

Instead of paying a 12.4% Social Security tax as we do here, Chilean workers must pay in 10% of their wages (they can send up to 20%) to one of several conservatively managed and regulated pension funds. From the accumulated savings, they get a life annuity or make programmed withdrawals (inheriting any funds left over).

Over the last three decades these accounts have averaged annual returns of 9.23% above inflation. By contrast, U.S. Social Security pays a 1% to 2% (theoretical) return, and even less for new workers.

Long-Term Boom

History shows that pension funds prudently invested in a diversified portfolio appreciate significantly over long periods of consistent saving. In 1981, the Dow industrials stood at 900; today, despite three market crashes, it's nearly 13,000.

In 2005, New York Times reporter John Tierney worked out his own Social Security contributions on the Chilean model and found that his privatized pension would have been $53,000 a year plus a one-time payout of $223,000. The same contributions paid into Social Security would have paid him $18,000.

The system is doable here, but does require citizen education and political resolve.

First, implicit debts must be made explicit, which most politicians abhor.

Chile decided to compensate workers for money already paid into the system, through "recognition bonds." It financed this via bonds, partial diversions of existing pension taxes, sales of state assets and spending cuts.

Its road was made even easier as economic growth from a system that encourages work, saving and responsibility filled government coffers with new streams of tax revenue.

Politicians for decades have raided excess workers' contributions intended to cover baby boomer retirees. They left IOUs, giving the program the right to other government revenue. But that means the Treasury has to issue even more debt.

Those political raids can't happen in Chile — private accounts are legal property, a right Pinera embedded firmly into the 1980 constitution.

As for Social Security, even the IOUs are projected to run out in 2037. If nothing is done, payouts will have to be slashed 22%.

Private accounts could generate better returns to help offset likely benefit cuts.

Thirty countries have adopted a Chilean-style system
 
I think I recall a former president talk about privatization.

I forget what the response from the left was.
 
I'm all for it. Chileans have retirement assets that belong to them which the government cannot spend on other crap.

And their overall tax burden is far less than the U.S.'s - hence their economy is performing much better.
 
brazil is doin pretty well in comparasion to other latin american countries tho

Their economy is growing no doubt, but the standard of living of most of their inhabitants is not. Don't forget they have the rain forests and their vast resources. They also have a ton of oil.
 

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